Is there a 30% haircut on a bank loan?

In Singapore, when applying for a bank loan for a property, the concept of a "haircut" is indeed applied, particularly to variable or non-fixed income components.

For self-employed individuals, freelancers, or those with variable income, banks often apply a haircut to smooth out the irregularities in income. This can range from a 30% to a 50% haircut on the monthly income. For example, if you earn $7,000 per month as a freelancer, the bank might consider only 70% of this amount ($4,900) for the loan assessment, after applying a 30% haircut.

This haircut is part of the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) calculations, which ensure that borrowers do not over-leverage themselves. The TDSR, capped at 55% of gross monthly income, includes all debt obligations, while the MSR, applicable for HDB flats and Executive Condominiums, is capped at 30% of gross monthly income.

This approach helps banks to assess the borrower's ability to service the loan more accurately, considering the variability in income.