Please note that banks may have their own methods of calculating the amount that they are willing to lend you. This calculator by CPF Board is meant to illustrate one possible way of computing your home affordability.
This "maximum percentage of income to be spent on housing loan" is also known as the "debt servicing ratio".
While the CPF calculator's default debt servicing ratio is 35%, you may vary it by using figures between 20% to 40%.
Some banks may assume that this amount would be spent fully on repaying the housing loan. Other banks may take your other financial commitments into consideration (eg. car loans, credit card debts, existing housing loan payments, etc), and reduce this amount, which would in turn reduce the maximum loan they would be willing to offer to you.
This CPF calculation is based upon the gross monthly income figure. You should note that some financial planners may use the net monthly income figure (the take-home pay after deducting CPF contributions) when they calculate financial planning data for clients.
We suggest that your total monthly debt payments (including your home loan) should not be more than 35% of your gross monthly income. Thus, if you have other financial commitments amounting to 5% of gross monthly income, you should consider limiting your home loan repayment to 30% of gross monthly income.
Think carefully before getting a loan for the maximum amount! While monthly repayments are almost a certainty, can you be sure that your monthly income will continue uninterrupted over the long-term?