Homeowners in Singapore would be familiar with the concept that home loan rates are pegged to two categories, fixed or floating. Last year, DBS announced a loan package that sat somewhere in the middle, by pegging their rates to Fixed Deposit rates. Recently, OCBC announced a similar product, the Fixed Deposit Mortgage Rate package.
What this means is that in the name of consumer choice and confusion, we now have another sub-category of home loans. And, there’s no surprise there if more banks begin to offer similar products in the next years.
What is a Fixed Deposit Mortgage Rate?
The OCBC FDMR, aside from being a very long abbreviation, is a mortgage rate that is pegged to the Fixed Deposit interest rate that the bank offers. While SIBOR rates are fully transparent and are not internally determined by a bank, and board rates can be adjusted solely at the discretion of a bank, fixed deposit mortgage rates lie somewhere in the middle.
Fixed Deposit rates are transparent and published, just like SIBOR rates are. And, although banks retain the rights to move their fixed deposit interest rates, this would incur a higher cost of funds for them, and hence it is unlikely that banks will raise their rates easily.
Whether it’s a fixed deposit mortgage rate from OCBC or DBS, you will be paying an interest rate of Fixed Deposit Rate (18-month or 36-month) + Fixed Spread.
Here are the current differences between DBS and OCBC’s rates:
DBS Fixed Home Rate
- Uses the18-month S$ Fixed Deposit rate (FHR18)- Currently 0.5%
- Fixed spread of 1.05% for first 3 years
- The highest FHR18 was 1.8% in Jan 2008. The lowest was 0.1% in Oct 2011.
- Year 1: 1.55% (FHR18 +1.05%)
Year 2: 1.55% (FHR18 +1.05%)
Year 3: 1.55% (FHR18 +1.05%)
Year 4: 2.30% (FHR18 +1.8%)
Thereafter: 2.30% (FHR18 +1.8%)
OCBC Fixed Deposit Mortgage Rate
- Uses the 36-month S$ Fixed Deposit rate (FDMR) – Currently 0.65%
- Fixed spread of 1.03% for first 3 years
- Highest was 0.925% from 8 Nov 2005 to 8 Mar 2009. It has been prevailing at 0.65% since 1 Nov 2011.
- Year 1: 1.68% (FDMR +1.03%)
Year 2: 1.68% (FDMR +1.03%)
Year 3: 1.68% (FDMR +1.03%)
Year 4: 2.15% (FDMR +1.5%)
Thereafter: 2.15% (FDMR +1.5%)
How does this compare with SIBOR?
Rising SIBOR rates are, really, not news anymore. Most recently, SIBOR rates have just increased from 1.078% to 1.120% as financial markets anticipate the US to raise its interest rates.
In addition, according to OCBC’s forecasts, the SIBOR, which had been blissfully low at about 0.4% for the past few years, may likely surpass the 2% mark by end of 2016.
SIBOR rates tend to respond more quickly to rate hikes than Fixed Deposit Rates, and so with the expectation of the US economy’s recovery, we can expect Fixed Deposit Rates to be the safer and less volatile option.
Your home loan probably takes up the biggest chunk of the expenditure pie, so having it pegged to a more stable rate could be incredibly helpful for you when it comes to managing your budget.
Let’s take a look at an example that compares the OCBC FDMR with its own SIBOR dependent loan.
Assuming that you have a S$500,000 loan to repay in 30 years, your monthly repayment for the first three years would be:
What’s OCBC sweetening its deal with?
OCBC is offering a free one-time repricing option to another loan package should the FDMR increase. The ability to negotiate for another home loan without having to pay penalties can be a very helpful deal for those who want to retain some flexibility in deciding the best way to make home loan repayments.
Also, the bank allows you to make partial payment of your loan, up to 50% of the original sum, within the first three years. If you are nearing the final lap in the race towards full ownership of your home, or somehow foresee yourself amassing a fortune in the near future, this option is indeed appealing.
Home loans are likely to be the biggest loans you’d ever take in your life, and so it’s certainly worth keeping yourself updated with current market conditions and new loan packages. And when in doubt, speak to our mortgage consultant to get clear and professional advice. Our experienced consultants will help you navigate the TDSR framework and banks guidelines to match the lowest loan to your requirements.
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