lady surprised with mortgage promotions

1% Home Loan Is Back

After all the talk about rising rates earlier in the year as people scurried to lock down fixed rates, one local bank just launched an aggressive floating rate package at below 1% – DBS home loan pegged to the new 3-month SORA (compounded).

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Take a look at the new DBS package which we deemed as refreshing – a depart from its typical FHR mortgage loan peg:

DBS 2 Years Float
Mortgage Peg
(0.19 as of 7 May)

Year 1
3M SORA + 0.80
Year 2
3M SORA + 0.80
Year 3 Onwards
3M SORA + 1.00
Lock-in Period
2 years
Min Loan
Completed private & hdb
Cash Rebate
(for refinancing only)
>=$500k: $2,000
>=$1m: $2,500
>=$1.5m: $2,800

As the authorities had announced the phasing out of SIBOR after 2024, banks will need to transition all existing SIBOR packages to SORA (compounded) within the next few years once the lock-in period expires.

This means eventually SORA will become the only market-based mortgage peg for the Singapore market where its movement is based on demand and supply forces in the interbank.  No doubt SORA seems slightly more volatile than SIBOR, its independent nature makes it a more transparent peg as no lender can unilaterally decide to raise it and by how much.  For those who are new to SORA, we did a writeup earlier to explain how does compounded SORA works.

With a 1% floating rate home loan now accessible for almost all loan sizes from $300,000 up, this brings prevailing market interest down to the lowest level unseen in years – both for fixed (from 1.10%) as well as floating rate.  DBS latest salvo shows its commitment to lead the mortgage market in transiting to SORA-based mortgages, the onus is now on the rest of the banks to follow suit in reducing their SORA spreads.

SORA will become the only market-based mortgage peg for the Singapore market

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man choosing between fixed or floating rate home loan

The conundrum at the moment is more that of choosing between fixed vs floating.  Time and again we see the panic and rush for fixed rates whenever interest rates itch up slightly, but history has shown that even after a year of economic recovery since the depth of the pandemic, we can still get hold of mortgage interest at 1%!  The upward trajectory is seldom linear until US Fed has sustained a series of hikes without roiling financial markets.  It’s most likely a case of two steps forward and three steps back.

First, the Fed would have to talk about tapering off on purchases of US$40b worth of mortgage-backed securities and US$80b of Treasuries every month.  Only then will it start to signal on possible rate hikes to cool an overheating economy.  The latest jobs report in the US seem to have vindicated the Fed on not raising rates any time soon, but the bonds market will continue to crank up the pressure.  This will be most important space to watch – will the Fed have the resolve to hold back on any first signs of inflation rising above 2% by the end of the year; and is this inflation like what they believe – to be transitory?  That’s the big debate going on right now.

Though the gap between fixed and floating are within 0.20%, we still maintain our view that the best time to switch to fixed is right at the start of the upswing cycle which typically lasts 3 years (2004-2006 & 2016-2018, see interest rate cycle).  We are certainly not anywhere near that point.  Till then, be prepared for a few more ups and downs and false starts.

Speak to our team of dedicated mortgage consultants if you are still unsure.

The best time to switch to fixed is right at the start of the upswing cycle which typically lasts 3 years (2004-2006 & 2016-2018)

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