DBS has just announced that with immediate effect they are re-defining their popular FHR (Fixed Deposit Home Rate) to that of the prevailing 18-month SGD fixed deposit rate (for deposits in the $1,000 to $9,999) instead of using the average of 12-month and 24-month fixed deposit rates. Henceforth the bank will now renamed the peg to FHR18. It also rolled out new DBS home loan packages on the new FHR18.

The current rate for FHR18 is a tad higher at 0.50% p.a. However the bank has carefully lowered the spreads o top of FHR18 to achieve an overall drop in the rate to 1.55% p.a. in the first 3 years of the loan.

DBS NEW FHR18 PACKAGE (WITH 2-YEAR LOCK)

(With Mortgage Insurance)

Year 1 to 3      : FHR18 (0.50) + 1.05 = 1.55% p.a.

Year 4 on         : FHR18 (0.50) + 1.80 = 2.30% p.a.

(Without Mortgage Insurance)

Year 1 to 3      : FHR18 (0.50) + 1.15 = 1.65% p.a.

Year 4 on         : FHR18 (0.50) + 1.80 = 2.30% p.a.

• 2-year lock-in
• Cash rebate for refinancing:
  > $700,000 – $1500
  >$1M – $2000

Compared to the previous FHR package the new rates are slightly lower in the first 3 years of the loan as the bank lowers the spread to compensate for the higher 18-month fixed deposit rate. However by keeping the spread unchanged for the thereafter rates from year 4 onwards, homeowners will now pay a slightly higher rate in the subsequent years.

Recognizing this problem, DBS also offered another package on FHR18 that comes with no lock-in on a constant “higher” spread throughout the entire tenure of the loan.

DBS NEW FHR18 PACKAGE (WITH NO LOCK)

(With Mortgage Insurance)

Year 1 to end   : FHR18 (0.50) + 1.25 = 1.75% p.a.

(Without Mortgage Insurance)

Year 1 to end   : FHR18 (0.50) + 1.35 = 1.85% p.a.

This would cater to those looking for more stability in the longer run without the need to refinance home loan again after 3 years whereas those who are prepared to do so will obviously go for the lower spreads in the first 3 years of the loan. The choice is given to the homeowners.

With a difference of only 20 basis points between 1.55 and 1.75 in the first 3 years of the loan but with such a wide margin for thereafter rates from year 4 onwards, the scale is tipped in the favour of the package with constant spread. Plus it comes with the benefit of a no lock-in. Still there might be those who prefer to have the lowest spread possible and will not hesitate to refinance out the moment this low spread ends. After all the Singapore market has been accustomed to refinancing every two to three years and there will always be another bank hungry for more business.

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