Maybank mortgage rates

Maybank Brings Back FDMR

The latest bank to announce an increase to FDR (fixed deposit rate) home loan peg is Maybank – raising its FDMR36 from 1.80% to 2.05% and to take effect on 17 April.

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BankMortgage PegOld RateNew RateIncrease ByEffective Date
MAYBANKFDMR361.802.050.2517 Apr

The last hike by Maybank was almost one year ago back in Jun 2018.  With 3-month SIBOR increasing from 1.52% since then to the current 1.94% (as at 27 Mar), and coming after two further hikes from US Fed in Sep and Dec 2018, the calibrated 0.25% seems all the more palatable.  In fact, we believe most who signed onto Maybank’s floating rate package two years ago will find their new revised rates to hover at 2.2-2.3%, more or less on par with prevailing FDR floating rates and probably a tad below those whose mortgages are with local banks after the recent round of increases as reported in this blog.

In an interesting move, Maybank Singapore has also re-introduced FDMR36 as a mortgage loan peg – its only tranche of FDR home loans pegged to its published fixed deposit rate of 36-month tenure.  With immediate effect this applies to all its home loan packages previously pegged to its internal BOARD rate. Notwithstanding all the recent increases to FDR home loan pegs, we still see this as a positive development as we are a strong advocate of transparency.  FDR mortgage loan peg, even though it is set by the bank who can decide to increase it anytime, is still a much more transparent loan peg than BOARD which is impossible to be tracked by third parties.

The bank can increase FDR to expand its interest income, but excessive adjustments without fully justifying such increases can have backlash leading to massive exodus of existing customer base to other banks, which can only nullify the original objective of such a move.  As fixed deposit rates are published on the bank’s website, any frivolous hikes will be picked up by industry players and even the press and widely reported.  For an overview of all the increases to FDR pegs across all banks in 2018, read our very detailed tracking here.

Compare All Latest Rates 2018

Lately we have also observed UOB removing all its BOARD packages since the start of this month.  Will the bank also bring back its FDR home loan pegs which it called FDPR (fixed deposit property rate)?  It will be interesting to watch this.

We are not privy to the funding and cost structures of various lenders in Singapore.  But what we do know is this – foreign banks depend more on fixed deposits than local banks as a longer-term source of funding for their operations. Local banks would have much greater access to retail deposits in the form of CASA (current account and savings account) accounts than foreign banks, especially DBS with its POSB franchise. To this end, it means any increases in FDR home loan pegs would hit the foreign banks’ cost of funds more than that of the local banks.

With this latest development, there are now four banks in the market offering FDR home loans – DBS (FHR8), StanChart (36FDR), HSBC (TDMR24) and Maybank (FDMR36).  How the various lenders manage the movement of FDR mortgage pegs in relation to SIBOR, both in its ascent and descent across interest rate cycles, will be key in deciding if it’s worth keeping the faith with FDR.

Work with one of the leading mortgage consultancy firm in Singapore in operations since 2014.  Not only do we track closely FDR peg movements and all news on interest rate, we make sure we deliver real value to clients who choose to take their home loan through us be it refinancing (receive a $150 Refinancing Valuation Fee Offset) or a new purchase home loan (enjoy a special rate of $1,800 Purchase Legal Fee which includes stamp duty & gst), subject to min loan of $500,000.  Other terms and conditions apply. Speak to our consultants today.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

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US Fed

US Fed Reverses Its Stance

The latest move by US Federal Reserve has largely vindicated our recommendation since the start of 2019 that it’s about time to go back to SIBOR-pegged home loans.

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In a dramatic reversal of its policy to continue to tighten rates in its last FOMC in December, the Fed walks back on its forecasted two hikes to now none for 2019, and only one hike expected in 2020!  I call it a marked reversal in monetary policy from a year ago, when the Fed had initially forecasted four hikes in 2018 (which it did), and three hikes for each of 2019 and 2020.  And coming on the back of four consecutive hikes in 2018, to drop off all of a sudden to just one hike in the next two years is nothing short of spectacular.

 

Even we ourselves were caught by surprise the overly-dovish tone of the Fed in its latest March FOMC statement.  We have expected the pace of rate hikes to slow going forward as it is inconceivable that the Fed could continue to hike 9 times over the next three years as it did before, when inflation continues to stay muted.  In fact, with Fed funds rate at just below 2.50%, we have previously argued that we could be near the long-run neutral rate – which also means we could be near the end of the rate hike cycle.  For this reason, we believe it is worth taking a bet on floating rate home loans now by switching back to SIBOR pegs, instead of paying for sky-high fixed rates.  And that has been our recommendation since the start of this year.

 

We will explain shortly why SIBOR when the cycle is near its end.  But first let us summarize the highlights of Fed’s March FOMC statements:

 

  • Fed has recognized some slowdown in US economy by adjusting GDP forecast downwards from 2.3% to 2.1% for 2019, and similarly from 2% to 1.9% for next year. It remarked “economic activity has slowed from its solid rate in the fourth quarter”.
  • It also revised up unemployment rate to end 2019 at 3.5% up from 3.7%, which may not be a bad thing as a tight labour market will continue to support wage growth which has registered a nine-year high of 3.4% in February.
  • Still the mystery on why solid wage gains does not translate into higher inflation lingers on. Fed’s preferred inflation measure is now expected to hit only 1.8% by end of 2019, from its earlier projection of 1.9%.

 

Compare All Latest Rates 2018

 

In another surprising announcement on its balance sheet action, the Fed said it will now cease by September this year what was once touted as an “auto-pilot” asset sale programme, which has the effect of raising long term rates gradually over time.  This is the unwinding process for its huge balance sheet of US$4.5t acquired during the three rounds of QE (quantitative easing) in the last financial crisis.  With the announcement, Fed would now stop short of its targeted reduction of assets to US$3.5t, instead of the original US$3t.  In an earlier article, we mentioned this “twin effect” of monetary tightening from both raising short-term rates through Fed funds rate, and long-term rates through asset sale.  Come September, both effects would come to an end

 

Overall, the Fed has signalled that the “US economy is in a good place” in a bid to strike a balanced tone in its outlook.  We believe Fed seems to have achieved the long run neutral rate (neither accommodating nor restricting growth) at near 2.50% for the next two years, but there is still a chance of another hike towards end of the year depending on the outcome of the trade talks between US and China and if the global economy manages to get back on the growth path from the current slowdown.

 

With that said, we are likely to revise our own forecast (we review only mid-year after June’s FOMC) down from the current two hikes to one for 2019 but it means SIBOR is unlikely to move up much in the year.  And we will not be surprised it may even dip somewhat in the short term.  I have read some analyst projecting 3-month SIBOR to hit 2.30% by end of third quarter.  Analysts tend to be overly-cautious in their forecast in the past years when rates were hovering below 2% and now that rates are above that, they tend to go too aggressive.  With just one hike now, we are likely to see 3-month SIBOR hitting a high of only 2.10% by end of the year, if at all.  1-month SIBOR will be even lower.

Compare All Latest Rates 2018

 

With long term rates now coming down in the US and the yield curve close to inverting, there is revived talk of a recession just round-the-corner as an inverted yield curve has predicted many of the recessions in the US.  There may be some truth in that as typically the Fed would pause on its rate hikes when there are signs of imminent slowdown in economic activity and it will not be surprising that a slow down materialize like typically a year after such pause.  No one can foretell a recession with 100% accuracy but we are certainly at at a higher risk of that now than before, with a bull run that has stretched over 10 years since 2009.

 

Should the cycle really reverse and the Fed has to cut rates to support a slowing economy, here in Singapore SIBOR would be the first to come down as opposed to other mortgage pegs like BOARD or FDR.  Many bankers talked about SIBOR being volatile and not the best peg for home loans but it is precisely because it responds immediately to liquidity situation in interbank that makes it volatile.  We say when rates go on a downtrend, the volatility works to the advantage of a homeowner who would see his monthly repayment adjusted down immediately, especially for those on a 1-month SIBOR.

 

If you are keen to take advantage of the current price war on SIBOR home loans where some banks are slashing their spreads down to unprecedented levels never seen before in Singapore (as far as I can remember), do contact our team here at MortgageWise.  Not only can we help you choose the right SIBOR package for your home loan, you will also receive a $150 Refinancing Valuation Fee Offset, or a special rate of $1,800 Purchase Legal Fee (includes stamp duty & gst) when you choose to take the loan through us, both subject to min loan of $500,000.  Terms and conditions apply. Speak to our consultants today.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

 

Compare All Latest Rates 2018

 

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StanChart Ups FDR Mortgage Rates

Now that local banks are mostly done with rate increases in the past months, foreign banks are expected to follow suit starting with SCB (Standard Chartered Bank) raising its FDR mortgage rates by 0.25% today.

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Here’s a closer look at the increases on FDR tranches from SCB home loans:

 

BankMortgage PegOld RateNew RateIncrease ByEffective Date
SCB9FDR0.650.900.258 Mar
36FDR0.971.220.258 Mar
48FDR1.101.350.258 Mar

In retrospect, the increases seem fairly reasonable given how the local banks have moved by a larger margin and this is normally what one would expect of a typical rate hike just like in the case of US Fed’s hikes of a quarter percentage point.

It is unlikely to be the last rate hike for the year as we do expect the last few remaining foreign banks who offered FDR home loans (at one point in the past) to move up on their deposit rates.  Some of these foreign banks, just like UOB and OCBC, have now stopped offering the pegging of home loan rates to fixed deposit rates and instead switched back to pegging to internal BOARD rates.

At MortgageWise, besides SIBOR rates which we monitor weekly, we can only track any increases to FDR (fixed deposit rate home loans as a category) rates which are published officially on the various banks’ websites.  BOARD rates are difficult to track as they are internal to the banks and there could be more than a single BOARD rate for different tranches of loans signed at different periods – it would be near impossible to track these as a third party.

Due to the spate of increases in FDR mortgage rates of late, we are seeing some people switching back to SIBOR-based home loans which are ranked above the FDR home loans in our ranking charts, in terms of the lowest average interest in the first three years.  This happens as a number of lenders now cut the spreads for SIBOR loans down to unprecendented lows of 0.25-0.35%.  This is like one-third of the typical spreads one would usually expect at 0.50-0.70% in the past.  Why the spreads can go so low is baffling to us and we think the margins are so thin that the banks are not making much money unless they can continue to acquire cheap source of sing dollar funding from retail deposits.  Until it ends, homeowners who like to switch back to SIBOR loans should capitalize on this window of opportunity when banks are slashing spreads to win market share.  It may not last that long as lenders realize price war benefits no one in the long run, except for those few quick-thinking homeowners who locked in the super-low spreads at the moment. Speak to our consultants to find out which SIBOR loan makes the most sense.

Compare All Latest Rates 2018

 

As SIBOR has somewhat stabilized at the current levels of 1.82 for 1-month and 1.94 for 3-month (as at 25 Feb), the bigger question though is the pace of interest rate increases in the 2ndhalf of the year and if one should instead lock in fixed rates at 2.50% today.  No one has the crystal ball to unveil interest rates come 2020-2021.  We can only make calculated guess based on our views of US Fed actions (the single most important driver for SIBOR historically, see correlation chart). Speak to our consultants who can share with you more on our forecast and what else you need to look at when choosing between fixed or floating rate home loans.

Lastly remember to check back at this blog as we continue to report on all rate movements by lenders in Singapore when it comes to FDR home loans.  Work with the team at MortgageWise who not only tracks news and events affecting mortgage rates since 2014, but who calls you early to review your home loan rate. That way you always get to pre-empt any rate increments and lock down the lowest spreads or fixed rates should the uptrend continues.  Not to mention you also receive a $150 Refinancing Valuation Fee Offset, or a special rate of $1,800 Purchase Legal Fee (includes stamp duty & gst) when you choose to take the loan through us, both subject to min loan of $500,000. Terms and conditions apply. Speak to our consultants today.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

 

Compare All Latest Rates 2018

 

 

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DBS bank singapore

DBS Hikes FHR Home Loan Rates

DBS home loan rates are set to rise again.  The bank has just announced on its website increases on fixed deposit rates thereby raising FHR (fixed deposit home rate) for its mortgage customers.

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DBS FHR Home Loan Rates

Source: DBS website

Here’s a closer look at the increase on FHR tranches for DBS home loans:

BankMortgage PegOld RateNew RateIncrease ByEffective Date
DBSFHR80.6750.950.2754 Mar
FHR90.951.350.404 Mar
FHR181.101.400.304 Mar
FHR(Ave12/24)1.0751.400.3254 Mar

The move comes as no surprise for us as we see this really as a follow-up of a 2-step rate hike by the bank who last moved by about 0.15% on 13 Dec 2018.  We have anticipated another increase from DBS after both its peers OCBC and UOB moved by a much bigger margin of average 0.60% in recent months.  The good news for DBS home loan customers is that, even with the latest move the total average increase on their mortgage rates is the least amongst all three local banks at 0.15%+0.30% or 0.45%.

We think this wraps up this current round of rate increases from local banks which started in December following the last rate hike from US Federal Reserve.  There may still be one or two more hikes from foreign banks but we do not expect further increases from local banks for at least the next six months.  Beyond that it really depends on Fed actions in 2H 2019 and we are forecasting two hikes.

Compare All Latest Rates 2018

Still that does not mean that SIBOR is going over the roof in the next few years.  We sense some panic out there where homeowners may scramble to lock down fixed rates at 2.50% or higher.  Although no one knows for sure which is a better move – fixed or floating, certainly the risk of holding on to the ball (high fixed rate) when the music stops is much higher now, when compared to those who locked down fixed rates at 2% and below earlier.  We need to keep a cool head and put things in perspective.  Would US Fed continue to hike at the same pace of 9 hikes over 3 years (since Dec 2015) to bring the fed funds rate from the current 2.50% to near 5%? And doing that without crashing first the stock market and to trigger a recession?

Speak to our consultants who can share with you more our views on fixed versus floating rate, and how to better rein in on interest costs.  If you prefer the peace of mind that comes with a higher fixed rate home loan, we may have a better idea for you as well.

To help manage interest costs, here are 3 good ideas we share with you:

1. Consider Interest Offset Account

We have explained what is an interest offset account in one recent article.  Read here.

Now with rising interest rates, this loan feature takes on greater significance.   Most of us would just leave all our liquid funds scattered over in many places – multiple savings accounts with different banks, stock trading accounts, etc., when what we really should be doing is to consolidate all our funds in one place to “prepay” the mortgage without really prepaying it.  This means you service a smaller loan while your funds are waiting to be utilized or simply parked for rainy days.  The more so when mortgage rates are now going above 2% p.a.  For example, interest offset accounts that pay up to 70% of the deposits you put in is like giving you an interest of 70% of the current mortgage rate at 2.1%, ie. above 1.47% p.a.  This may not be higher than fixed deposit rates in the market but it certainly beats interest from all the other savings accounts out there.  And you have full access to your funds whenever you need it, unlike parking in a fixed deposit.  You put your idle funds to better use this way.

We certainly hope more banks would roll out similar interest offset accounts going forward.

Compare All Latest Rates 2018

2. Stay Open To Creative Mortgage Solutions

Here at MortgageWise, we have helped clients unlock new ways of looking at mortgages, going beyond just the traditional fixed or floating rates.  We need to stay open to new ways of reducing mortgage interest costs and how we could structure the loan for maximum benefit.  And we can prove to you it works.  Just to exemplify what we mean, here’s one of the easiest ways that many are not aware – a combo loan can help to bring the average interest rate down, while retaining the benefits of a fixed rate home loan and that of a lower floating rate, at the same time.

Speak to us to find out more.

3. Work With A Mortgage Consultant

Still think that going direct to the banks works better and cheaper because the bank needs to pay us brokers a fee?  While that may be true at times when you work with brokers who do not reveal to you “direct-to-bank” packages, like some of DBS home loans marketed online.  We do. We tell you everything and ask clients to go ahead and check directly with the banks if they like.  Because we want to work long term with all our clients and we seek to earn their trust.

Not only do we call you earlier to refinance so you do not need to pay higher interest for any extra day, you enjoy special privileges just by taking the same home loan package through us – for refinancing we give a $150 Valuation Fee Offset, and for purchase enjoy a special rate of $1,800 Legal Fee (includes stamp duty & gst), with both subject to min loan of $500,000. Speak to our consultants today to find out more.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

Compare All Latest Rates 2018

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UOB OCBC DBS Mortgage

Local Banks’ Score Card 2018

As the three local banks have just reported their financial results for last quarter of 2018, let us take a look at the full year performance in 2018 for mortgages.

Compare All Latest Rates 2018

 

DBS UOB OCBC Mortgage Book 2018

 

At the results briefing, it was reported DBS still enjoys a commanding share of 31% of the mortgage market in Singapore.  From MAS statistics on its website, we know the total mortgage market in Singapore as at end 2018 was at $207.5b based on total loans disbursed (exclude the insignificant bridging loans).  This means (we can only estimate) that DBS share of outstanding loans is at $64.3b which is 86% of its total mortgage loan book across all countries.

 

In the absensce of breakdowns on mortgages in Singapore vs other countries, we can only draw conclusions in this article based on the entire mortgage books for all three banks (across all countries) and assumed that over 80% of their mortgage portfolio comes from loans in Singapore, like what we have seen in the case of DBS above.

 

Overall, UOB exhibits the best performance in terms of loan books growth in 2018 whereas DBS grew the most in terms of NIM (net interest margin).  The latter is hardly surprising as DBS has access to the largest pool of cheap Sing dollar funds in its millions of POSB CASA (current account savings account) accounts base that is out of reach of the other two banks. With 3-month SIBOR rising significantly in the year from 1.12% at end-January to end the year at a high of 1.89% in December, DBS sees exploding interest income from being the net lender (to other banks) in the interbank market.  A look at its Sing dollar funds composite will reveal that CASA accounts contribute the lion’s share of 89% ($141.6b out of total $158.8b) of its source of funds.  On the other hand, fixed deposits of mere $17b contributes only 11%.  Remember the ubiquitous FHR (fixed deposit home rate) which is defined on smaller deposits of below $10,000 will account for even lesser of this $17b fixed deposit base.  We assume this could be less than 20% (pareto’s rule), ie. $3.4b.  This is why we have been saying any increases to FHR will hardly make a dent on the bank’s cost of funding.

 

On the contrary, fixed deposits form about half the source of funds for the other two local banks OCBC and UOB so the any increment to deposit rates would hit the bank’s bottom line a lot harder.  That is also why both lenders have since discontinued pegging their home loans to FDRs (fixed deposit rate) but reverts back to offering home loans tied to BOARD rates since middle of 2018.

 

Compare All Latest Rates 2018

 

 

In terms of loans book, OCBC registered almost flat growth ending the year with the same $64b portfolio it started with.  UOB grew its loans book the most at $68b, closing the gap on market leader DBS’s $75b slightly (gap of $7b down from previous year’s gap of $8b).

 

Interestingly this year, with sentiments on the ground shifting back towards SIBOR packages from what we have seen so far, lenders who do not offer competitive SIBOR packages might see further challenges in growing their portfolio.  Foreign banks who have been nipping away market share from local banks of late with very aggressive pricing stand to make further inroads.  Still we do not expect local banks to sit still and do nothing and the battle for market share will likely intensify from second quarter of the year onwards.

 

Homeowners who keep their ears to the ground will stand to benefit from this brewing mortgage war, and there’s no better way to do that than engage the service of a professional mortgage broker who can supply the latest promotional rates for refinancing, plus additional perks.  At MortgageWise.sg, we offer the best comparison via our Rates Report that shows “whole of market” packages, and we bring you exciting cost savings like a $150 Valuation Fee Offset for refinancing and a $1,800 Legal Fee (inclusive of stamp duty & gst) for purchase, both subject to a minimum loan of $500,000. Speak to our consultants today!

 

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

 

Compare All Latest Rates 2018

 

 

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UOB home loan rates

UOB Last To Hike Rates

We have reported extensively on all rate adjustments by lenders in Singapore in the past year, being one of the top “go to” site for the latest home loan rates and all things on mortgages.  Last year 2018 ended with major across-the-board rate hikes by DBS (13 Dec 2018) and similarly by OCBC (announced in Dec but takes effect 16 Jan 2019).  It is therefore no surprise that, firing the first salvo in 2019, UOB is the last of the three local banks to play catchup on rates.

 

Compare All Latest Rates 2018

We have noticed UOB’s published fixed deposit rates, to which their mortgages are tied to in the past (FDPR), have gone up this month in February although home loan customers have yet to see any increase to their monthly repayments as the bank would need to give a 1-month notice and letters would be going out soon:

BankMortgage PegOld RateNew RateIncrease ByEffective Date
UOB36FDPR1.001.650.6525 Mar
15FDPR0.701.400.7025 Mar
14FDPR0.601.150.551 Apr

By the time the new rates take effect, the first quarter of 2019 would have nearly passed.  UOB home loan customers would have enjoyed the longest delay to rising interest rates given how SIBOR has moved up significantly since the last rate hike by US Fed after December’s FOMC (1-month SIBOR rising from 1.63% to 1.82% and 3-month SIBOR from 1.76% to 1.95%, as at 13 Feb).

As UOB has now switched to offering mortgages in SIBOR or BOARD rates only, new customers to the bank are not affected, although we do not track any increases to BOARD rate which is internal to the bank.

Now that the three local banks, who collectively command more than 80% share of the local mortgage market, have announced widespread rate increases, we should expect foreign lenders to follow suit.  In fact, we know one foreign bank has made the announcement which we will be reporting in the coming month.

Compare All Latest Rates 2018

 

Another interesting observation is that even amongst the three local banks, the increases were uneven.  DBS made the first move in December but with the least average increases of only 0.15%, whereas both OCBC and UOB adjusted on the average by 0.50-0.60%.  In a way we think, this exemplifies the difference in cost structure (and hence cost pressures) between DBS and its two local counterparts, a point we have always highlighted in the past – DBS enjoys cost advantage with access to its huge CASA (current account, savings account) base of POSB accounts for cheap Sing dollar funding.  We speculated that this could also be the primary reason why both UOB and OCBC de-linked their mortgages from pegging to fixed deposit rates since last year.

Having said that, it is not inconceivable that DBS might make another move within the next six months in a “2-step” adjustment to level up with the market.  After all, its last increase at 0.15% was less than one-third of the other two local banks’ increases, and it was made even before Fed’s rate hike in December, which means it may not have factored in the latest run in SIBOR rates.  Another imperative for the bank to move again is that with US Fed likely to pause in rates hikes at least for first half of 2019, this could be the last opportunity for the bank to increase its NIM (net interest margin) against a backdrop of slower loans growth in 2019.

We cannot be 100% accurate in our prediction and forecast.  However, being an active participant in the mortgage industry tracking all news affecting interest rate, we make the best calculated guess and dispense what we believe is best advice for our clients at all times. And right now, as we approach possibly end-cycle over the next few years, there is a shift in our stance for mortgage recommendation.

Speak to our consultants today to find out more.  Plus, you get the best deal here at MortgageWise with our $150 Valuation Fee Offset for refinancing as well as a special $1,800 Legal Fee (includes stamp duty) for purchase, both subject to min loan of $500,000.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

 

Compare All Latest Rates 2018

 

 

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TDSR changes - property market

Singapore Property Market In 2018

At MortgageWise, we try to provide our property investor clients with a snapshot of the performance of Singapore residential property market regularly through our own basket of condoswhich will provide supplementary insights in a more meaningful and personalway than a mere broad-based index from URA. Properties are not created equal and some will rise or fall more than the rest.

Compare All Latest Rates 2018

URA latest statistics for 2018 Q4 was released at end of January just before CNY and most may not have time to pore over the details.  As usual, we will only give an overview in terms of the movements of PPI (property price index) for non-landed as a whole (islandwide) and the breakdowns by URA’s zoning ie. CCR (core central region), RCR (rest of central region) and OCR (outside central region).  Full details can be found on URA website (source of illustrations below).

Note that the base year for residential PPI is at last financial crisis low of Q1 2009 (where PPI = 100).

URA Property Price Index Singapore
Singapore Property URA Statistics

Overall, PPI for non-landed increase by 8.3% in 2018 with much of the growth coming in the 1H, a result of property cooling measures implemented on 6 July 2018 that saw ABSD went up by 5% and loan quantum reduced by 5% in an effort to dampen buying interest and enbloc fervour.

Compare All Latest Rates 2018

MORTGAGEWISE’S BASKET OF CONDOS

Now we will take a look at the performance of condos in our own basket of study.  Note our comparison is based on on 6-month period which differs from URA’s quarterly measure.

The condos selected in our basket are deemed iconic enough to be representative of prices in a particular precinct that is smaller than a whole central region or outside central region as defined by URA.  For areas outside central region we also tend to pick condos either right at or nearest MRT stations as these tend to be well sought after by investors.  Our basket would allow property investors to see the actual variation in prices over time for a particular group of condos that are fairly well-known in Singapore.  However our illustration is nothing more than simple averages of all transactions done over 6-month periods and in cases where there are less than 5 transactions (marked with an asterisk) do take the reading with a pinch of salt.  We also highlight the highest psf achieved in the period.

We will look at the performance of the basket of condos in the most recent 6-month period, and contrast that with the preceding 6-month.  Percentage variation of more than 5% will deemed significant enough to be highlighted (in blue for increase and in red for decline).

Singapore Property - MortgageWise basket of condos 2018

We will ignore double-digit decline registered by Orchard Residence as there is only 1 transaction in 2H 2018.  In fact, there is a significant drop in volume following after the cooling measures in July as we see a lot of asterisks in our basket (condos with less than 5 transactions).  Notwithstanding 2H is where the impact of cooling measures is felt at full-force, our basket performed relatively well with almost half of them still registering above 5% growth (in blue) in ave psf prices.  This is testament of their popularity as investment-grade condos in Singapore. One worthy of mention is The Cosmopolitan in district 9 that has done exceptionally well with avergage transaction prices at all-time high of $2,401! (highest done at $2550)

Compare All Latest Rates 2018

In the outskirts, properties at MRT locations continue to do well with credible increases in spite of dampened sentiments in 2H, with only one exception of Compass Heights (prices holding).  This is in keeping with URA’s index showing properties in mass market (OCR) registering the highest growth of 9.4% in 2018.

The resilience of the property market in Singapore, despite draconian measures at times, continues to form a solid basis for why it is a good asset class for wealth preservation and effective hedge against inflation.  Still, investors should thread cautiously as the next global recession is a surefire reason for PPI to reverse the uptrend and no one knows when will we approach this end-cycle.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements.  We aim to build trust with clients for longer-term partnership and not just do product-pushing for a one-time deals unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us.  See our clients’ testimonials.

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HSBC mortgage loan

HSBC SmartMortgage

Many would have heard of interest offset loan in Singapore when it comes to mortgages, currently offered by three banks.  However, most either do not quite understand how it works, or could yet fully appreciate the true benefits of having such a feature in their home loan. With interest rate expected to continue to head north though at a slower pace, de-leveraging becomes a key theme going forward and it is timely now to review how interest offset works and why one should consider it.

Compare All Latest Rates 2018

An interest offset mortgage loan is one where the bank provides concurrently a current account that pays the borrower back the same deposit interest rate as the mortgage rate charged, for up to a certain percentage of the amounts deposited with a cap set based on the outstanding mortgage loan at any point in time.  The interest earned on the qualifying deposit amounts every month is then used to “offset” against the interest charged on the mortgage loan hence resulting in the borrower reducing his loan more repaidly than otherwise.

We like to introduce HSBC’s SmartMortgage, with one of the highest qualifying deposits ratio of 70%, amongst the three banks with interest offset accounts in Singapore (StanChart at 67% and Citibank at 50%).

Let’s take it look at how it works by way of an example.  Assuming Mr. Tan just refinanced an outstanding loan of $700,000 to HSBC on a 25-year tenure that comes with the SmartMortgage current accout and below is a summary of the offseting effect should Mr. Tan deposit $200,000, $700,000 (equivalent amount to his loan) or even $1,000,000 into his SmartMortgage current account.

HSBC SmartMortgage interest offset loan

Notice how the interest earned on the qualifying deposits is now used to “offset’ against the interest component in the monthly repayment so that more of it goes towards reducing the principal loan.  Mr. Tan still pays the same mortgage repayment every month of $2,967.  In scenario A where there is no interest offset current account, he would be paying approximately 40% of that as interest to the bank.  In scenario B when he deposits $200,000 of his idle funds into his SmartMortgage account, he reduces this interest costs by 20% from $1,167 to $933 which has the same effect of reducing his mortgage interest rate by 20% from 2% to 1.6%.  What happens if Mr. Tan deposits the equivalent amount to his loan of $700,000 idle funds into SmartMortgage?  That would be scenario C where his interest component is further reduced to $349 which effectively means he is paying only 0.60% on his home loan.  In the last scenario D when Mr. Tan deposits $1m idle funds into SmartMortgage, his mortgage interest offset remains the same as the bank has capped the maximum offset at 70% of the outstanding loan, ie. $490,000.

Compare All Latest Rates 2018

Now one wonders why would someone with idle funds of $700,000 still need to take up a home loan of $700,000 with the bank?  That depends on one’s objective.  We will look at four key benefits of an interest offset loan with HSBC’s SmartMortgage?

1. Added Assurance When Choosing Floating Rate Over Fixed Rate Home Loan

As the gap between the lowest floating rate (currently at 2%) and the lowest fixed rate (currently at 2.48% for private properties) widens significantly in recent months, more homeowners are caught between a rock and a hard place.  On one hand, there is reluctance to sign for fixed rate at such high levels unseen in Singapore for the past decade lest one ends up with a lemon should global recession hits and rates come tumbling down; on the other hand, there is fear of runaway interest rates if left unhedged with a fixed rate home loan.

An interest offset loan becomes a very useful mitigating weapon at one’s disposal in such a situation.  When choosing a floating rate over fixed, one does not have to lose control totally even with rising interest rates as interest costs can be lowered by parking idle funds into the SmartMorgtgage account as we have seen in scenario B above (placing $200,000 deposit reduces the interest cost to $933 in the 1stinstalment which is exactly how much interest will be charged when the same loan of $700,000 is signed at 1.60%, instead of 2%)

2. Reducing Interest Costs Without Doing Actual Prepayment

Most of us will not have so much idle funds to do a scenario C where one could effectively pay down the loan in full. But many would have some kind of rainy-day funds in cash.  With rising mortgage rates, more people will want to de-leverage but it may not always be feasible to do partial prepayment as there is penalty during the lock-in period.

An interest offset loan has the same effect as prepayment when idle funds are deposited anytime to offset against monthy interest costs, without attracting a prepayment penalty.

3. Access To Liquidity With Minimal Cost

Now even if one has all the funds to fully redeem and discharge a loan, depleting all liquidity on hand requires careful deliberation.  What if one suddenly needs access to a cheap source of funds for emergencies or some unexpected situations like a change in one’s income position which makes it now difficult to apply back for term loan.  Don’t forget it’s harder to get the same quantum on a term loan as it entails more risk for the bank which grants a much-reduced loan amount after deducting CPF usage on the property.

Compare that with parking one’s idle funds in an interest offset account – there is no need for such prolonged deliberation as withdrawing funds for use in emergencies is as easy as putting money in with no restrictions whatsoever like a savings account!  For high networth individuals or seasoned investors, this access to liquidity is highly valued when a day’s delay could make or break a deal or cause one to pass up on an opportunity to snatch a steal (stock market corrections, distressed property sale, etc).

Compare All Latest Rates 2018

In fact, there is another good reason why one may not want to pay down fully on a mortgage – for estate planning where one could take up a mortgage insurance through having a home loan, thereby creating another set of inheritance in event of claims while still holding on to one’s cash. We will discuss that in a later article.

To balance things up, this access to liquidity does come with some minimal costs.  In scenario C above, by choosing not to fully paydown and discharge the loan, Mr. Tan is effectively “pre-paying” $490,000 and still service an interest of 2% p.a. on $210,000 (or put in another way – 0.60% p.a. on $700,000).  He also gave up the deposit interest he would have earned on $210,000 had he actually use $490,000 of his funds to prepay the loan and puts the remaining into a fixed deposit account.  Still, this combined cost of likely not more than  1% p.a. could be easily beaten with good timing on entry and exit points for investments.

4. No Loading On Interest Rate With SmartMortgage

The best part about HSBC’s SmartMortgage is that it does not load additional spread or interest on the floating rate home loan packages that the bank is offering at the moment.  This makes it an excellent choice for those who like to bet on floating rates staying low or going up very gradually, yet retain a level of control on how much interest costs to service very month through an interest offset account.

And HSBC is offering very competitive spreads on SIBOR-based home loans starting from +0.25% right now, along with some other very compelling benefits which our consultants would love to share with you. And don’t forget when you take your home loan through us here at MortgageWise, we also offer you real savings in transaction costs for both purchase (special legal fee of $1,800 net including mortgage stamp duty & gst) and refinancing ($150 valuation fee offset).  Both subject to a minimum loan of $500,000.

So, speak to us today!

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals. That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

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board rate or sibor rate

Review Of FDR Interest Hikes In 2018

With the spate of increases in fixed deposit rates in Singapore last year leading to higher mortgage repayments for many homeowners who have chosen to peg their home loan rate to FDR (fixed deposit rate) mortgge pegs from the various banks, I thought it would be timely to take stock as we begin another year.

Compare All Latest Rates 2018

First, a recap of what is FDR (fixed deposit rate) home loans?  DBS pioneered this unique mortgage peg back in June 2014 when it started pegging the interest rate it charges for its home loans to a pre-designated fixed deposit rate tenure (eg.12-month, 18-month, 24-month) of deposits between $1,000-9,999 published on its website and called it FHR (fixed deposit home rate).  It gained traction in the market after a year and more banks followed suit with their own versions going by different names from FDMR (OCBC & Maybank), FDPR (UOB), FDR (SCB) to TDMR (HSBC).  At MortgageWise, we refer to these collectively as FDR home loans and track their movements closely over the years (see our chart).  However, with rising cost of funds, a few banks (OCBC, UOB, Maybank) have pulled the plug on FDRs and replaced them with traditional BOARD rates since 2018.  Curently only three banks still offer FDR home loans in the market: DBS, SCB and HSBC.

Now let us take a look at the many rounds of adjustments to FDR pegs by banks 2018 (in chronological order):

BankMortgage PegOld RateNew RateIncrease ByEffective Date
DBSFHR180.600.800.201 Feb
SCB48FDR0.500.900.406 Feb
MYBFDMR361.201.400.2010 Feb
OCBC15FDMR
48FDMR
0.25
0.95
0.55
1.25
0.30
0.30
1 Mar
UOB36FDPR0.651.000.355 Mar
DBSFHR90.250.500.259 May
FHR
(ave 12/24M)
0.675
0.35(12M)
1.00 (24M)
0.80
0.60(12M)
1.00 (24)
0.1259 May
MYBFDMR361.401.800.4026 Jun
OCBC36FDMR0.650.950.302 Aug
UOB15FDPR0.250.700.4527 Jul
14FDPR0.250.600.3527 Jul
DBSFHR80.200.500.3024 Aug
FHR90.500.800.3024 Aug
FHR
(ave 12/24M)
0.80
0.60 (12M)
1.00 (24M)
0.975
0.80 (12M)
1.15 (24M)
0.17524 Aug
FHR180.800.950.1524 Aug
SCB48FDR0.901.100.208 Nov
9FDR0.300.650.358 Nov
36FDR0.720.970.258 Nov
DBSFHR
(ave 12/24M)
0.975

0.80 (12M)
1.15 (24M)

1.075
0.95 (12M)
1.20 (24M)
0.1013 Dec
FHR180.951.100.1513 Dec
FHR90.800.950.1513 Dec
FHR80.500.6750.17513 Dec
OCBC15FDMR0.551.250.7016 Jan 2019
36FDMR0.951.550.6016 Jan 2019
48FDMR1.251.750.5016 Jan 2019

Compare All Latest Rates 2018

Note we included the latest hike for OCBC as part of 2018 review as it was announced back in December even though it took effect only in 2019 (this week).

With the many round of increases, it is easy to lose track of the total increases in the year for each FDR tranche so we summarize them below indicating the value at the start and end of the year (including HSBC which make no adjustment in 2018):

BankMortgage Peg*Value At 1 JanValue At 31 DecTotal Increase 2018
DBSFHR
(ave 12/24M)
0.675
0.35(12M)
1.00 (24M)
1.075
0.95 (12M)
1.20 (24M)
0.40
FHR180.601.100.50
FHR90.250.950.70
FHR80.200.6750.475
OCBC15FDMR0.251.251.00
36FDMR0.651.550.90
48FDMR0.951.750.80
UOB36FDPR0.651.000.35
15FDPR0.250.700.45
14FDPR0.250.600.35
MYBFDMR361.201.800.60
SCB48FDR0.501.100.60
9FDR0.300.650.35
36FDR0.720.970.25
HSBCTDMR240.650.650.00

The value in bold represents the current value of the mortgage peg.  The increases in the year fluctuates widely from 0.25% to 1.00% so it is hard to draw an average.  The only bank which never adjusted its FDR peg was HSBC with its TDMR24 launched to the market back in Dec 2017.  This means that those lucky few who signed onto HSBC floating rate packages earlier would still be paying around 1.65-1.78% today, even going into the 2ndyear of their loan tenure.  We do however expect one hike from the bank this year in 2019.

Compare All Latest Rates 2018

To put in perspective, the benchmark 3-month SIBOR has also moved up in 2018 following four rate hikes from the US Federal Reserve to end the year at 1.886%. It seems the banks moved quite quickly on FDRs to level up with the general rise in benchmark lending rates.

Does FDR home loans still make sense?  That depends.  There are couple of factors to weigh in like the outstanding loan amount, pace of interest rate increases going forward, intention of sale of property or to do partial prepayment, etc. Speak to our team of very experienced mortgage consultants who have assisted thousands of happy clients make that right choice on the type of home loan to refinance to and why.

After all we are the few, or quite possibly, the only mortgage consultancy firm in the industry that tracks both macro events in the financial markets (that impacts interest rate) as well as interest rate movements per se so that we can give that professional and calculated view to our clients.  You may also like to read our general forecast of rate movement in 2019.  And don’t forget you will get a $150 Refinancing Valuation Fee Offset (for min loan $500,000) when you choose to apply for the same home loan package through MortgageWise.  It’s our way of helping clients to defray some of the costs involved in refinancing.  For more in-depth advice and mortgage strategies as we approach end-cycle, contact us today.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

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rising interest rate

Interest Rate Forecast 2019

First, let me wish all readers of this blog a Happy New Year in 2019!

A food-for-thought to share as we begin a new year: If a lifetime is defined as 70 years long, and 10 years is equivalent to a single day in a week, which day are you at in 2019?  My guess is for most of us reading this blog, it would be on a Thursday (30s) or Friday (40s) – well then weekend’s just round the corner and let’s make it a smashing good one and make it count!  All the best.

Compare All Latest Rates 2018

Interest rate forecast is a tricky business and most would rather not stick their neck out for it but here at MortgageWise we do this at the start of every year.  We are not perfect but I think we have been close in our call in the last two years.  At start of 2017 we forecasted 3-month SIBOR to end at 1.50% but revised this down later (we review forecast every 6 months) to a range of between 1.25-1.30%.  SIBOR did make a dash of 25 basis points in last 4 days of 2017 to cross 1.50% in the end.  We did however correctly forecast three rate hikes by Federal Reserve in the year.  At the start of 2018 last year, I think we were the most aggressive in the market with our forecast for SIBOR to cross 2% by end of the year (from what I was reading at that time, the most bullish forecast from bank analysts was for 3-month SIBOR to hit 1.70%).  We didn’t get it exactly right this time but we were close – 3-month SIBOR ended 2018 at 1.886% (as at 31 Dec 2018).  1-month SIBOR also ended at a high of 1.76342%.  We overshot in our forecast as the gap (we notice) between 3-month SIBOR and the Fed funds rate has widened to roughly 50 basis points or 0.50%.  See the correlation chart below.  We were however right in our prediction that wage inflation will pick up strongly in US in 2018 which might play a part in Fed revising from three hikes to four in 2018, even though the link between wage and price inflation has been weakening.

SIBOR vs Fed funds rate

What now for 2019?  I must say this is going to be the most difficult forecast to make in recent years no thanks to the trade war between US and China in which the effect is slowly being felt in the global economy from 2019 onwards.  No one can predict for sure what is going to happen while the stock market, being a precursor to the real economy, has signaled volatility ahead.  The US Fed has revised its forecast from three hikes this year down to two in its Dec FOMC (Federal Open Market Committee) while maintaining US economy stays solid for now, borne out by the payroll numbers just released of 312,000 new jobs added in the month of December.  Still there is a great fear that either a slowing China culminating in an economic meltdown or a US Fed that go too “fast” in hiking rates (blasted by Trump) would trigger the next global recession sooner than expected.  No one knows.  In the midst of all the “noise”, I can only draw on two factors as basis for our forecast:

Compare All Latest Rates 2018

1. The Stakes Are Too High On Both Sides

Though hard, I believe there will be some kind of deal by US-China by the deadline of 1 March 2019, or in due course sometime in the year.  The stakes are simply too high for leaders on both sides politically not to strike a deal.  So, I am betting that such a deal will materialize and be cheered by the market and get the global economy back on the growth path once more.

Two other impetus will help to keep the global growth intact, albeit slower than expected.  China will pull out all stops to keep its economic engine revving along through massive fiscal stimulus with its huge reserves like what it did back in 2008.  You can bet on that when needed.  As for the US, even as President Trump wrestles with a divided Congress where the Senate is controlled by the Republicans and the House by the Democrats, it is likely they would still pass the last of his campaign promise which is bi-partisan – a big infrastructural stimulus plan to rebuild America’s roads, bridges, airports, etc.

Overall, I do not see a global recession as yet in 2019 as there is political will on both sides of the Pacific to boost their domestic economy and get their GDP growth going again.  The current turmoil in financial markets will pass.

2. Twin-Effect of Monetary Tightening

I also believe the Fed will become more mindful to its actions on the balance sheet, or QT (Quantitative Tightening), where it is selling Treasuries and mortgage-backed securities to the tune of US$50b per month now into its 2nd year (started in Oct 2017).  This has the effect of “mopping up” money supply and liquidity in the system and is a form of tightening or “increasing interest rates” at the longer end of the curve, ie. 10-year & 30-year Treasuries.  The Fed targets to unwind about half of its positions of US$4.5t of securities accumulated during its three rounds of QE actions in the last financial crisis. Initiallty the Fed chair Jerome Powell has erred in dismissing the idea that the bond sale programme could be tweaked and held it up to be on an “auto-pilot”.  That roiled financial markets and the Fed has since been forced into admitting that the QT programme is not cast in stone and is open to making any changes needed should the data shows that US growth is deteriorating at some point.

What this means is that going forward in FOMC meetings from 2019, Fed will likely err on the side of caution not to over-hike at the short end of the curve (fed funds rate) if they would like to keep the pace of QT programme intact.

Compare All Latest Rates 2018

Our Forecast

After giving the two factors that underpin our forecast, this is what we think will happen in 2019: US Fed will indeed, like it said, hike twice in 2019 especially if growth gets back on track and we would see US Fed funds rate go near to 2.75-3.0% range by end of 2019.  In fact, the good news is I believe this is likely near the end cycle for interest rate and going beyond 2019 it is quite hard to imagine Fed hiking above 3% for two reasons.  First, as explained there is double-effect of monetary tightening both at the short and long end of the curve at the same time due to the unprecedented measures taken in the last crisis; which means the Fed need not go all the way to 4-5% in hiking short-term rates unlike in past cycles.  Second, I suspect that the longer-run “neutral rate”, where the Central bank is neither accommodating or restricting growth, has now been brought down to a much lower level with technological advances causing inflation not to show up quickly.  This has been the theme in the last few years and for as long as inflation stays muted, the Fed will be criticised for hiking too much.

What this means then for Singapore interest rate is that by end of 2019, 3-month SIBOR would go close to 2.3% while 1-month SIBOR would hover in the range of 2.1-2.2%.  Still it would take six months to get there provided we get all our predictions above correct. We would have to revisit this forecast again in June.  Meanwhile SIBOR would most likely trade sideways at the current levels of between 1.8-2.0% for a short period of time at least in the 1st half of 2019.

In 2019 most homeowners in Singapore, except for those on fixed rates, would be paying close to 2.2-2.3% as we are expecting a few more banks to announce rate hikes in the next few months.  Those with lock-ins expiring within the next 6 months could contact us for a quick review of their mortgage interest.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

Compare All Latest Rates 2018

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