australian mortgage rates

Mortgages In Australia Now Cheaper

RBA (Reserve Bank Of Australia) had cut the cash rate for the first time in 3 years earlier this month (4 Jun 2019), bringing it down to a historical low of 1.25%, in a resolute bid to extend a record 28-year run (its last recession in 1991) without going through a recession for the Australian economy. And the cash rate is now widely expected to drop below 1% before the end of the year.  Is this a good time to enter the Australian property market?

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Over the past decade the central bank’s benchmark interest rate has been steadily falling from over 7% to the current 1.25% and analyts are expecting that this might even go below 1% very soon should the trade row between US and China, the two global economic powerhouses, deteriortate further.  The latest cut represents the government’s resolve to stave off ill effects of rising unemployment, low wages, a property market in doldrums and a below-target inflation.

 

On the bright side, things may have bottomed out a little as global real estate investors sit up, take notice and smell the opportunity to enter the market soon. Some analysts are forecasting that the property market would bottom out before end of the year especially with the feel-good factor from the return to power of the Coalition Government in the May 18 elections.  Already the monthly declines in home prices in the two major cities of Sydney and Melbourne are slowing to within 0.50% drop in May, going by figures released by CoreLogic the leading property research firm in the country.  Indeed on the Australian mortgages front, we have also seen renewed interest from clients in both Hong Kong and Singapore leveraging up to snap up bargain deals especially in cities like Melbourne where prices have corrected more than 10% from its peak in Nov 2017 (figures from CoreLogic). This steep fall in home prices for Melbourne, a favourite purchase destination for Singapore and Hong Kong investors, over the last 2 years is now slightly more than property price correction seen in the last recession of 1991.

 

A number of factors have helped to contribute to the optimism of a housing market pickup in Australia this year, barring any further ramifications from US-China trade war:

  • The central bank has lifted a cap of 30% on interest-only mortgages for new loans since Jan 2019
  • The new coalition government installed in May has quickly announced a new purchase deposit scheme for first-time homebuyers where locals who qualify would need to just put down 5% deposit instead of the usual 20%
  • APRA (Australian Prudential Regulation Authority), the stat board that supervises the financial industry in Australia, has proposed changes to the serviceability assessment of borrowers. Since 2014 the regulator has required lenders to apply a 7% interest tests on borrower’s repayment ability (akin to Singapore’s TDSR interest rate of 3.50% used when calculating loan limits for residential properties).  Previously this test threshold was set at 7% or a 2% buffer above the actual interest rate, whichever is higher.  The problem is that with cuts in cash rate since 2014, the prevailing interest rate most Aussies are paying are hovering around 3.50%-4.00% for owner-occupied properties and effectively this means 7% would be used across the board for all Australian mortgages be it for own-use or investment. APRA is now proposing scraping the floor of 7% and allowing lenders to set their own buffer for affordability test as long they keep to a mandatory minimum of 2.50% above the actual interest rate charged.  This would likely see Australians gain access to more mortgage loans going forward.

 

 

Incidentially, CoreLogic is forecasting a drop in prices of up to 18-20% in this current trough cycle for the two prime cities of Sydney and Melbourne and expect the Australia property market to bottom-out by mid of 2020.  It might happen earlier than expected as the current downturn is triggered not so much by rising mortgage rates or slowing demand, but a credit crunch or clampdown in borrowing.  Prices might recover earlier than expected should there be more credit easing from the new liberal government commited to show results.

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Here in Singapore, following the cut in Australia’s cash rate, we have seen on average a drop of 0.20% on most lenders’ cost of funds (COF) for 3-month AUD .  Some Singapore banks pegged their Australian mortgages (financed in AUD) to this COF wich is internal to the bank but which tracks the cash rate closely from our observation.   Hence, the prevailing interest rate for financing in AUD has now dropped somewhat to 3.60-3.80% which is more or less in keeping with rates from Aussie banks downunder.

 

Back to the question of investing in Australian property market?  It was reported only this week that one of the world’s largest asset manager BlackRock is shorting the Aussie dollar as it is betting on RBA cutting the cash rate all the way down to 0.50% in order to revive the economy.  Against the backdrop of falling mortgage rates and hence a weakening Aussie dollar, and with property prices in favourite cities like Melbourne and Sydney likely to hit rock bottoms by mid of next year maybe earlier, we certainly believe the case for investing in Australia looks fairly attractive again, as long one has the holding power.

 

 

Global real estate investors in Hong Kong, Asia and elsewhere may be pleased to know that they can finance their Australian property purchases from Singapore banks who offer competitive floating rate mortgages close to rates offered downunder, but with an additional choice of currency in AUD or SGD. Investors could then benefit from movements in the currency pair of AUD/SGD and switch financing from one to another depending on the economic cycle.  Financing in AUD with a weakening Aussie dollar means a smaller loan when converted back to SGD terms later and benefit investors who could then pay down using SGD funds when they also start a Premier banking relationship with banksin Singapore.  So, speak to us today to find out more details on Australia mortgages.

 

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 Signalled Readiness To Act

Just as what the financial markets expected, US Fed left rate unchanged in its latest FOMC meeting for June but indicated its readiness “to act appropriately to sustain the expansion”.

 

However, based on the dot plots from the committee of Fed governers, which represents what Fed believe is the most likely scenario going forward, there is a revision of interest rate forecast downwards for 2020.  In fact, almost half or 7 policymakers out of 17 voted for as much as half a percentage point cut in rates for this year which means two rate cuts to come in the next six months if more officials get onboard this view.

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The Fed has readied itself for a first rate cut as early as next month in July depending on the outcome of the now confirmed and extended meeting between Trump-Xi in G-20 next week in Japan.  The word “patient” has been dropped from policy statements which the market interpreted as a sign of readiness to act.  Fed chair Jerome Powell explained in the press conference after the meeting that the Fed is adopting a “wait-and-see” stance with a confluence of mixed signals. On one hand, the American economy has performed relative well with consumer spending rebounding in quarter two and with the labour market still strong with low unemployment.  On the other hand, inflation has strayed further down from its 2% target range to now 1.50%, business capital spending has dipped and there is increased risks from “crosscurrents” re-emerging from tariffs war and global slowdown.  As such, the Fed has voted to hold the fed funds rate in June at between 2.25% and 2.50% but is prepared to intervene the moment incoming data suggests any downside risk to the outlook.

Other notable statements from FOMC Jun include:

  • The committee, about evenly-divided on the need for rate cuts in 2019, has held fed funds rate at 2.40% by end 2019 (unchanged) but now revised its forecast down for it to end at 2.10% by end 2020 which signalled one rate cut in 2020.
  • The US GDP has grown by 3% in Q1 but this is now expect to moderate down to 2% range in the remaining quarters of this year, depending on the outcome of the trade war.
  • Unemployment rate has been revised down slightly for both 2019 and 2020 to 3.6% and 3.7% respectively.
  • Inflation – the most important indicator behind any Fed action, has continued to remain subdued despite wage growth. Fed’s preferred measure of inflation has in fact tumbled and is now expected to stay only at 1.5% by end of 2019 versus its earlier forecast of it hitting 1.8%.

 

The muted inflation has in fact given Fed the room to manoeuvre and be more aggressive in rate cuts should there be further fallout from the trade war between US and China in the second half.  In conclusion, the baseline case is that US economy is still performing relative well, but this is a Fed that is more ready to act now than before by cutting rates as much as two times before the year is over, should trade tensions escalate and affects the real economy.

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Here at MortgageWise, we do a mid-year review of our rate forecast given at the start of the year which is for one rate hike by end 2019.  This is premised on a favourable outcome in US-China trade negotiations which has since turned sour in the last month.

We have already said that this year is going to be the most difficult year to make a forecast on interest rate direction as a lot depends on the outcome of the trade talks and that is not something we can predict.  Still we will not shy away from sticking our neck out as usual.  After the latest Fed meeting, the odds have gone up for two rate cuts by US Fed this year.  Most believe that the two world leaders will simply agree to resume the trade negotiations after G-20 and it is still unclear how long it will take for consensus to be reached, if at all.  We are revising our forecast down as well to now expect one rate cut instead of a rate hike, before the end of 2019.  I still believe that there is too much to lose politically for both sides not to reach a consensus especially on the part of China, in my opinion, who has more to lose from a prolonged tariff war.  However, it is highly likely the effects of the new tariffs put in place by Trump administration not too long ago will now trickle down to the real economy affecting jobs and consumer sentiments in the second half of the year.  In fact, this is also what China is betting on by playing hardball with US and we would likely also see weakening data in US in the coming months which is going to force US Fed into easing.  Thus, we think Fed will cut rate by 0.25% in a pre-emptive move or “insurance cut” if you like, either in July or latest by September FOMC regardless of the outcome of the trade talks.  This is simply to keep the current 10-year economic expansion on track albeit at a slower pace.

Should talks break down and Trump slaps 25% tariff on the remainder of $300b China exports to US not already taxed, I think inflation will show an uptick by December or early 2020 and Fed will be caught between a rock and a hard place.  So one rate cut will be sufficient for 2019 for a “wait and see” in order not to dwindle down too much on Fed’s ammunications for a full-fledged recession at some point.

 

With a rate cut projected in 2nd half, we also revised down our forecast for 3-month SIBOR to end the year at 1.8-1.9% now.  It is currently at 2%.  1-month SIBOR will also likely slide back 15 basis points to the 1.75% range.

 

Those whose home loan is up for renewal could contact us for a more detailed advice on what’s the best mortgage strategy in an uncertain marco environment going into 2020, and why remaining nimble becomes ever more so important.  You will also receive a $150 Refinancing Valuation Fee Offset, subject to min loan of $500,000.  New purchase home loans will also enjoy a Special $1,800 Purchase Legal Fee (includes mortgage stamp duty, gst) from our partner law firms.  Other terms and conditions apply.  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.

 

Compare All Latest Rates 2018

 

 

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Falling Fixed Rates – Who’s Right?

Fixed rate mortgages in Singapore have seen quite a drop in rates since the beginning of the year when most banks offer 2-year fixed at 2.58%.  Of late banks have been trying to match and outdo one another with lower headline rates for fixed rate mortgages – from 2.38% to 2.35% to the latest at 2.28% (deviated basis only available when you speak to us)! That was a steep fall of almost 0.30% within a span of 5 months!

 

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Isn’t it good news for homeowners when interest rate falls?  Well, not when one just repriced and started a new loan contract on a fixed rate mortgage at 2.48-2.58% with a new lock-in for two more years at those rates, all that barely three months ago.

 

For one thing I know, writing this article is not going to go down well with everyone.  Those who have chosen to take a bet on floating rates with SIBOR home loans at the start of year as fixed rates were simply too high (that’s our general recommendation this year) will now be thankful; but those who signed on the higher fixed rates earlier on the advice of their own repricing banks or other brokers alike would now be feeling the blues and worry if interest rate would slide down further from here.

 

This is the problem when one speaks only to existing bank when they seek to refinance their mortgage, believing that it is effortless to just reprice with the existing bank and not shop around to see what else is out there.  Another scenario when one speaks directly to bankers trusting in their advice and wrongly concluding that they will get a better deal when they go directly to banks instead of through a mortgage broker as there must be loading on their package when a third party is involved.

 

In both of those situations above, what homeowners miss out is the fact that bankers are really sales representatives of their respective financial institutions selling specifically mortgages and charged with sales target to meet where they also earn commissions paid out by the banks.  It is funny how people are generally guarded when they talk to bankers on investment or insurance products like unit trusts, endowment plans, etc but let their guard down when they speak to mortgage specialists from the banks.

 

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Now don’t get me wrong here.  We are not discrediting mortgage bankers, afterall we do work with them too.  What we simply want to point out is that – though there are many good professional mortgage bankers who give good advice, they are still restricted to selling what is offered by only one bank.  And banks often do not offer the same kind or the full range of mortgage loan pegs in the market ranging from SIBOR, BOARD to FDR (fixed deposit rate).  Some do not even offer fixed rate mortgages.  And when their own bank is not offering what is popular or what homeowners are asking for, being sales-focused, bankers will peddle the next best option from their repertoire.  And for the first quarter of 2019, that next best option seems to be fixed rate mortgages that every repricing bank is peddling and feeding on the fear of runaway interest rates, until suddenly US Fed reversed its stance in March.

 

Contrast that with the advice one gets when working with brokers, who are independent third-party distributors of mortgage products from all lenders in Singapore.  We take a more objective view as we are not restricted to selling products from just one single lender.  That means we will be able to offer the full range of mortgage solutions in the market or recommend mortgage loan pegs based on what is most suitable at different points in the interest rate cycle – for example we have always said (since we started in 2014) that when the cycle reverses down and interest falls, SIBOR would the most preferred mortgage peg as it is the most elastic and hence the first to fall.  Remember, another significant difference between the advice of a broker versus that from a banker – we are in this for long-haul and we need to make sure we give the right advice, failing which we will have no repeat business every two to three years come renewal.

 

Finally, back to that all-important question – is it really true one gets a lousier deal when going through a broker for a mortgage as the bank would need to pay a third-party referral fee?  Not true.  The best example I like to give is when one buys an Macbook.  One can buy it from the Apple Store at Orchard and get supposedly better service, or buy it from a third-party distributor like Challenger store. Same item, same controlled-price, but you get more promotional freebies buying from third-party stores.  We have already explained this, bankers are sales representatives who earn commissions on the transactions, on top of basic salary. When there is a third-party broker involved, the banker just earns less commission on the deal, in exchange for bigger volume of business from the broker.  The home loan package and the final interest rate would be the same for homeowners but he or she gets much better information and more impartial advisory from the broker whose business interest is aligned with that of the client’s long-term interest.

 

Compare All Latest Rates 2018

 

To end, we come back to the question of falling fixed rates: Will 2-year fixed rates continue to slide down below 2.28%?  As I have forewarned at the beginning of the year, 2019 is going to be most difficult year to do interest rate forecast no thanks to the trade war.  All eyes will be on the actions of US Fed.  The market is now expecting up to two rate cuts with one coming as early as July next month.  We will listen for clues on Fed’s FOMC meeting for June coming right up next week so say tuned to this blog. If US Fed indeed cut rates before the end of the year, there will be downward bias for SIBOR and we will not be surprised fixed rates may go all the way back down to 2% or sub-2% level. Still, this is not a done deal.  A lot still depends on the outcome of US-China trade negotiations which has stalled for now.  If we do get some kind of resolutions soon enough, sentiments will change. In this current environment it is all the more important to stay nimble when choosing the right mortgage package and we think free conversion becomes an indispensable mortgage loan feature to this end.

 

Not convinced yet that it is better to take your loan through a broker?  Refinance with MortgageWise and you will receive a $150 Refinancing Valuation Fee Offset, subject to min loan of $500,000.  New purchase home loans will also enjoy a Special $1,800 Purchase Legal Fee (includes mortgage stamp duty, gst) from our partner law firms.  Other terms and conditions apply.  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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They Say SIBOR Is Volatile

Bankers often like to say that when marketing mortgages pegged to BOARD rate or FDR (fixed deposit rate), but without regard for which part of the interest rate cycle we are in.

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This reminds me of the same situation about five years ago when interest rate began its slow accent in Singapore following oil price crash towards end of 2014 – bankers then touted BOARD rates as the most stable mortgage peg as it had not moved in the last 5 years.  Of course!  Because there was no reason for rates to move back then with US Fed pump priming an economy into life via three rounds of QE (quantitiative easing) if you recall.

My point is simply this – the context is important.  Just like how property investors who bought during the market peak in 1996 barely broke even when they sold off 10 years down the road; or how those who bought in the property market doldrums of early 2009 enjoyed spectacular profit margins. The same goes for interest rate cycles – those who had locked down fixed rates when rates were on its way up during 2016-2017 had made some wise moves; doing the same when we are near an inflection point now or near the peak of the cycle runs the risk of being stuck with a high rate should interest rate tumbles down.

Incidentally we forecast this back in March 2016 that interest rate should take 5-6 years to peak in this current cycle which means we are somewhere near the end by 2020/2021.  In recent weeks, more dovish statements by US Fed chair (who started dropping the phrase “Fed will be patient”) has got financial markets now pricing in at least one rate cut by US Fed before the year is over, maybe two.  So the cycle could even turn much earlier.  All eyes will be on the next major Fed FOMC meeting in two weeks’ time which we will be covering, so watch this space.

Back to question on the volatility of SIBOR. That is certainly true as it exhibits a much wider swing from peak to trough (see graph below).  However, that is both a boon and a bane depending on which part of the interest rate cycle one is in. When interest rates are going up, having one’s mortgage tied to SIBOR means interest rate and hence the monthly repayment will be revised upwards every month or every 3-month (for 1-month and 3-month SIBOR respectively) whenever SIBOR increases.  On the other hand, when interest cycle reverses and rates start dropping, the converse is also true – one sees the monthly repayment being adjusted down immediately the next month (for 1-month SIBOR)!

Compare All Latest Rates 2018

As SIBOR is determined by money market forces and not dependent on the unilateral decision of any one single bank, we are of the view that should interest rate cycle reverses downwards, SIBOR’s volatility would make it the first amongst all mortgage pegs to fall.  We cannot say the same for BOARD or even FDR (which really has become a lending rate) where it may take up to 6 months or even a year for banks to adjust down as doing that too soon would mean a cut in the banks’ interest margin for the current financial year.

HSBC has just adjusted up their TDMR24 in May last month from 0.65% (unchanged since its launch in Dec 2017) to 1.40%!  It is the latest and last bank to hike FDR rates. Whether lenders will continue to hike on FDR pegs from here depends on the movements of SIBOR.  For the time being with no expectation of further rate hikes from US Fed this year, we are seeing mortgage rates stabilizing more or less at the current levels be it SIBOR or FDR.

So in conclusion, SIBOR is indeed volatile as what bankers claimed, but not necessarily in a negative way.  It can also work for the benefit of homeowners when interest rate cycle reverses. FDR mortgage pegs have worked well over the past few years until banks start to move up aggressively on FDR (as well as BOARD) pegs towards the end of 2018.  The crux is deciding at which part of the interest rate cycle are we at right now, and for that the best way is to take a look at the historical trending chart of US Fed funds rate vs SIBOR which we have shown in our article last month, and ask ourselves which trajectory is the most likely?

us fed funds rate

Refinance with our team of mortgage experts here at MortgageWise and you will receive $150 Refinancing Valuation Fee Offset from us, subject to min loan of $500,000. New purchase home loans will also enjoy a Special Purchase Legal Fee of $1,800 (all-in cost including mortgage stamp duty, gst) from our partner law firms.  Other terms and conditions apply.  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.

Compare All Latest Rates 2018

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Fixed Or Floating – 3 Trajectories

With interest rate seemingly at an inflection point, many are finding it hard to decide between fixed or floating rate home loan in Singapore.

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Most people still find the current fixed rate home loan at almost 2.40% (lowest 2-year fixed rate in the market now range from 2.34-2.38%) a tad too high for their liking, after being so used to sub-2% interest rate for the most part of the past decade.  On the other hand, if one does not lock in fixed rate, what’s worst than starting with floating rate at 2.13% (lowest floating rate on 1-month SIBOR) and seeing that rate go all the way to hit 3-4% in the next few years?

In fact, this is one of the most difficult times to make this call even for professional analysts and economists whose job are forecasting.  At MortgageWise we give our own forecast at the beginning of each year on where we see 1-month and 3-month SIBOR ending by the end of the year.  We will review this forecast every 6 months which means soon – after Fed’s FOMC next month.  So, watch this space.

The key driver for how interest rate in Singapore moves is still down to US Fed action.  To a lesser extent there are other factors too like the strength of the dollar (SIBOR has risen by 6 basis points in reent weeks as trade talks broke down between US and China), and the state of the local economy when banks become flushed with funds unable to lend out during economic slowdown (SIBOR actually tumbled in 2016 as a result of that even in absence of rate cuts from US Fed, see graph below).

Compare All Latest Rates 2018

For this reason, we track the correlation between US fed funds rate and 3-month SIBOR (the benchmark interest in Singapore) very closely on our website:

us fed funds rate

It has taken US Fed a total of nine rate hikes over 3 long years since Dec 2015 to bring the fed funds rate from near 0% to 2.50% by Dec 2018, and 3-month SIBOR has responded in tandem rising from approximately 1% to 1.12% to 1.88% in the same period.  The correlation is strong between the two.

To help our clients, we further extrapolate the three most likely paths for US fed funds rate which will give us a fairly good idea of how SIBOR will move going forward.

Will US Fed continue to hike at the same pace – another 9 hikes over the next 3 years to bring the fed funds rate to 5% (Trajectory 1 in red)?   If that happens, surely SIBOR here in Singapore will follow in tandem and rise up to hit 3.50-4.00% which last happened in June 2006 when it peaked at 3.56%!  Add the spread and this means every one will be paying mortgage interest in the region of 4-5%!  More likely, the global stock market will crash so badly that it will force the Fed’s hand to cut rates long before that could happen.

Then there is trajectory 2 (in blue) which will be based on Fed’s current forecast of having either zero hike or perhaps one hike per year over the next 3 years – this trend assumes that trade war is eventually resolved and the global economy gets back on the growth path but the pace of rate hikes slows down dramatically – a much gentle slope of cimb compared to the preceding three years.

The final trajectory 3 (in green) is also a probable scenario where fed funds rate come tumbling down to revive an ailing economy that either gets overheated and crash, or a recession triggered by other factors like tariffs either on the demand side or supply side of things.  Certainly, judging by the pattern exhibited over the last 30 years, a dip does tend to follow after a brief period when Fed holds the rate steady which lends credence to the theory of a market crash typically a year after the yield curve inverts (the yield on 10-year Treasury note dipped below that of 3-month bills on 22 March 2019 for the first time since mid-2007, although it has recovered and go back and forth since).

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What is the conclusion?  There are two school of thoughts here – the general consensus is that the current interest rate cycle has either peaked or is somewhere near the peak as we are in a different world where inflation pressure is no longer like what it used to be with internet and global sourcing keeping prices in check.  There is a smaller group who believes the bull run still has legs and the uptrend will stay its course albeit at a much slower pace.  Don’t forget we also have to factor in macro events like how long it takes to resolve the current trade impasse, any potential Brexit fallout, US Presidential mid-terms next year, etc.

Speak to our team of professional mortgage consultants who can guide you through in this deliberation process.  Don’t forget besides deciding on general direction of interest rate movement, there are also other salient factors to consider when deciding between fixed or floating rate home loan, some which people overlooked:

  • Size of the outstanding loan
  • Owner-occupied home vs investment property?
  • Stability of one’s income
  • Ability to do partial prepayment
  • Any Intention to sell?

Besides getting our views, refinance through MortgageWise and you also receive $150 Refinancing Valuation Fee Offset from us, subject to min loan of $500,000.  Other terms and conditions apply. 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.

Compare All Latest Rates 2018

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About Deleveraging

With prevailing interest rates much higher than last year, we certainly see more people contemplating doing a lumpsum paydown whilst refinancing their home loan.  Then there are those purchasing their first property but opting for a much lower LTV (loan to value) than what they are entitled to (maximum 75% for first mortgage) for very much the same motivation – to reduce debt.

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Nobody wants to make the banks richer.  It definitely makes financial sense to deleverage as interest rate rises especially if it goes above 2.50% (CPF Ordinary Account interest), and if one is holding on to surplus funds in cash or fixed deposits. It might be hard to achieve such risk-free returns.  Still, we like to share some thoughts on this topic of paying down debt versus access to liquidity as we think more deliberation may needed.  Some of these considerations are often overlooked.

 

1. Drawing Out Equity Term Loan Later May Be Difficult

To illustrate this point, we use a typical purchase scenario of a first-time home buyer (couple) who could be borrowing a typical loan of $750,000 towards purchase of a unit at a new launch project:

Purchase Price                        = $1,000,000

Downpayment in cash            = $50,000        (5% deposit)

Combined CPF to be used      = $200,000

Bank Loan                               = $750,000      (maximum 75% LTV for 1stmortgage)

Let’s now suppose instead of using $750,000, the couple decides to take a smaller loan of $500,000 as they like to deploy all their cash on hand of $250,000, hence they will be using total of $300,000 cash towards the purchase (ignoring transaction costs and stamp duties etc):

Purchase Price                        = $1,000,000

Downpayment in cash            = $50,000        (5% deposit)

Combined CPF to be used      = $200,000

Cash to be deployed                = $250,000

Bank Loan                               = $5000,000    (LTV only 50%)

Let’s imagine 5 years later and the value of the property has now appreciated by 20% to $1.2m.  The couple now plans to buy a Universal Life plan which requires an upfront payment of $300,000 in premiums and they reckoned it would be good to take out an equity term loan (ETL) from the property.

Property valuation                               = $1,200,000

Outstanding loan                                 = $420,000

CPF used (add accrued interest)         = $370,000 (both initial lumpsum plus servicing over 5 years)

An ETL is a loan taken against the equity portion of the property value, which would have increased over time from both a reducing loan and a rising valuation; it is disbursed directly as cash to the borrower and must of course come from the same lender who has a charge on the property.

Equity Term Loan eligible to be withdrawn = 75% of valuation less outstanding loan less CPF used

= 75% of $1,200,000 – $420,000 – $370,000

= $110,000

To their surprise, the amount they could withdraw is less than half the additional cash portion ($250,000) they have deployed voluntarily at point of purchase.  And they were hoping for more than $250,000 as their property has also increased in value by $200,000.

The same situation will occur when homeowners prepay partially on the loan using cash on hand whilst refinancing; when situations change later on and they decide to go back and ask for a term loan on the mortgaged property, they might be disappointed especially in situations when a lot of CPF funds has been utilized over the years.

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2. Access To Liquidity – Worth Paying?

So, what are some of these situations that may require access to liquidity or cheap source of funds?  The list below is by no means exhaustive:

  • Investment opportunity (eg when stock market crash, distressed sale, etc)
  • Starting a business
  • Buying protection and annuity in lumpsum when it is cheaper (eg Universal Life plan)
  • Childen’s overseas education
  • Family crisis due to accidents, medical costs, etc
  • Tide over challenging times when there is change in employment situation

Here we are referring to financial commitments beyond the usual emergency or rainy day funds which financial advisors generally advise setting aside at least 6 times of one’s salary or income.  Some people might feel more secure with a 12-month’s buffer.

When situations arise that require a sudden lumpsum commitment – the cheapest source of funds one can lay hold of has got to be that from an ETL as it is secured against an asset.

In a report covered by Straites Times just last month, both MAS and IBF (Institute of banking and finance) estimated that 100 out of 121 jobs in the finance sector of Singapore would see tasks being displaced by automation and AI within the next three to five years.  The finance sector is not alone here.  This trend is happening world-wide and all industries will be impacted in the next 10 years.

With such forces shaping labour markets today that is unseen in past decades, our government is certainly worried.  Job security is no longer what it used to be. There is wisdom to ensure one has access to liquidity at all times, rather than paying down to the maximum on a mortgage with no leftover funds to help service the loan duing such unforeseen periods which may last longer than expected.

 

3. Interest-Offset Account May Be A Solution

For those who with substantial funds on hand and unsure of how much of it to pay down on a home loan, an interest-offset account may just be the solution.  For full explanation of how that works, you may refer to a recent article here.

 An interest-offset account has the same effect of prepaying down on a home loan, but without having to actually prepay. In that sense, it is the “most ideal” replacement for ETL as one can effectively withdraw or get back the same amount of cash used to prepay when there is a change of plan, without being subjected to restrictions on ETL limits and unaffected by CPF usage in the property.

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 This is where some people get confused.  We often get feedback that the return from such an interest-offset account is not attractive enough as one can easily beat this rate by investing in bonds or other investment vehicles like REITS, Perps, etc. That is true.  However, we are not talking about comparing yield or returns from investment.  All investments carry risks.  Just look at preference shares of Hyflux.  And it’s easy to put money in, but not always the same when it comes to taking money out.  If bond prices crash all of a sudden, investors might not be able to liquidate without incurring a substantial loss.

Interest-offset account is a place to park liquid funds (where there is no intention to deploy for investments where one may lose access or even the principal sum), and the more appropriate comparison woud be fixed deposit account or high-interest savings account like DBS Multiplier, OCBC 360, UOB One Account, etc.  For the former, one often needs to commit at least 12 months to get a reasonably-good interest rate.  For the latter there is often a cap, with the need to spend a certain amount on credit cards. In situations where one is unable to maximize such risk-free returns from various banks, and finds it hard to keep track of all qualifying criterias that keep changing, the easiest way is perhaps “pay down” a substantial amount in an interest-offset account. Period.  No hassle. No tracking. Withdraw and put back anyime when needed. Or perhaps get an interest-offset account as a standby “risk-free” interest-earning facility, when you move your liquid funds in between the various promotions for fixed deposits and high-interest savings account.

It is also noteworthy to highlight, with an interest-offset account, there is somewhat of a “reverse compounding savings effect” as more of the monthly repayment each month goes into reducing the principal loan, thereby leading to lower interest to be paid in the following month, and so on.  We will illustrate this point in a subsequent article so watch this space.

Speak to us today if you are looking to refinance to a mortgage with an interest-offset feature and enjoy a special $150 Refinancing Valuation Fee Offset from us, 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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Decoupling

Many have heard of the term “decoupling” when it comes to property ownership, but may not have a very clear idea of how it works and what’s involved.  We are more in the business of advising on mortgages and strictly speaking decoupling is more the domain of conveyancing law firms who could better advise on the process as it involves the sale and purchase of part-share in the property from one spouse to another, or for that matter any one owner to another. However, I thought it will be good to give a simple introduction to clients who are contemplating that.

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With ABSD (additional buyer’s stamp duty) for a 2ndresidential property purchase surging to 12% since 6 July 2018 even for Singaporeans, we surely see a surge in interest amongst clients coming to us to do de-coupling whilst refinancing their home loans.  And if we add the usual BSD (buyer’s stamp duty) of 4% graduated for residential properties over $1m, a purchaser would already start off with a loss position on day one of owning a 2ndresidential property in Singapore.

Before we talk about decoupling, understand this is not the same as taking out one owner from the mortgage loan which is easily done during refinancing by way of a loan restructuring.  By removing one spouse, say the husband, it frees him up to take on another home loan as his first and only mortgage where the LTV (loan-to-value) limit is 75% (as opposed to 45% for 2ndmortgage and 35% for third mortgage and beyond).  In our industry we call such mortgage structures as 2M1B which means “two mortgagors (or owners) but 1 borrower”. Not all banks allow such structures, but most do.  And in the past banks will only allow that for private properties and not HDB properties, but there are now exceptions.

Still this does not exempt the husband from paying ABSD of 12% as he is still owner of one other residential property in Singapore. This requires decoupling of the property ownership where the wife effectively buys out the 50% stake of the husband in the property after which she would own it 100%.  And that is exactly how decoupling of property is done – just like a purchase.  For this reason, decoupling is sometimes referred to as “part-purchase” (from perspective of the buyer) in the industry.

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The best way to illustrate this is by way of an example.

Case Study

Mr & Mrs Tan, both Singaporeans, are joint owners with equal shares to an existing private condo which they have been staying for years.  As Mr Tan’s income has risen over the years, he is now able to to get a bigger loan to buy a landed property for his family to move into, while they planned to rent out the condo for rental income.

As this is a fictitious case study, we will keep all the figures simple.  We will first look at the financials involved in decoupling and how much cash is needed, before we look at the case for decoupling before making the purchase for the 2ndproperty.

Condo Valuation = $1.5m

Selling Price = 50% = $750,000

Existing Housing Loan = $700,000

Mr Tan’s CPF used todate (plus accrued interest) = $150,000

Mrs Tan’s CPF used todate (plus accrued interest) = $10,000

Mrs Tan’s CPF Ordinary Account Balance = $250,000

Financials For Seller (Mr Tan)

To sell 50% stake and receive $750,000 as follows:

Loan to be redeemed = $350,000 (also 50%)

Goes back to his CPF = $150,000

Cash proceeds = $250,000

Financials For Buyer (Mrs Tan)

To refinance her own 50% loan of $350,000 to the new bank

(at same time) Buy over 50% stake and pay $750,000 with breakdowns below.

We will look more closely at the buyer side financials as that is crucial to determine if the couple can proceed with the decoupling exercise. How much cash is needed is dependant on how much loan can Mrs Tan secure based on her income, as well as how much balance she has in her CPF.

As her 1st mortgage (part-share value of $750,000), she can get up to a maximum LTV (loan-to-value) of 75%, and she needs to put down 5% cash ($37,500) as deposit and another 20% ($150,000) which can come from cash or CPF. In this example, we will assume that she is good for a loan of only 70% LTV, ie. $525,000 and her CPF balance is sufficient to cover fully the remaining 25% ($187,500) plus the stamp duties and legal fees involved. Hence the cash needed is just the 5% upfront of $37,500.

Loan

Refinanced Housing Loan 1 = $350,000

New Purchase Housing Loan 2 = $525,000 (70% LTV)

Total Housing Loan = $875,000 (maximum loan Mrs Tan can secure)

Equity

5% Initial Deposit (in cash) = $37,500 (5% of $750,000)

Balance payment = $187,500 (25% of $750,000)

Buyer’s stamp duty (BSD) = $17,100 (3% of $750,000 less $5,400)

Legal fee for decoupling & refinancing = $5,500

Total CPF usage = $210,100 ($187,500+$17,100+$5,500)

There is no ABSD for Mrs Tan as this is still her first residential property. Note the legal fee for sale and purchase of part-share is usually in the range of $5,500 to $6,000 as it involves two law firms acting separating for the buyer and seller.

As Mrs Tan has sufficient CPF balance to be used for the part-purchase, she only needs to come up cash upfront of $37,500 for the purchase.

On Completion

This is what happens on completion of the sale & purchase of the part-share.

New bank will disburse a total of $875,000 as follows:

  • $700,000 to redeem existing bank’s loan in full
  • $150,000 to payback Mr Tan’s CPF
  • $25,000 as sales proceeds to Mr Tan

After settling the loan, Mr Tan will receive his sales proceeds of $250,000 as follows:

  • $37,500 in Cashier’s Order from buyer as initial deposit
  • $187,500 from CPF (released from Mrs Tan account)
  • $25,000 from bank loan

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With decoupling process explained, we will now see if it makes financial sense to do so from the couple’s collective standpoint, which means we will only look at “net cost” to the couple, ignoring items like cash outlay or sales proceeds from the decoupling exercise.

Landed Property Purchase Price = $2.5m

Option 1: Buying Without Decoupling

As Mr Tan is existing owner of a condo with his wife, as a local he is liable for the ABSD of 12% for 2ndresidential property purchase.  He can however do a restructuring on his condo loan first to free himself up to take on maximum loan of 75% LTV for the purchase.

Buyer’s stamp duty (BSD) = $84,600 (4% of $2.5m less $15,400)

Additional buyer’s stamp duty (ABSD) = $300,000 (12% on purchase price or valuation whichever is higher)

Total costs = $384,600

Option 2: Decouple First Before Purchase

As we have seen in the earlier financials for Mrs Tan,

Buyer’s stamp duty (BSD) = $17,100 (3% of $750,000 less $5,400)

Additional legal fee due to decoupling = $3,500 ($5,500 less usual refinancing legal fee of $2,000)

Total costs = $20,600 (or just 5% of Option 1 costs)

Note here that there could be other costs involved here for decoupling for example ABSD if the spouse who is buying out the part-share is a Singapore PR (5% for 1stproperty), or even SSD (seller’s stamp duty) on the part of the outgoing spouse depending on how long they have been holding on to the subject property.

Even for Singaporean couples, the cost differential is huge and it is no wonder we continue to see increased interest to do decoupling at the same time when one refinances the home loan.  And there is good reason for that – some banks will provide legal subsidy on the “refinanced” portion of the loan.  And there is even one bank providing legal subsidy for the “new purchase” portion of the loan.

Speak to us if you are thinking of refinancing your home loan soon.  And our partner law firm can give you more advice on the decoupling process before you decide.  When you refinance your home loan through us, not only do you enjoy a special rate from our partner law firm for decoupling (below market rate $5,500-$6,000), you also receive a special $150 Refinancing Valuation Fee Offset from us, 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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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.

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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%.

 

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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.

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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.

 

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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.

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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.

 

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