winning home loan deals

Free Conversion

It is not uncommon to hear the term “free conversion” bandied around these days when comparing various mortgage packages out there when refinancing home loans in Singapore.  Most of the major lenders learnt to bundle this in as part of their home loan offerings in a bid to attract new sign-ups.

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What Is A Free Conversion?

A free conversion simply means that the bank allows you to reprice to another prevailing home loan package without slapping the usual repricing admin fee which can range from $300 to $1,000.  Banks being profit-driven will use every opportunity to make more fee income from existing clients.  Compare this with refinancing to another lender who might be more hungry for your business and instead of charging you a fee, they would offer to pay the costs of moving your business over by way of a legal fee subsidy or cash rebate.  For this reason, it will be unwise for anyone to simply reprice without first taking a look at what else is available in the market.

Incidentally the good news is made even sweeter now when you decide to refinance through MortgageWise.  This is because we throw in a $250 Tangs voucher (subject to a minimum loan of $500,000), which effectively covers most of your valuation fees as well, which means your entire refinancing exercise can be done at absolutely zero cost! (terms apply).

As a standard practice, almost all banks would give one free conversion upon T.O.P. for BUC (building under construction) home loans when buyers purchase a new launch project.  What this means is that buyers who bought new projects could ask to reprice or convert their loan from a BUC floating rate home loan to say a fixed rate home loan on completion of the property.  Typically, banks would specify a period of time where this free conversion would be valid for, like within 3 or 6 months of T.O.P.

However, when it comes to refinancing of a completed or resale property, this free conversion option is not a given.  Most banks would not offer this feature as it means they will not be able to earn a recurring fee income.  Still, more and more so, banks are recognising the importance of offering a free conversion and is cleverly weaving it into their home loan product for differentiation.  Some would give a free conversion during the lock-in period of the loan should the bank raise the mortgage base rate or the mortgage peg; others might throw in a free conversion at the end of a fixed rate term.  All these are done with the objective of making the home loan package more attractive to a prospective homeowner who is considering a refinancing move.

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How Useful Is Free Conversion?

How does free conversion enhance the appeal of a home loan package for refinancing?  One key factor here is it helps to remove the fear of being tied down to a bank which keeps adjusting rates upwards during the lock-in period. This is applicable to those on a floating or variable rate home loan.  Nowadays all home loans come with a two-year lock-in period even for floating rate home loans.  Banks who offer this feature is giving customers a sort of safety net that in event the bank has to raise the benchmark mortgage peg, the customer has a choice to opt out to another new package within the bank which would be of lower interest rate (typically packages for new sign-ups customers would be lower rate than existing customers).  The free conversion also act as some kind of psychological restraint put on lenders who needs to think twice before deciding on an increase, knowing that any miscalculated move would result in massive conversions from one package to another of lower margins.

One caveat we need to give though – free conversion during a lock-in period is only as good as the repricing packages offered by the bank.  We know some banks may not necessarily offer repricing clients the same rate as what they give to new clients, especially when they know these clients are still within their lock-in periods and would be unable to move out without incurring a penalty.  Still, it makes no sense for the repricing bank to offer a package that is of a higher rate than the new revised interest rate that the repricing client has to pay.

For those on fixed rate home loans, free conversion is normally given at the end of the fixed term. Here, a free conversion feature is highly meaningful especially for those who opt for a two-year fixed rate home loan instead of a three-year fixed.  This is because refinancing clients would need to stay for a minimum of three years to avoid a clawback on legal fee subsidy, which means they would need to reprice and stay for at least one more year when their two-year fixed term expires.  The free conversion feature which is written into the letter of offer ensures that homeowners would not be at the mercy of lenders who could call the shots when slapping on admin fees as high as $1,000.  They would have to reprice free of charge as contracted.  And remember when the two-year fixed term ends, so is the lock-in.  So lenders would need to offer an attractive repricing package as well lest the customer refinance out (yes, even paying back the legal subsidy of $2,000 may still make sense if the repricing offer is so inferior).

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Which Are The Loans Out With Free Conversion?

For floating rate home loans, both UOB and OCBC offers a free conversion during the lock-in period should the bank increase the underlying mortgage peg – the BOARD rate.  For fixed rate mortgage packages, HSBC stands out with its superior two-year fixed rate home loan at 1.90% and three-year fixed rate home loans at 2% (both for minimum loan of $800,000) where the bank offers a free conversion at the end of the fixed term.  Incidentally, these two packages are some of the last few sub-2% fixed rate for refinancing home loans in Singapore (see our article last week), which we forecast will come to an end very soon.

 

So for those with existing home loans where the lock-in expires within the next 6 months, now is the best time to take action. Speak to our consultants to find out how you can secure quickly one of these sub-2% fixed rate home loan for refinancing, along with our Zero-Cost refinancing option.  It’s a no-brainer.

 

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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The Last Of Sub-2% Fixed Rates

With UOB ending its direct-to-bank 2-year fixed rate home loan promotion of 1.98% on its website this week, the number of such fixed rate home loan packages at below 2% in Singapore has dwindled to just four.  All 3 local banks have set their fixed rate home loan at 2.18% for 2-year fixed and at 2.38% for 3-year fixed rate.

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In fact, this month October may be the last month for any homeowner still keen to lock down fixed rate at below the psychologically-important 2% mark.  This is so as US 10-year Treasury yields has shot up to above 3.2% this week, a decade high, and recent hawkish comments from the Fed Chair buttress the case for more aggressive rate hikes if needed going into 2019.  Last check 3-month SIBOR in Singapore is still hovering around 1.64% but not for too much longer with the pressure on the dollar.  Here at MortgageWise, we maintained our view that the benchmark interest rate of 3-month SIBOR will continue on its march towards 2% target before the end of the year.

 

Here’s a quick look at the last of 4 remaining banks with fixed rate home loans still at below 2%:

fixed rate home loan singapore

fixed rate home loan singapore

 

If indeed our prediction comes true by end of this month, this will be the first time in a long while that we see almost all fixed interest rates going above 2% in Singapore.  This is a very likely scenario considering CIMB may finish its tranche of funds soon which it will then end its 3-year fixed rate home loan promotion which is attractive now at average of 1.90% over 3-year period for minimum loan amount of $800,000.

 

Homeowners whose lockin expires before March 2019 will do well to act early by contacting us now.  This could be the final chance to lock down sub-2% fixed rate for the next 3 years which will give absolute peace of mind when rates start to go on a tightening path.  Speak to us today as not only do you enjoy the last of such low fixed rates, those refinancing with a minimum loan of $500,000 would receive $250 Tangs voucher from us to help defray their valuation fees, in our zero-cost refinancing promotion.  Not to be missed!

 

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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predict interest rate movement

Fed Stays On Course For 4 Hikes This Year

As widely expected, US Fed concluded its September FOMC with a rate hike decision – third rate hike this year that brings the federal funds rate past 2% to a range of 2.00-2.25%.

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The Fed has also for the first time removed the word “accommodative” from its policy statement which some traders interpret as the end of the its rate hike cycle that started in 2015 which has seen it moved up the rate 8 times since.  However, Fed chair Jermone Powell clarified that although monetary policy is no longer accommodative, it will proceed inline with expectations and the Fed maintains one more rate hike in December, three more next year in 2019 and, in a vote of confidence in the US economy, signaled it sees three more years of economic growth.

 

Here are some key highlights of September FOMC statement:

  • Housing spending and business fixed investment registered strong growth
  • The committee forecast the funds rate to hit 2.4% by end of 2018, 3.1% by end of 2019, and 3.4% by end of 2020
  • GDP grew by at the fastest rate of 4.2% in 2ndquarter
  • Amidst strong job gains, unemployment rate will fall further from 3.9% to 3.7% by end of 2018
  • Wage growth also hit a high of 2.9% in the month of August
  • Core inflation will hold at Fed’s targeted 2% this year and is expected to rise up only very gradually

 

With the removal of the accommodative stance by Fed in this FOMC, some believe US Fed will now slow down its pace of rate hikes especially when inflation continue to remain low.  However this does not seem to be so going by how Fed is maintaining one more rate hike in Dec and three more in 2019.  However, the committee has made clear its forecast does not factor in any fallout from the current trade spat from the Trump administration.

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Here in Singapore, we also stay on track with our forecast that SIBOR would cross 2% by end of the year.  We think the pace of rate hikes might slow when US Fed hit the long-term neutral rate of 3% by end of 2019.  With rising rates in US, lenders in Singapore especially local banks have been revising their base mortgage lending rates over the past months. The pressure is also on for banks to revise their fixed rates after this month and we may finalize see the last of sub-2% fixed rates as the last few remaining foreign lenders up their rates (the likes of Bank Of China, CIMB, etc).  Already local banks have announced 3-year fixed rate going up to 2.38% with effect from October.

For those keen to refinance or with lock-in expiry within the next 6 months, there is no better time to speak to us than now, as we also offer a zero-cost refinancing solution to our clients (for loan above $500,000).  You will have nothing to lose, not even a repricing admin fee to pay, when you choose to refinance through MortgageWise 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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lock in period prepayment penalty and loan restrictions

The Perils Of Lock-In

Everyone is familiar with the concept of a lock-in or a contractual period with the most ubiquitous being that of a mobile phone plan’s 2-year recontract period whenever one upgrades his or her iphone in Singapore.  The penalty for breaking such a mobile phone contract is to pay back the telco a certain amount of subsidy given on the new iphone sold to you earlier at a “subsidized” or promotional price.

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When it comes to home loans, this penalty amount to be paid back if one breaks his mortgage contract is not merely a few hundred dollars but huge – at 1.5% of the outstanding loan!  Take a typical loan for a private property in Singapore at $700,000, this means paying back $10.500!  Surely a showstopper for anyone thinking of refinancing out to another bank to save on interest costs.

It is hence interesting that we observe in the past few years that most homeowners in Singpoare are not too particular about lock-in periods that is tied to most home loan packages today (usually 2 years sometimes longer).  Most would gladly sign on the dotted line for a floating rate home loan without raising an eyebrow, especially when lured by lower nominal headline rates in the first few years.

When SIBOR starts to climb more aggressively since the start of the year, and hiking of mortgage pegs by various lenders becomes more commonplace, the reality of lock-in penalty begins to bite.  Most banks have adjusted up their mortgage pegs by 0.30% to 0.60% this year, and most homeowners on floating rate packages have found their interest rate suddenly going up to above 2%, some with barely less than a year into their 2-year lock-in period.  What this means is that one would be unable to refinance out, or even negotiate with their existing bank to reprice to another lower-rate package while they are still locked in.  The lock-in means the borrower is essentially trading off his right to quit or break the contract in return for lower promotional rates.  This trade-off then has got to makes sense with a wide enough discount from prevailing floating rates if one is to sign away his rights to walk away.

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The good news is, unknown to some homeowners who simply reprice with their banks, there are actually interesting home loan features offered by a few lenders out there that mitigate the restrictions of a lock-in period.   With interest rate expected to continue on its upward trajectory, homeowners ought to look beyond interest rate per se and start exploring many other mortgage loan features available in the market place.

 

No Penalty For Partial Repayment

There are many clients we know with high balances in their CPF Ordinary account which they leave behind to earn the risk-free compounding interest of 2.5% p.a. while they use cash to service their monthly repayments.  When interest rate starts to rise up eventually above 2.5%, it would make perfect sense to deleverage and pay down part of the mortgage, be it using cash or CPF.

There are home loan packages that allow one to prepay partially up to any amount during the lock-in period, leaving behind just $200,000 outstanding loan, sometimes even leaving nothing but $10,000 balance in order to redeem the loan in full after the 2-year lock-in period so as to avoid any penalty.

 

No Penalty For Full Redemption Due To Sale Of Property

Yet there are more than a few banks now that offer full waiver of penalty when the redemption of loan is due to sale of property during the lock-in period.  And the best part – this applies even to fixed rate home loan.

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It is no longer true that if one has intention to sell his property soon, or when his condo is going through an enbloc exercise, it will be unwise for him to refinance or reprice to a fixed rate home loan to lock down runaway interest costs should he take much longer to complete the sale.  It used to be true as even repricing to another home loan package often comes with a fresh 2-year lock-in period and he will need to pay 1.5% penalty on the full loan upon completion of sale.  Now, the best thing to do is simply refinance to another bank that offers this full waiver feature due to sale of property.  That way, the worst-case scenario would be simply to refund back to the bank the legal subsidy of $1800-$2000 should he manage to sell his property in the next 3 years (legal fee clawback period).  That is a far cry from paying 1.50% penalty on the outstanding loan.

 

Free Conversion If Bank Increases The Mortgage Peg

Again, there are more than a few banks offering this feature which gives homeowners some kind of bargaining chip.  To allay fears of being “trapped” in a particular floating rate package for 2 years where the lender would then mercilessly jack up the mortgage peg couple of times in a year, banks now dangle the right to request for a free conversion anytime should the mortgage peg be raised.  This essentially means that homeowner could ask to reprice to another better prevailing package with the bank (usually they would opt for fixed rate in such a scenario) and the bank would do that free of charge without slapping the usual admin fee for repricing.  In a way, this puts a restraint on lenders who might otherwise raise interest rate with no fear of exodus of clientele base or mass switching of home loans to lower-spread packages within the bank.

 

In fact, as the gap now between the lowest floating rate home loan at 1.70% and the lowest fixed rate home loan is at 1.68-1.85%, why get locked in for 2 years on a floating rate when one could effectively eliminate all the perils of lock-in period by signing on a fixed rate?  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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london property at canary wharf

London Property Loan – UK Vs Singapore Banks

With Brexit deal near its finishing line, there may be renewed interest in investing in a prime London property for many global real estate investors.  Many may not be aware, especially for the benefit of Asian investors who can park their funds in the safe haven financial centre of Asia, Singapore banks have long been aggressive in lending to its Wealth or private banking clients for forays into London property market.  In recent years, some banks have gone further as to waive the need to join Wealth banking altogether in a bid to lend more outside the local property market

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We are one of the leading mortgage brokerage firm in Singapore that could help you secure that leverage to enter London property market wherever you are based.  And the best part is besides Sterling, you can choose between Sing dollar, or switch between the two whenever you have a strong conviction on currency movements.  For those looking to extend their loan capacity beyond just banks in their own domiciled country, speak to us today as we can help you with the ever-changing lending criterias and documentations needed from Singapore lenders.  To give you a low down, here’s a quick summary on the key differences between borrowing from UK banks (for those eligible) and from Singapore banks:

 

 

Information As At September 2018

Loan FeaturesUK Property Loan
From Singapore Banks
 
UK Property Loan
From UK Banks
Eligibility

 

Non-tax resident of UK;
Singapore Citizen/PR;
Onshore/offshore foreigners to Singapore
UK tax residents;
UK Citizen/PR
Purpose

 

Must be for investment only;
(both purchase or remortgage from UK/Singapore banks)
Both investment and own-use
(both purchase & remortgage)
Base Currency

 

Choice of GBP or SGDGBP only
Currency Switch

 

YesNo
Interest Rate

 

Variable rate only
(P+I, no interest-servicing loan option)
Fixed and variable
(interest-only more stringent with MMR)
Mortgage Peg

 

3-month SIBOR (Loan in SGD);
Bank’s GBP COF Or 3-month LIBOR For GBP (Loan in GBP)
Variable or tracker rate
(usually reference on BOE interest rate)
Loan-To-Value Ratio (LTV)Mostly 60% with max up to 70%
(75% for Singaporeans)
Can go up to even 100% but with higher interest rate
Minimum Loan

 

GBP200,000 to GBP300,000GBP25,000
Max Loan Tenure

 

30 years or up to age 7530 years or usually up to age 80-85
Location

 

London Zone 1-3 only;
Approved list of projects
All cities and projects
Type Of Property

 

Must be completed in 1 single disbursement, usually apartments/condoAll types completed or under construction

 

Our chart above provides a snapshot of all the key information you need to know for your London property loan be it borrowing from UK or Singapore banks.  Here’s three more considerations we like to highlight when choosing between the two:

 

Amount of expenses and debt information to be furnished

The Mortgage Market Review (MMR) put in place by FCA (Financial Conduct Authority) in UK since April 2014 has now made borrowing from UK banks a challenging experience.  Borrowers local or foreign must be prepared to answer a litany of questions on their spending habits (especially for regular items like subscriptions, childcare, etc coming out from bank accounts) in order for the banks to be sufficiently satisfied that one is borrowing within their means.  Previously lenders need only assess income to ascertain repayment ability but with MMR the onus is placed on lenders to also look at debt and spending in order to assess affordability.  This means that the entire application process may take 2-3 hours and approval can take weeks.

As Singapore banks are not governed by MMR, the level of checks conducted will not be as laborious.  For the majority of borrowers out there with employment income, most lenders would require just 6 months of payslips with 6 months of bank statements showing corresponding salary credit.  There is usually no stringent checks on spending habits and debt situation.

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Need for AUM (asset under management)

Most banks in Singapore still require “onboarding” of preferred banking especially for foreigners with income outside of Singapore.  This means parking around S$200,000 to S$250,000 in your account here.  Speak to us though as there are a few banks which could waive this requirement or you may just be asked instead to earmark a much smaller sum equivalent to 36 months of the mortgage instalment payable upfront.

Parking of funds in Sing dollar can actually become an advantage (see next point) if you know how to make full use of currency movements.  Speak to our dedicated team of mortgage consultants who can explain to you how this works and guide you step-by-step on how to secure your London property loan in Singapore.

 

Currency risk when financing in SGD – boon or bane?

Financing your London propery purchase from Singapore banks present a unique opportunity to profit from currency movements, notwithstanding the risks involved which can be mitigated.  Let us illustrate with a simple example.

Carter works in Canary Wharf for the past one year and hopes to buy his own apartment instead of renting.  He found a suitable apartment for his family near his work place that costs GBP800,000 with a 60% LTV mortgage from a Singapore bank at GBP480,000, which he took in S$ financing and converts at GBP/SGD $1.794 to S$861,120 and service the loan with an interest at 3.8% over 30-year tenure.

Imagine if the Pound recovers back to FX rate of GBP/SGD at $2.00 two years after Brexit deal by 2020, and  Carter decides to switch his loan base currency from SGD back to GBP, he would convert his loan outstanding of S$829,116 to GBP414,558.  Had he taken the loan in GBP two years ago, at the same interest rate of 3.8% over 30 years, his loan outstanding would be GBP462,160 instead.  This translates into a savings of GBP47,602 for Carter which is equivalent to a reduction of almost 10% on his original loan amount of GBP480,000!  This savings is purely from a currency bet as Pound recovers from its low and Sing dollar weakens thereby Carter’s loan became “smaller” in Pound terms.

For a more indepth understanding of how one can qualify for London property loan financing from Singapore banks, speak to our team of mortgage consultants today, obligation-free!

 

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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how to choose fixed vs floating

Reprice Or Refinance Home Loan?

As interest rate begins to creep up this year, many homeowners are receiving notifications from banks this year on a higher revised monthly repayment, sometimes more than once within six months.  That is when some people realized the importance of not being locked into any loan which then allows them to refinance out for better rates elsewhere if need be, or even partially paying down the home loan using one’s CPF (especially when floating rate goes near to 2.50% where it no longer make sense to leverage).

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Apart from interest rates, home loan packages in Singapore today can come with all sorts of interesting features which many may not be aware of.  Homeowners should therefore take heed and not simply reprice and sign on the dotted line with their existing banks without even checking what else is available in the market.  Remember when repricing, most likely you would need to lock yourself in for another 2 years with the same bank, essentially denying yourself the chance to try out new mortgage features, and new products and services from a new bank who may be hungrier for your business.

Without going into too much details, let us me just list 12 of these new mortgage features:

  1. Full flexibility to reduce the loan anytime during the lock-in
  2. Ability to sell the property without a penalty during lock-in when an offer too good comes up
  3. Free conversion should the bank revises up its loan peg during the lock-in
  4. Free conversion at end of the lock-in period
  5. Interest-offset account where you can offset up to 70% of the outstanding loan
  6. Qualify for high-yielding deposit account via a home loan
  7. Becoming a preferred customer of an international bank via a home loan
  8. Having the best of both worlds by combining fixed and floating rate in the same loan
  9. Legal subsidy to help defray the high costs for de-coupling of property titles
  10. Cash out on a term loan without incurring much admin fees (compared to doing it via repricing)
  11. Cash out to get a higher term loan without being restricted by CPF usage in the property
  12. Refinance at no costs through MortgageWise (compared to repricing where banks might still charge)

 

I marvel when I read recently advice given by another mortgage broker that for those looking to sell their property, it is best they reprice instead of refinancing now.  This is no longer true when there are more than a few banks offering fixed rate home loans now that come with waiver of penalty due to sale during the lock-in period.  Yes, there is still the legal fee clawback if one redeems in full the mortgage within three years but the $2,000 clawback is easily covered by the savings in interest alone in the first year of a 3-year fixed rate term.  Not to mention if the current bank charges an admin fee for repricing or imposes a fresh 2-year lock-in which means redemption penalty!  In fact, the best option for those who are selling is to refinance out if the current bank does not offer a package with waiver of penalty due to sale.

As you can see from the list above, your current bank definitely will not be able to offer you all of the features above.  You will first need to understand what these features are, and ask yourself what is important to you besides interest rate per se, which can appear low today but many have realized that they do not last.  It will be too much details for me to elaborate on all the features and benefits above in this article.  It is better that you speak to our team of very experienced mortgage consultants operating since 2014 who collectively have helped thousands to refinance successfully and to enjoy not just the lowest interest rate but benefits unknown to them before they start working with a professional mortgage consultant.

Compare All Latest Rates 2018

 

And one of those benefits unknown to most, allow me, is the last one on the list – refinancing out to another bank through MortgageWise now comes with zero “out-of-pocket” costs for min loan of $500,000 (other terms apply), compared to repricing where some repricing banks still charge a small fee.  It is zero cost because we are giving away $250 Tangs voucher to help offset valuation costs up to $450 for most properties.  And this is not one of those “up to” gimmicks where you qualify only if your loan is above $2m.  As long as your outstanding residential home loan to refinance is above $500,000, you will receive $250 Tangs voucher from us.  Period.  MortgageWise has now given the market a genuine no cost option to refinance to the bank who offers the best deal in terms of lowest interest rate and best loan features.

Refinancing may seem daunting to some at first with the need to submit documentations to the new bank for approval.  Most of our clients are quite pleasantly surprised to discover that with the advent of technology these days, all that you need is just 20 min and a SingPass to access 3 government websites and retrieve 5 sets of documents and you are done!  We will show you step-by-step.  And when we also show, by way of our interest simulation model, that the average interest savings based on a $700,000 home loan could add up to $3,000 over a period of 2 years, is it not worth that 20min of your time?  Why make your bank richer when you could use that sum on a nice vacation at the end of the year?

Interest rate is still expected to rise further with Fed projecting two more rate hikes before the year is over, and with one coming in just the next few weeks (September FOMC).  Banks have been moving up both fixed and floating rates over the months.  Take decisive action now and lock down the lowest rate so you can rest easy!

 

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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australia property loan

Australia Property Loan – Aussie Vs Singapore Banks

Unknown to many, Singapore banks have long been active in providing Australia property loans for purchases in the 3 main cities of Sydney, Melbourne, Perth (plus Brisbane for some lenders) to both Singaporeans as well as foreigners onshore and offshore to Singapore, as long as one is not a resident of Australia.  This applies even to Aussie expats working outside of Australia.

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With the clampdown on mortgages issued to foreigners in Australia since 2016, more Aussie property investors are finding reprieve from lenders in Singapore.  To give a quick understanding, we give a summary on the key differences between borrowing from Aussie banks (for those still eligible) and from Singapore banks below.

 

Information As At August 2018

Loan FeaturesAustralia Property Loan
From Singapore Banks
 
Australia Property Loan
From Australian Banks
Eligibility

 

Non-tax resident of Australia;
Singapore Citizen/PR;
Onshore/offshore foreigners to Singapore
Australian tax residents;
Australia Citizen/PR;
Mainly onshore foreigners to Australia
Purpose

 

Must be for investment only;
(both purchase or remortgage from Aussie/Singapore banks)
Both investment and own-use
(both purchase & remortgage)
Base Currency

 

Choice of AUD or SGDAUD only
Currency Switch

 

YesNo
Interest Rate

 

Variable rate only
(P+I, no interest-servicing loan option)
Fixed and variable
(with interest-only option)
Mortgage Peg

 

3-month SIBOR (In SGD);
Bank’s AUD COF/3M-BBSW* (In AUD)
Variable rate based on internal BOARD
(usually reference on cash rate from RBA)
Loan-Value-Ratio (LVR)Mostly 60% with max up to 70%
(75% for Singaporeans)
Mostly 80%
(max up to 90% for Aussies)
Minimum Loan

 

A$200,000 to A$300,000A$100,000
Max Loan Tenure

 

30 years or up to age 7530 years or up to age 99
Location

 

Sydney, Melbourne, Perth, Brisbane;
Usually within 25km from City Center;
Approved project list
All cities and projects
Type Of Property

 

Must be completed in 1 single disbursement, usually apartments/condoAll types completed or under construction
Built-in Area

 

50sqm
(internal only exclude balcony/PES)
40sqm
(internal only exclude balcony/PES)

 

As our chart above illustrates quite clearly the differences between taking out a mortgage from an Aussie bank versus that from a Singapore lender, we need only to highlight a few other considerations when choosing between the two:

 

1. Amount of expenses and debt information to be furnished

In an effort to clamp down on excessive lending in recent years, Aussie banks have stepped up their checks on applicants’ expenses and debt level declared by seeking a whole bunch of onerous documents from credit card statements to household bills.  Australian authorties have also announced in Nov 2017 plans to introduce a mandatory centralized credit reporting regime which forces the big four lenders downunder to participate fully from July 2018 by feeding credit rating agencies with detailed credit card and loan payment information.  What this means is a more transparent and holistic view of one’s credit worthiness at a national level which is expected to impact the amount of loan to be granted from Australian lenders.

Compare All Latest Rates 2018

 

In fact, just this month Bloomberg reported that according to UBS Group AG analysts, the new regime which brings about more genuine assessment of spending behaviours (Aussie banks have displayed consistent under-estimate of living expenses) would curtial borrowing power of the A$1.6 trillion by as much as 35%!

This has big implications for property investors in Australia who would do well to start looking elsewhere for leverage.  By and large, it is still a breeze for non-residents to borrow from Singapore banks for their Australia property purchases, who requires just 6 month’s of payslips with matching bank statements showing salary-crediting.

 

2. Need for AUM (asset under management)

However, for foreigners, most lenders in Singapore would require onboarding of preferred or priority banking which means you need to park around S$200,000 of funds with the bank here in Singapore.

This could be waived in certain situations or you might be asked instead to earmark a much smaller sum equivalent to 36 months of the mortgage instalment payable upfront.  This requirement can actually become an advantage (see next point) if you know how to make full use of currency movements.  You should speak to our dedicated team of mortgage consultants who would guide you step-by-step on how to secure your Australia property loan in Singapore.

 

3. Currency risk when financing in SGD – boon or bane?

Financing your Australia propery purchase from Singapore banks also present a unique opportunity to profit from currency movements, notwithstanding the risks involved which can be mitigated.

Take for example in recent months due to fears of China’s economic slowdown in the face of tariffs and trade war from the United States, Aussie dollar slips against the Sing dollar dropping to a recent low of $0.997 on 15 Aug.  This makes a good entry point for one to take out a mortgage in SGD for financing Australia property purchase, with a view to profit from a subsequent rise in AUD/SGD which leads to a smaller loan in Aussie dollar terms.

Supposed John who works in Hong Kong buys his Melboure apartment for A$800,000 with a 60% LVR mortgage from a Singapore bank at A$480,000, which he took in S$ financing and converts at AUD/SGD $0.997 to S$478,560 and service the loan with an interest at 3.8% over 30 years tenure.

Imagine Aussie dollar recovers back to FX rate of AUD/SGD at $1.050 in a year’s time, and John decides to switch his loan base currency from SGD back to AUD, he would convert his loan outstanding of S$469,835 to A$447,461.  Had he taken the loan in AUD back then, at the same interest rate of 3.8% over 30 years, his loan outstanding would now be A$471,249 instead after 1 year.  This translates into a savings of A$23,788 for John which is equivalent to a reduction of almost 5% on his original loan amount of A$480,000!

Compare All Latest Rates 2018

 

4. Interest-only servicing option

Another key difference is that Australian banks offer interest-servicing mortgage option where in the initial years of the loan (usually 5 years) borrowers need only pay the interest component without any reduction in principal every month. The central bank RBA (Reserve Bank Of Australia) estimated that up to A$360b (1/5 of the mortgage market) of IO (interest-only) mortgages would roll-over to P+I (principal + interest) over the next 3 years which some has called this ticking time bomb.  The mortgage reset to P+I will place great strain on borrowers struggling to hold on to the property especially at a time when cash rate might be adjusted up.

IO loans might not be such a good idea for long-term investors in Australia property.  Still, it is no doubt for an attractive leverage option available to those who could borrow from Australian banks (new requirements has it now that no more than 30% of new loans issued every month can be IO loans).  The next few years might throw up buying opportunities indeed at firesale prices, but only for residents in Australia who could buy from the resale market which is not still not accessible to foreigners.

 

For a more indepth understanding of how one can qualify for Australia property loan financing from Singapore banks, speak to our team of mortgage consultants today, obligation-free!

 

Since 2014, MortgageWise.sghas 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.

 

Compare All Latest Rates 2018

 

 

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DBS bank singapore

DBS Raised FHRs Across The Board

Last week DBS announced on its website across-the-board adjustment of its Sing Dollar Fixed Deposit rates from 7-month to 60-month tranches on 24 August, which will also hit all housing loans tied to its popular FHR peg. 

The announcement on DBS’s website (reproduced here) as follows:

DBS FHR rate hikes

 

This latest move from the market leader comes after rate hikes to selective tranches announced last month by its two other local rivals in the mortgage business OCBC and UOB, which was also reported in this blog.  Homeowners will be receiving letter notifications from the bank soon and the new rates should apply after a one-month notice as required.

Compare All Latest Rates 2018

 

With rate hikes coming fast and furious now almost every other month, since the start of 2018, I am not surprised almost every single FDR home loan peg in the market has been adjusted this year, some by more than one time in the space of a few months.  It is no wonder most clients are jumping on the bandwagon of fixed rate home loans in recent weeks.  Before we go on, here’s a quick summary on the exact impact to affected customers who are on DBS floating rate housing loans:

 

BankMortgage Peg*Date*Old RateNew RateIncrease By
DBSFHR824 Aug0.200.500.30
DBSFHR924 Aug0.500.800.30
DBSFHR
(ave of
12 & 24M)
24 Aug0.80
0.60 (12M)
1.00 (24M)
0.975
0.80 (12M)
1.15 (24M)
0.175
DBSFHR1824 Aug0.800.950.15

*FHR is the original tranche FHR launched by DBS in 2014 defined as ave between 12M and 24M FD which has increased from 0.60 to 0.80 and from 1.00 to 1.15 respectively.

 

No one likes a higher monthly repayment, however when tides are rising, all ships eventually go for those on floating rate mortgages.  The speed of increases this year (where the local banks take turns to raise its mortgage pegs) has caught many by surprise, but the magnitude of increase has by and large stayed within an average of 0.30% for most.  And if you look at how SIBOR itself has increased (see purple line below) in past 6 months from 1.10% to 1.63% (as at 6 Aug), the banks are simply playing catch up.

FDR rate hikes 2018

 

Compare All Latest Rates 2018

 

 

With the latest economic indicators coming out from US indicating continued strong growth, US Fed is poised to hike in its FOMC next month (we will bring you our summary report and analysis here so watch this space). All the signs seem to point to further liquidity crunch, which has seen all the banks here rolling out numerous deposit promotions over the last few months in a bid to bring in more funds. It is fair to say, barring any unforeseen events, mortgage rates look set to go further north in the near future.  Homeowners who are near their lockin expiry will do well to start looking around for the best fixed rates and take action quickly before it rises above 2%.

 

And there is no better time to do that now by reaching out to us here at MortgageWise.sg – we can offer you a zero-cost option for refinancing subject to min loan $500,000 (terms apply).  By all means do get a repricing quote from your current bank first, and let us run the numbers and see if it makes sense to switch. There are many mortgage lenders out there hungry for your business.  That is the beauty of free market!

If you act fast, we can still get you 3-year fixed rate at 1.90% or 2-year fixed rate at 1.68% (with some conditions attached).  Speak to our consultants to find out more how it works.

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.

 

Compare All Latest Rates 2018

 

 

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Tower Bridge london - uk property loan

Refinance Your London Property Loan?

BOE (Bank Of England) has just announced a quarter of percentage points rate hike from 0.50% to 0.75% this past week (2 Aug), mirroring the tightening path of its counterpart across the Atlantic.  What this means is that just like homeowners in Singapore, around 3.5m borrowers in UK on variable or tracker rate mortgages would start to see their monthly repayments head north.

Compare All Latest Rates 2018

 

It is significant development which is not widely discussed in the financial markets afterwards or cause as much ripples as actions by US Fed.  Yet it is a vote of confidence in the resilience of the UK economy by its Central Bank, and has implications for all those exposed to the UK Economy and the Pound.  It is also significant when you look at the path of UK interest rate movements over the last few years:

uk mortgage interest rate

 

In its policy statement after the meeting, Mark Carney BOE’s governor, indicated there will be further “limited and gradual” hikes to come as the MPC (Monetary Policy Committee) sees a pick-up in economy supported mainly by household spending.  It forecast GDP growth of 1.4% this year which increases to 1.8% in 2019, with an unemployment rate that is expected to fall further from the current 4.2% and wage growth to pick up just like in the US.

There has been much debate in UK about the need to hike rates so early when there is still no light in sight in terms of a trade deal between UK and EU after Brexit, which is expected by end of the year.  This is especially so when recent statistics suggest a slowdown in the property market which the committee feels might be restricted to Central London, ie. affecting more on foreign investors.  By and large, BOE announced its intention to stay on a gentle tightening path, yet monitoring impact of upcoming events in Brexit negotiations as well as the much-feared global trade war of tariffs.

Before we go on, let us take a look at the GBP/SGD movements over the past 5 years since the Brexit vote in June 2016:

GBP/SGD exchange rate

Source: XE.com

 

It is clear from the chart, that since the lowest point of 1.689 three months after the vote in Oct 2016, the Sterling Pound has been trending up against the Sing Dollar.  In fact, the current dip in April this year presented UK real estate investors, those who had bought into the London property market after Brexit and took the loan in Pound, with the perfect window of opportunity to do a switch of currency now to profit from the gradual rise in Sterling.  Here’s what I mean by an example.

Compare All Latest Rates 2018

 

Mr. Cheung invested into a London property after Brexit at a purchase price of £1m and took a loan in pounds at 60% LTV of £600,000.  After paying down his loan diligently over the last 2 years at an average tracker interest rate of 3% over 25 years, his current outstanding loan is at £566,768.  If he is to refinance this loan to SGD at the current rate of GBP/SGD 1.79, he converts his loan into SGD at S$1,014,514.  For the purpose of this study let us assume he continues to service the interest at 3% for the next two years when his loan in SGD terms will be reduced further to S$951,355.  Now watch. If he is going to convert this loan back to pounds and supposed the pair GBP/SGD continues on its climb to reach 2.00 by this time, that translates into an outstanding loan of £475,677.  This would be much lesser than had he continued on his existing loan in pounds for a total of 4 years from the beginning at the same interest rate of 3% which ends at £531,483.  In short, Mr Cheung would have managed to shrink his loan by £56K which is almost 10% of his original loan amount of £600,000.  In the meantime, with a recovering UK economy after Brexit, he might have also profited from a rise in the valuation of his property by 20% to £1.2m! This translates into a total gain of £256,000 and that is before exchange gains on both the profit as well as equity sum £400,000 of his own money invested from the outset, ignoring transaction costs involved.  Total returns on equity would likely be near 80% if he decides to transfer all his money back to his own domiciled currency.

 

There may be some fees involved in making the switch and refinancing to a Singapore bank, and it may come with a requirement to pay down the loan slightly as financing in SGD carries more risk to the bank than in GBP.  Still, it is more than justified by the “shrinking effect” from the loan as you can see from the example.

 

However, note that this would only work for those who bought into London property market when the GBP/SGD is already substantially below 2.00, ie. after the Brexit vote.  Otherwise, it is just a recovery in position for exchange losses on paper.  Having said that, for those super bulls out there on the Pound and believe it will rise back up to its glory days of 2.50 or higher eventually, there is no better time to buy into the doldrums of London property market now, and take the loan in SGD from Singapore banks at GBP/SGD at close to 1.80.  Speak to us now as we can bring you the most optimal financing option for your London property purchase.

Compare All Latest Rates 2018

 

It would be not responsible-writing if I do not highlight the risk involved when taking financing in another currency from that of the underlying asset – the risk of “margin call” or call to pay down the loan.  The same “shrinking” effect explained above would turn into a “ballooning” effect on the loan when the Pound slips substantially below 1.80 and reaches new lows below 1.689.  At the same time, when that happens, you can bet that the property market goes into a turmoil with valuations dropping across the board.  The loan in SGD financing would then go over the usual LTV limit of 60% granted by banks in Singapore to foreigners (or 70% for Singaporeans).  You will be asked by the lender to pay down on the loan to bring this LTV back down to 60%, failing which the bank can recall the loan!  Another factor to take note is the pace of interest rate hikes in 3-month LIBOR interest rate for Pound (where most GBP financing is pegged to) relative to the local SIBOR (Singapore Interbank Offer Rate) for SGD financing.  The latter bears a close correlation with the US Federal funds rate whereas that for LIBOR is dependent on many factors.

 

So, caveat emptor! Investors who like to take position and benefit from a “shrinking loan” in SGD financing needs to have excess funds on the side for such paydown calls.  After all, paying down a loan reduces interest costs in the long run, as investors simply wait for a recovery in both the currency and asset price which is the reason why someone would want to enter a specific property market in the first place. Bottom line is one must have holding power.  Incidentally, it makes perfect to park excess funds early in SGD with the Singapore bank as AUM precisely for this scenario – where there will be no exchange losses when there is a need to top up or pay down. The funds are already in SGD.

 

Incidentally for this more adventurous group of investors in London property, some Singapore banks do offer a switching feature where one could switch from one currency to another and back, for a small fee.  This essentially gives the investor flexibility in terms of taking positions when they feel that the currency pair is headed towards one direction for a protracted period.  To this end, he could use the in-house view from the currency research team of the private bank or preferred banking.  Speak to us today as we can show you how to make use of such a feature.

 

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.

 

Compare All Latest Rates 2018

 

 

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OCBC and UOB hike FDR and OHR

More Interest Rate Hikes..

With SIBOR rising significantly this year (3-month SIBOR 1.629 as at 26 July), it seems every other month, some banks will be adjusting their mortgage interest.  So let me just say this is not peculiar to UOB and OCBC who are the latest to announce hikes to selective tranches as follows:

 

BankMortgage Peg*Date*Old RateNew RateIncrease By
OCBC36FDMR2 Aug0.650.950.30
OCBCOHR16 Aug1.001.300.30
UOB15FDPR27 Jul0.250.700.45
UOB14FDPR27 Jul0.250.600.35

* Note: This is indicative date based on information we gather on best effort basis, which might differ slightly in some instances especially for OHR which is not published on the website.  The dates shown might be announcement dates or effective dates as some banks announce the hike much earlier.  As most banks need to give at least a one month notice in writing to customers, these might or might not be the exact date where their mortgage repayments would be revised.

 

As a responsible mortgage blog, we have a duty to keep the market informed of all the latest interest rate revisions from all lenders in the market.  Follow this blog to stay abreast of interest rate trends.

Strictly speaking, OHR is not an FDR (Fixed Deposit Rate) home loan mortgage peg but more like a BOARD rate, but we are tracking it just as well as that has been the pre-dorminant loan peg for OCBC in the past year, but is now no longer in the offering.  We track it also because it remains a singular mortgage peg as far as we know, unlike conventional BOARD rate which has reference quote based on dates range hence any subsequent revisions by batches (depends on which period one signs up) remains elusive to the public.

Compare All Latest Rates 2018

 

With the US Fed indicating two more hikes this year (increased from 3 to 4 after the Jun FOMC) with one looming just ahead next month in Sep, indeed we have been warning for a while now that this current uptrend might just be different from the “false alarm” back in 2016.  Already 3-month SIBOR has exceeded the last peak of 1.25% reached in Apr 2016 by a significant margin.  Nothwithstanding the risk of the current spat between US and China ballooning into a full-bloom global trade war and derailing economic growth, the consens is that SIBOR should continue on its upward trajectory.  At MortgageWise, we maintain our forecast that it would hit 2% before end of the year.

Those who are out of lock-in might want to consider switching to a fixed rate home loan quickly while there are still handful of sub-2% packages in offer.  Speak to your current bank first for a good repricing offer, then contact us for a lowdown on all the available packages in the market fixed and floating. We can help you make an informed decision quickly, with our arsenal of interest-tracking tools (since 2014), interest simulation showing you how much you stand to save and the costs involved, not to mention our Zero-Cost Refinancing promotion which we just rolled out in May this year.  Seize it.

 

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.

 

Compare All Latest Rates 2018

 

 

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