winning home loan deals

Fixed Rates Fallen Below 2%!

To be more precise, that’s for the Year 1 headline rate.  By now some might have heard about the latest National Day promotional home loan package rolled out by DBS this week which is a 3-year fixed rate package that comes with a free conversion after the first year:

DBS 1.89 Fixed

Well, we seemed to have a knack of predicting interest rate trends.  Just last month we said that we will not be surprised to see fixed rates falling back to sub-2% level should US Fed decides to cut rates after FOMC (July 30-31) this month.  What is surprising is that it happened even earlier than the Fed meeting.  We are seeing fixed rate going below 2% for the first time this year, albeit that’s only for the headline Year 1 rate (the average over 3 years is actually 2.08%). And already one other bank has already matched this package and perhaps more banks will follow suit by dropping below 2% next month?  You never know.

Compare All Latest Rates 2019

 

What I find most intriguing is that you have many mortgage brokers out there aggressively marketing this package but without telling clients that if you apply for the same package online and direct to DBS, you actually get additional $200-500 in cash rebate (for refinancing cases, up to $3M loan).  This is over and above what you get for the normal cash rebate ($1,800/$2,000) when you apply through a broker.

Wait, you must be wondering why are we telling you this?  Aren’t we also a broker and wants you to apply for this same package through MortgageWise?  Before you run off to DBS website to apply directly, come speak to us first.  We have put together an even better offer for you when you apply through us, which I believe you will agree with us.

This goes to underscore our commitment to all clients since 2014 – we are here to work long term with you and we will always tell you whole-of-market home loan packages, even those where the bank may not be paying us.  We hope and trust that when we abide by this philosophy of always taking care of clients’ interests first, they would reciprocate by supporting the team at MortgageWise even when the going gets tough and some lenders may choose not to pay us occasionally.  We still want to do the right thing.

And remember, only by keeping comparison sites and mortgage brokers in business will there be price competition and lower rates for all homeowners eventually, thanks to the free market.

Compare All Latest Rates 2019

 

Finally, a word on falling rates.  It is indeed an anomaly to see headline fixed rates going below prevailing floating rates of average 2.00% to 2.08%.  However, this is not the first time it happened.  The next question we get asked is – how low can it go from here?  With falling fixed rates since the start of the year at 2.58% now dropping to 2.08% for a 3-year fixed rate, it could be a signal that banks who are privy to trends in the interbank market are expecting SIBOR to go even lower in the coming months.  This means two things homeowners could do in a still uncertain market due to trade war.

Either:

  • Lock down fixed rates now which may not be too far away from the floor after already falling 50 basis points this year, OR
  • Lock down unprecedented low spreads on SIBOR home loans which ensures you will benefit from any continued downward pressure on interest rates due to Fed’s rate cuts in the short term, and for that matter, in long term too when we finally get to a recession at some point.

 

So, speak to us today to find out how you will always get the best deal for mortgages, be it for refinancing or new purchase loan when you work with MortgageWise. Besides giving you the lowdown on all packages in the market, benefit from our unique rewards and referral scheme, which includes a special legal fee privilege of paying only $1,800 all-in (inclusive stamp duty & gst) for the purchase of private properties when you take a minimum of $500,000 new loan through us.  Terms apply.

 

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 2019

 
 

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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!

 

Compare All Latest Rates 2019

 

 

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.

 

Compare All Latest Rates 2019

 

 

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 2019

 

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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1-Month SIBOR Hits Fresh High Of 1.63

Following the latest US Congress mid-term elections, 1-month SIBOR has hit a new high of 1.63433 this week (as at 7 Nov).  This is a run-up from its last trading level at 1.50 range-bound since July and all eyes will be watching will it fall back or move even higher from here.  3-month SIBOR has also risen in tandem to 1.75833.

Compare All Latest Rates 2019

 

Of course, the pressure on interest rates has been building for a while and this is not a direct outcome of the US mid-term result which we know by now has led to a gridlock in Washington with a Democrats-controlled House of Representatives and a Republican-majority Senate.  Implications of that is topic for another article but suffice to say much of Trump’s agenda has been pushed through and in fact the next upcoming item in 2019 concerns fiscal infrastructural spending which is bipartisan agenda supported by both parties.  Much of the economical momemtum will be sustained through 2019 with trade sanctions the only spanner in the works.

 

Back to interest rate trajectory.  As we have said many times in this blog, banks are privy to ongoing trends in the money market.  Wih SIBOR rising to all-time high, it is no wonder we have seen quite a few rate movements by lenders over the past month:

 

1. StanChart Increased FDR Tranches Across-The-Board (8 Nov)

This has been announced by StanChart back in early October as the bank is required to give a one-month notice to all its home loan customers.  Affected StanChart customers would have received the notification letters by now.  The increases are as follows:

 

FDR Tranches

 

Old ValueNew ValueIncrease ByEffective Date
48FDR0.90%1.10%0.20%8 Nov 2018
9FDR

 

0.30%0.65%0.35%8 Nov 2018
36FDR

 

0.72%0.97%0.25%8 Nov 2018

 

Most of MortgageWise customers to whom we recommended StanChart’s floating rate packages (the 1% loan) back in 2016 were on 48FDR and would have enjoyed almost two years of super-low average mortgage interest which is just beginning to shoot above 2%.  Now may be the best time to review especially for those out of lock-ins. Contact your consultant.

 

To be fair, this year all banks have raised their FDR (fixed deposit rate home loans) pegs, in fact some by more than once, as the benchmark 3-month SIBOR has risen from 1.00% at the start of the year to 1.63% now.  The increases so far averages 0.30% each round which is palatable vindicating our view on FDR as a more stable mortgage peg than SIBOR.  The intensity of increases going forward will depend on how fast SIBOR comes up.

Compare All Latest Rates 2019

 

2. DBS Announced BOARD Rate Increase For Commercial Property Loans

DBS just announced hiking of its EFR (Enterprise Financing Rate) for commercial property loans from 6.00% to 6.50% come 3 December.  Being the “national” bank and likely market leader for commercial property financing as well, this means a large number of commercial office and shophouse owners in Singapore will start to feel the pinch of rising cost of borrowings going into 2019.

 

Commercial property interest rates behave quite differently from residential rates in that they are priced at much higher levels and each hike is usually in the region of 0.50% at the least.  Businesses will start to see their interest rising to above 2.50%-3.00% soon, if not already, should the current trend continues unabated.  In fact, we were surprised to see this increase in EFR coming this late part of the year which is kudos to DBS being supportive of local enterprises.

 

Speak to our team of mortgage consultants who are equally adept in both residental and commercial property loans under personal or company names.

 

3. Local Banks Raised Fixed Rates Above 2.28%

Since beginning of this month, all three local banks have raised their fixed rate for home loans to new highs of 2.28% to 2.48%.  In fact, it has been an unsual few months for us in this business where we have not seen local banks competing so badly on fixed rates with their foreign counterparts.  Quite a few foreign banks the likes of HSBC, Bank Of China (BOC), Maybank and even State Bank Of India have been quoting much more competitive fixed rate packages this year and stepping up their promotional drives especially in the last few months.  We wonder why.

 

It seems this can only be explained by the tight liquidity going on in the interbank market where the three local banks, being net lenders, now feel the effect of rising cost of funds more acutely and hence are on deposits acquisition drive.  Incidentally they would also benefit in a big way from lending out at higher interbank rates which is reflected in their latest quarterly financial results.

Compare All Latest Rates 2019

 

 

4. There Is No More Sub-2% Fixed Rate

With Bank Of China just announcing their new higher rates with effect from tomorrow (9 Nov), there is no more fixed rate home loans for private properties at below 2% as of now.  The new 2-year fixed rates for BOC has risen from 1.95% to 2.10%, and 3-year fixed rates from 1.95%, 2%, 2% to 2.25% for all 3 years.

 

This is a scenario we have forewarned since a few months ago when we make the call for homeowners to take early action and lock down fixed rates before they move past 2%.  It will be interesting to watch now how the market adjusts to this new psychological high of over 2% lending rates.  Indeed, it is unchartered territory for many who are so used to mortgage rates languishing in the 1.30% to 1.80% over the past 10 years.

 

Speak to us today quickly to explore what is the best option for refinancing going into 2019 where structuring of loans to achieve a lower blended rate or offset rate becomes more important.

 

 

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.

Compare All Latest Rates 2019

 

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.

 

Compare All Latest Rates 2019

 

 

 

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Scoring Hat-Trick In Mortgage!

In the run-up to the much anticipiated June rate hike by US Fed, both DBS and UOB have moved up their fixed rates since the start of the month.  OCBC has moved up their fixed rate even earlier.  The fixed rate home loan packages from the three local banks are now as follows:

 

fixed rate home loan singapore jun-2018

 

Note that UOB still has a direct-to-bank promotional package of 2-year fixed rate at 1.85% on their website which ends by 21 Jun, and which comes with a $500 Tangs voucher for loan above $300,000 (note this gift value must be deducted from the loan for purchase cases).  Incidentally, we are likely the only mortgage broker in town that even highlights this to all our clients, as such promotional gifts are excluded for cases referred to the bank by a broker.  We do that as we have operated as a “full-transparency” brokerage firm from day one, working for the long-term benefit of all our clients.

Of course, these are not the only fixed rate home loans out there as we have more than a handful of very active mortgage lenders in the market.  However, as the big three local banks command the lion’s share of the market, most would like to find out what they offer first.  Click below to access the Top 10 lowest fixed rates available in the market at this moment.

Compare All Latest Rates 2019

 

So just how exactly do you score a hat-trick in mortgage?  By locking down the lowest possible fixed rate for the next three years in a row before this rate breaks out above the 2% mark!

Understand that with more than 80% share of the mortgage market as well as being the net lender in the interbank, the local banks always take the lead in setting the direction of interest rates.  We believe the big banks are always proxy to what is going on in the money market and the fact that they have made the move to hike fixed rates to 2% range tell us how is the liquidity situation right now and how they anticipate cost of funds to move over the next few months.  Hence, we are expecting the rest of the players in the market to play catch-up soon and move up their fixed rates to 2% range.  In short, this “window of opportunity” for one to act now is not going to remain for too long.

For those who have been watching interest rate movements, the question that comes to mind now would be how long this upward trend would stay on intact? Would there be a similar U-turn like back in 2016 where 3-month SIBOR hiked to 1.25% at the start of the year but only to tumble all the way back to sub-1% soon after?  Against the backdrop of a global economic recovery not just in the US, the picture might be quite different this time round.  Interest rates for home loans in Singapore might finally break the 2% barrier convincingly and stay up in the 2%-3% range by 2019.  This is in-line with our current forecast for 3-month SIBOR to hit 2% by December this year once Fed hikes the benchmark funds rate at least two more times this year to reach a range of between 2% and 2.25%.  And if SIBOR indeed reaches 2%, what do you thnk would be fixed rates in the market?  (hint: current 3-month SIBOR is at 1.50% and the lowest 3-year fixed rate is at 1.82% average for 3-year period)

Compare All Latest Rates 2019

 

World Cup kicks off in just four days.  How about scoring a hat-trick for yourself before the first match even kicks off by locking down a 3-year fixed rate at below 2% still?  Given that the historical mortgage rates in Singapore over the last 30 years is over 4% (see the 30-year trendline of 3-month SIBOR), no one will dispute that to be able to lock down at below half that rate is indeed a hat-trick.  In fact, for those who are comfortable servicing a higher monthly repayment, I would say this could even be the final chance for one to lock down a cheap source of funds for investment by doing a cashout on an equity term loan.  In a recent interview with CNBC’s “Squawk Box” in May last month, this is what Warren Buffet has to say about the state of the market right now: “If I had the choice between buying the S&P 500 index or buying the 10-year U.S. Treasury, 30-year U.S. Treasury, it wouldn’t take me a nanosecond to go into stocks.”  He also refuted: “This is not one of those times” to concerns that U.S. stocks have soared to record highs in recent years creating another bubble.

 

And now to make the hat-trick even sweeter if you decide to gear up on your loan to go above $500,000 (only for private properties) we have just launched our Zero-Cost Refinancing feature for all MortgageWise clients.  There will be absolutely no out-of-pocket expenses (we will offset it for you) if your property valuation is up to $1.5m and when you choose to refinance through us to one of the five major lenders, subject to finer terms and conditions.  Even for those with bigger properties, the additional out-of-pocket is usually just between $50 to $200.  Do speak to our consultants if you like to score this hat-trick!

 

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 deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2019

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What Is A Combo Loan?

Unknown to many, one can actually combine the benefits of a fixed rate home loan with that of a floating rate home loan in what is simply known as a combo loan in the industry.  DBS calls it “managed mortgage”.  Not all banks offer this option though, but there are a handful that does – the likes of DBS, UOB and HSBC.

With the latest 3-month SIBOR hitting 1.50709% (as at 2 Apr), fixed rates have been rising in the last few months.  The current lowest 2-year fixed rate for private properties starts from 1.70% in the first year, and that for 3-year fixed rate from 1.80%.  Compare this with the lowest FDR (fixed deposit rate) home loan floating rate starting at 1.65% (for completed properties).

Compare All Latest Rates 2019

 

The gap between fixed and floating is still small at around 0.1%-0.2%.  Does this justify going for fixed rate? It depends. If the size of the loan is substantial like above $1m, it is still quite a considerable amount of savings especially if interest is going up at a snail pace for FDR home loans.  Read our recent article on how the banks in Singapore adjusted FDR pegs up across-the-board, but only after almost two years of SIBOR running up.

So how exactly does a combo loan work?  As the name suggests, it is breaking the housing loan into two parts – one part that is tied to a fixed rate loan, another part that is tied to a floating rate package.  For example, if one’s home loan is $800,000, one can opt to split it equally into two parts with $400,000 on fixed rate and another $400,000 on floating rate. Alternatively if one has plans to pay off a portion of the loan quickly within a year, say $200,000, and prefers a longer fixed rate for the rest of the loan, then one could opt for a combo loan with $200,000 on a floating rate with no lock-in period with the remaining $600,000 on a 3-year fixed rate package.

The homeowner would still sign one single contract (ie. Letter of Offer) with the bank, but it will clearly state the two different packages (and the respective terms) and how much of the loan is allocated to each. However, by and large most of the commercial terms would be the same in so far as it governs the contractual obligations between the lender and the borrower.  Typically only those terms that pertained to the respective package details will be different, like the interest rates for the first, second, third and subsequent years, and the commitment (or lock-in) period that governs how much of the loan the borrower can prepay without penalty.

As taking a combo loan means signing up to fixed and floating rate home loans from the same bank, very often one cannot get the absolute lowest rate in the market for both parts of the loan.  It will be perfectly fine to just get the lowest rate for one part be it fixed or floating, but since floating rate very often implies an intention to pay down, I would aruge that focusing on the lowest fixed rate would make a better starting point when shopping for combo loans.  In reality it is not so straight-forward as not all banks that offer fixed rate packages also offer floating rate on FDR pegs with no lock-in.  More often than not, those adjustable-rate packages with no lock tends to be pegged to SIBOR.

Compare All Latest Rates 2019

 

Since sourcing for a good combo loan requires some effort, what would be some situations where a combo loan is more useful compared to the typical all fixed or all floating loan?  Three such situations come to mind (remember we are talking about those with bigger loans for example above $1m):

 

1. When One Is Not Sure On The Direction Of Interest Rate Movement

For a loan of $1m, even a 0.20% savings amount to $2,000 per year (on a straight-line basis which will be slightly overstated).  Some might remember the most recent episode in 2016 when there was a scramble to sign on 3-year fixed rates at 2% only to have SIBOR retreated and fixed rates tumbled back to 1.60-1.80% and stay down for the next two years!  When it comes to interest rate forecast I can vouch that it is indeed a tricky business and one cannot just listen to analyst’s call at the start of the year.

 

2. When One Has High Balances In CPF Ordinary Account To Pay Down When Need Arises

There are those with high balances sitting in CPF account earning the statutory minimum risk-free return of 2.5% compounding interest.  As long as one can service the monthly repayment comfortably, from a financial standpoint per se and ignoring the need to access CPF funds before 55, it does not make sense to take a lower mortgage by deploying more CPF towards the purchase of property.  Especially when this gap between floating rate to 2.5% is almost 1% which means someone with a $500,000 CPF balance is losing out on earning $5,000 p.a. in compound interest if he uses it as part of equity payment for the property.  That is also one way to build up one’s nest egg for retirement.

So as long as the prevailing interest rate is much lower than CPF’s 2.5%, one should at least match the floating rate portion of the combo loan with the amount in one’s CPF Ordinary Account.  This means that when interest rate starts creeping up and levels up with 2.5% eventually (we do not know how long this will take –  is it a straight line up or see-sawing), one could simply redeem the floating rate portion of the loan as long as there is no lock-in penalty.

Compare All Latest Rates 2019

 

3. When There Is Plan To Sell The Property Soon

Fixed rates almost certainly comes with a lock-in period that corresponds to the fixed term (2-year or 3-year) during which there will be a 1.5% penalty on any amount of loan redeemed. On a loan of $800,000, if one ends up selling the property for some reason after just one year, this works out to a penalty of $12,000 that the bank earns instead of the seller (from the cash proceeds of the sale).  Splitting the loan into two parts with one part floating attracting no such penalty will lessen this cost for the seller; yet it gives an assurance that should he take much longer time to sell the property and interest keeps rising, his interest costs will be contained with part of the loan on fixed rate mortgage.  This is like a middle-of-the-road option for those who are definitive about selling.

Of course nowadays some banks do offer fixed rate mortgage that comes with waiver of such lock-in penalty when redemption is due to a sale of the property.  Still very few banks offer this feature which may also be taken away as there is a cost to the bank whenever a fixed rate contract is terminated.

We have highlighted three scenarios where a combo loan may be a worthwhile consideration. Speak to our consultants today if you like to explore such an option which offers the best of both worlds.

We hope this article has helped shed some light on this often obscure topic in the mortgage industry where many are not aware of such a loan structure.

 

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 deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See theirtestimonials.

 

Compare All Latest Rates 2019

 

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fixed rate or floating rate mortgage

Gap Between Fixed And Floating Widens

With Bank Of China finally moving up its fixed rate packages as of today, the gap between the lowest FDR floating rate (1.60%) for private properties and the lowest fixed rate (1.75% average over two-year fixed term) has now widened to 0.15 or 15 basis points.  And if you look at lowest 3-year fixed rate average (1.82%) instead that gap would widen further to 22 basis points.

As a rule of thumb we have always advised that, in a hawkish interest rate environment, any gap of less than 50 basis points generally justifies the decision to lock down on a higher fixed rate.  The rationale is that in such an environment when US Fed is expected to hike an average 3-4 times a year, it would take less than a year for interest rate to jump more than 50 basis points.  But is it all that simple?

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We also remember what happened two years ago at the start of 2016 when SIBOR (3-month) appear to climb vehemently to a high of 1.25% before a collapse all the way back to 0.87%.  Will a similar situation arise in 2018 when SIBOR started the year at 1.50%, then dropped back to 1.12% by end of January, now back up to 1.37% but drop off again in 2nd half of the year?

Indeed, this roller coaster ride of SIBOR has made the job of interest rate forecasts a daunting task.  Which is why at MortgageWise we do this forecast only twice a year – once at the beginning of the year and a revision (if any) in the middle of the year after Fed June FOMC.  For now we are still maintaining our forecast that SIBOR (3-month) will hit 2% by end of 2018.

Back to the question of how one should decide between fixed and floating rate.  We have been advocating fixed rate for a while now since end of 2017 squarely on the fact that this gap between fixed and floating is almost non-existent.  Now that prevailing fixed rates have slowly inched up above floating by a gap of 15-20 basis points, there may be a few other considerations albeit we still tend to lean towards fixed with such a small gap.

 

There are 6 factors to consider when choosing between fixed and floating:

1. Gap Between Fixed And Floating

We have already discussed this at length.  At this point in time, the small gap and the hawkish rate environment favour fixed rates and I would add that the longer 3-year would be preferred.

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2. Investment Vs Owner-Occupied Property

Why would that have a bearing on decision to go fixed or floating?  Well again as a general guide, when rates are trending up, it is better to lock down fixed rates on an own-stay property where one is servicing the loan via one’s hard-earned income.  On the contrary, investors may be more open to a “fluctuating” rate based on money market rate movements which reflect borrowing costs of the day.  In terms of cashflow management, a rising interest rate usually means a buoyant economy and hence ability to fetch higher rents (not always true).  Investors feel “less pain” with a floating rate as the mortgage repayments is serviced through passive rental income rather than active work income.

3. Intention To Sell

This is related to the preceding point on investment vs own-stay property.  For the former, investors would usually like to retain the flexibility to sell the property for highest returns without incurring unnecessary costs like a lock-in penalty (one never knows when an offer might become too good to refuse be it from enbloc or private treaty).  A floating rate package with no lock or minimal lock-in period would cater to this need.  Whereas in the case of own-stay property, homeowners would have no qualms about lock-in period as there is no desire to sell and unroot oneself.

4. Size Of Outstanding Loan

This can be the single most important point of consideration after looking at the gap between fixed and floating.  Very often, homeowners do not realize that there is a minimum loan size for refinancing to make sense.  We got this point covered in a case study which you could read here.

The dilemma faced by homeowners of bigger loans (>$1m) is related to the last point on one’s interest rate outlook.  The question for this group of clients is – should one refinance to lower floating rate or lower 2-year fixed rate to reap immediate savings as the amount involved is substantial?  Or should one bite the bullet and pay higher premium for say a 3-year fixed rate with the view to save even more in the coming years?

There is no easy answer and perhaps the best way is to speak to our consultants who will customize a Mortgage Framework which includes an interest rate simulation to show you close to actual savings beween the various packages.

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5. Stability Of Income

This can be an important factor as we move deeper into a digital economy over the next 10 years, with many industries facing headwinds due to technological disruptions.  Remember, one needs to pass the 60% TDSR (Total Debt Servicing Ratio) each time one remortgages, be it a re-financing or a re-pricing exercise.  Even though there can be exemptions by MAS for own-stay properties, many lenders still put in place their own internal credit policy on allowing up to a certain level of TDSR (usually 80%) before they will take in the loan.

6. Interest Rate Outlook (Price To Pay For Peace-Of-Mind)

No one has a crystal ball.  But still one can make certain calculated assessment based on broad market macro developments.  Though every one might hold a different view, one thing we can all agree on is that it is important to constantly re-assess the environment and adjust this view as time passes.  This is when it makes perfect sense to work with a professional mortgage consultant who tracks news on interest rate regularly. Start a working relationship  with your personal mortgage partner today.

Yet there may be those who would rather pay a little extra premium in exchange for that “peace-of-mind” from knowing that come what may, his monthly home loan repayments would remain constant for the next three years.

 

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 deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

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Importance Of Working With A Mortgage Consultant

I cannot exactly tell you when the mortgage brokerage industry started in Singapore.  But one thing for sure, more and more homeowners and investors are wising up to the huge benefits of working with a mortgage broker and the past few weeks’ experience when 3-month SIBOR suddenly shot up to 1.50 has underscored this point and also reaffirmed our belief in the value of our work.

 

Let me explain.  It is not just about cost savings in transaction fees when one purchase a property (working with us, our partner law firm offer $1,800 for both completed and under construction properties versus the market average of $2,500 or higher), more importantly it is about securing the best possible rates especially for refinancing.  Over the past couple of weeks, we have started warning clients of impending moves by lenders to adjust their interest rate up fairly soon, not a matter of choice but a result of tightening liquidity in the system.  Towrds end of 2017, we have actually helped clients to lock down 3-year fixed rates at 1.60% to 1.68% way behind their current lock-in ends in 2018.  Had these clients waited till later on this year, the rates would have run.

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At this point, the prevailing 3-year fixed rate has already gone up to 1.80-1.85%, and that for 2-year fixed to 1.75%.  Almost all the banks started adjusting their fixed rates up in December even before the recent spike in SIBOR.  Banks are privy to any movements in the interbank market and will be the first to respond.  Following SIBOR’s aggressive spike, one local bank has also just announced the next round of increase in their fixed rates come next week.  So for those whose lock-in ends soon, take action and speak to our consultants quickly.

 

 

In an environment when rates are on its way up which is likely the scenario for the next few years, it is important to forge a close working relationship with a professional mortgage consultant, especially one who has the most accurate rates on hand and who can pre-empt the market.  As I have stated earlier, the benefits of working with us goes beyond just the “volume discount” we negotiated when it comes to legal fees etc, but the savings we bring when one is able to take pre-emptive actions to always lock down the lowest rate possible when the interest rate cycle goes up and likewise when the cycle comes down.  Working on your own, or with a property agent (who is usually only there at the purchase, and unable to present comprehensive updated information any time when you need it), can only get you so far.

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Full-time professional mortgage brokers are able to provide you access to all the latest rates, and privy information when some rates might end.  Not only that, because of the volume of business that we give to certain lenders, we are able to secure slightly better terms on your loan from time to time, even slightly lower deviated rates at times.  We will always try though we cannot promise.  At the very least, when all packages are the same (otherwise we will tell you like some direct-to-bank packages from DBS and UOB right now, other brokers don’t tell you that), why should you go to the bank when you can at least receive a small token of appreciation from us in the form of a $50 or $100 Tangs shopping voucher (min. $500,000).   This is to thank you for taking your loan through us. Try us out today!

 

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 deal unlike bankers.  That’s why we always present “whole-of-market” perspective including packages that banks do not pay us.  That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there.  See their testimonials.

 

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OCBC FDMR Home Loan

OCBC Introduces New Exciting Mortgage Peg

This week OCBC made the market sit up with a significant move by replacing their existing FDR and BOARD rate home loans with a brand new mortgage peg called OHR which stands for OCBC Home Rate.

 

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As thought leader in the mortgage space, we need to give our take on it and our initial assessment is that it can be quite an exciting new peg for the Singapore market if it lives up to its promise of taking reference on the long-term average of the 1-month and 3-month SIBOR.  First let us present what are the new packages the bank has unveiled at the same time:

We will explain OHR shortly.  First notice there is a fixed rate package from OCBC this time, a bank which has shied away from competing on fixed rates in recent years.  That is good news for the market with more entrants of fixed rate home loan players.  The bank fixed the rate for the first two years by contracting that it will not move OHR during this period, or what they call OHR Fixed.  What is more interesting to us is the floating rate package at 1.35 for the first two years, and even if you include the year 3 rate of 1.40 that gives an average of 1.37 over the first three years (coinciding with the legal fee clawback period for refinancing cases) which will make it one of the lowest in the market for floating rate housing loans.  This would be especially attractive to those with bigger loans like above $1m, especially if OHR remains very stable in the long term.

 

The big question on most people’s minds now would be – just how stable would OHR be?  Or is it just another BOARD rate.  Based on the average of 1-month SIBOR and 3-month SIBOR over the last 12 years at 1.0728 and 1.1990 respectively, the bank decides to start OHR off at the lower end of 1.00, instead of 1.10.  Obviously for pricing sake, it needs to be a rounded figure instead of actual averages.  That is understandable.  We think the bank is being fair and transparent.

 

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Now let us answer the three most common questions we get on OHR from clients.

1. Is There A Preset Formula For Determining OHR?

The bank did not give preset formula on how it will determine OHR.  To create greater confidence in OHR we hope the bank would consider doing that at some point.

 

2. What Is The Difference Between OHR and BOARD rate?

As there is only one set of historical values for 1-month SIBOR and 3-month SIBOR to average out, technically-speaking there should only be one single OHR, unlike BOARD where there could be many tranches within the same bank, depending on which period homeowners signed onto the loan, and no one really knows how many times the bank will move the BOARD rate in a year and by how much..  We expect OHR to be singular and only the spreads would vary over time for new versus existing customers, as interest rate rises and falls in Singapore.  However, we need to monitor this closely going forward based on the collective feedback from all our clients over time.  To this end, it will make sense for you to take your loan through MortgageWise as you join the family here, where we will share with you the latest trends and analysis to help you make the most informed decision. Speak to our consultants today on OHR and more.

 

3. Is OHR Worth Considering?

We think yes.  This is OCBC, one of the big three banks in Singapore.  And for the bank to stake its entire mortgage portfolio on SIBOR and OHR home loans going forward, it run the risks of a huge exodus of loan customers if it mismanages OHR.  Even when the bank finally adjusts OHR due to rising long-term averages of SIBOR, we expect most to be out of the lockin period two years.

 

We applaud the bank’s innovation here in introducing yet another alternative to the Singapore mortgage market, keeping it vibrant and competitive which can only be good a thing for homeowners as interest rate rises. Speak to our consultants today to find out more options for your home loan refinancing or enjoy a special purchase legal fee privilege of $1,800 all-in through us, if you are buying a private property soon.

 

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 deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

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War On Fixed Rates

At MortgageWise we welcome the latest 3-year fixed rate package from HSBC as it rejoins the lucrative home loans business in recent months after a hiatus of last few years.  Indeed, if you look at the average industry delinquency rate from MAS statistics, there can be no other more profitable business than mortgage lending with a NPL ratio as low as 0.5% versus that across all loan segments of 1.30-1.50% (based on the 3 local banks’ latest financial results).  The last thing that homeowners will want to default on is home loans especially for the roof over one’s head.

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For homeowners, with more lenders joining the fray to offer competitive rates be it for fixed rates or FDR home loans, it keeps the incumbents in check which leads to more choices and lower interest for every one.  This can only be a good thing.  Just like how with entrants of home loan comparison sites like us, it levels the playing field for big and small lenders in the market with a more efficient distribution network regardless of one’s branch network, size of the sales force, or the level of digitalisation.  In fact, it can lead to higher margins for smaller players with lower overheads.

 

Which is likely the reason why we have seen more aggressive pricing from foreign banks of late especially for fixed rates.  Take a look at how they all stack up below as we present the most saleable fixed rate package from each bank:

 

fixed rate home loan singapore

 

Not all banks offer 3-year fixed rates which is at a slightly higher premium than the lower 2-year fixed rates in the market. Is this premium worth paying for?  That depends on one’s view on the pace of interest hikes over the next few years.  The US Labour department has just released rather dismal figures of 156,000 jobs created in August, and revised downwards the figures for June and July earlier.  What does this all mean? Speak to our consultants to find out more on our view as we continue to track the financial markets closely.

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Besides the headline rates, there are also other interesting loan features and incentives to look out for when choosing between the various fixed rate home loan packages, from the reduction of 1.50% penalty due to sale of property within the lock-in period, one-time free conversion, to even $600 dining vouchers as sign-up gifts.  Call us today to find out more as we dissect these for you and help you find the most suitable option based on your needs.

 

Besides HSBC introducing a new 3-year fixed package, UOB has also recently brought back their 3-year fixed rate and lowered their 2-year fixed to 1.48% down from the earlier 2-year at 1.58%. Generally fixed rate is the way forward, until this latest fixed rate war ends by September which is when we expect US Fed to announce in its FOMC meeting this month to start trimming down its massive US$4.5t bonds.  We think that is when the market will start to see some real impact on the dollar and 10-year yields, and hence interest rate movements within three to six months of such bond sale actions.  Besides, with floating rate now at 1.28% and some banks moving up their floating rate packages of late, it becomes a no-brainer to go fixed when the gap between fixed and floating is less than 20 basis points (0.20%)!

 

 

And if you are looking to buy your first property be it for own-use or investment, there is no better time to do it now with property market at a turning point, ultra-low fixed rates at historical low levels (but not for very much longer we think), and the latest MortgageWise’s Legal Fee Privilege of $1,800 nett for all residential property purchases up to $3m (terms apply) which saves you at least $700 in transaction costs for private property purchases!

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We heard some rumours in the market that our latest legal fee privilege is nothing more than just gimmicks.  I will take this chance to clarify here that the benefit is real and substantial – if you just bought a private property and choose to take a home loan through us of not less than $500,000, we will save you a cool $700 in legal fees.  Period.  This is not one of those “up to $500” gimmicks for vouchers or incentives on a graduated basis where you also get the $500 only if your loan is more than $2m!  This is absolute savings of $700 for every single one of our client, as long as the loan is above $500,000.  Market legal fee for private property purchase is $2,500 or higher, but you would be enjoying the exclusive rate of $1,800 nett, including mortgage stamp duty and GST, when you choose to take your loan through us.  The usual terms will apply as would any privilege programmes, but absolutely no gimmicks.  And yes, it is definitely valid for private property purchases be it completed or buc (building-under-construction), as much as it is for HDB (completed resale only).

 

You see at MortgageWise, we are never into gimmicks.  We take our job very seriously and we perform it with pride – to give the best impartial advice to our clients who entrusted us with their mortgage decisions.  We promise to give you that “whole of market” perspective on all mortgage options out there which no other brokers would tell you.  We want to be sure we are giving the correct advice each time we do a mortgage review, helping you to save on interests and whatever costs involved.  Which is why we go to great lengths to put together a set of rewards and privileges for all MortgageWise clients.  As long as you choose to work with us be it for new purchase or refinancing of your existing loan, you will access a lifetime of benefits being a MortgageWise client.  We will reward you and all your friends too.

 

Speak to our consultants today and start a professional working relationship with us as so many of our clients have come to experience.  See their testimonials.

 

At MortgageWise, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of mortgage products for banks and financial institutions in Singapore.

 

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