lock in fixed rate mortgage before interest rate hike

SIBOR 1-Month Or 3-Month?

We have been getting that question more often as 1-month SIBOR and 3-month SIBOR converged at the 1.88% level in recent weeks (as at 19 Aug 2019).  So, I thought it may be good we give our take in this blog.

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As our views and recommendations are always backed by data, we will take a look at the paths of the 2 indices over the last 5 years.  This is especially important if you believe history tends to repeat itself.

SIBOR 1 month or 3 month

 

First, for the benefit of those new to mortgages in Singapore, SIBOR stands for Singapore interbank offer rate – the rates that 20 Contributor banks who participate in the interbank market lend or borrow from one another where bids and offers are submitted to ABS (Association of Banks in Singapore), the administrator for SIBOR, and published every business day morning at 11.30am. Incidentally, in a bid to make SIBOR more reflective of true market activities, there is ongoing transitional testing (July to Dec 2019) for a new version of enhanced SIBOR on a new waterfall methodology which will come into effect by next year and by which time 12-month SIBOR will be discontinued.

 

What we do need to understand as end-borrower, is how our mortgage interest rate is set if your loan is pegged to 1-month or 3-month SIBOR respectively. We will start with 1-month SIBOR. If your home loan rate review (or rate-setting) date is on the 5thof every month, the bank will look at what is the value of 1-month SIBOR published on this date and your mortgage rate will then be set accordingly as per your contract.  For example, if you have contracted with the bank for a spread of 0.30% above 1-month SIBOR, your interest rate will be 1.88% (1-month SIBOR now) + 0.30% = 2.18% for the next month and the bank will send you an advice on the exact repayment amount for next month based on 2.18%.  This exercise is repeated every month and in periods where there is little volatility or movements in SIBOR, you can expect to be paying more or less the same amount every month.

 

The same happens if you are contracted on 3-month SIBOR.  The difference is your interest rate and hene the monthly instalment amount is set only once every quarter instead of every month.  For example, if your rate review date falls on the 15thof Oct, the next rate review date will be on 15thof Jan, followed by 15thof Apr and so on.  Your interest rate will be set or “fixed” for a 3-month period each time.

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Fixed Rate Effect Of 3-month SIBOR 

For this simple reason of having a “fixed rate” effect over 3-month, we hold the view that in periods where interest rates are rising it would theoretically be better to be on 3-month SIBOR than 1-month, and the converse will be true when interest rates come down.  Having said that, the difference might not be that significant if the increment is gradual over time as both will eventually move in the same direction. We always like to give the analogy of paying additional $1 every month or paying $3 more every 3-month.  Homeowners will still benefit slightly on fixing the rate every 3-month when interest is moving up, but that’s provided the increase is linear which may not always be the case.  As you can see from the historical chart, there are many periods where SIBOR simply trade sideways for long periods as it moves in steps on its way up or down.

 

Gap Between 1-month SIBOR and 3-month SIBOR

Another observation is the gap between 1-month and 3-month SIBOR which hovers at around 0.12-0.13% in recent years since 2018 but has now converged.  We also noticed this gap seems to widen when rates are falling but narrows during periods of upswing in rates.  So, if this pattern holds true and rates tumble over the next two years, then we can expect to see the same wideing of gap like back in 2015-2016.  Or it could turn out to be just a blip like what happened towards the end of 2017.  All that depends to a large extend on the outcome of the protracted trade talks between US and China this year and beyond.

 

Traditionally we know that banks tend to levy a higher spread on 1-month SIBOR than 3-month SIBOR due to this gap.  Hence at this moment when the two indices converged, home loan packages pegged to 3-month SIBOR packages would present lower headline rates than those pegged to 1-month.  This may change when the gap opens up again or widens.  To be honest, we do not presumed to know the forces behind how interbank market work but we noted this is not the first time that the two SIBOR indices have converged in the past.  And each time, after a brief period of inflection when the market finally figured out the new direction be it up, down or sideways, the gap opens up again.

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Conclusion

While 3-month SIBOR offers more stability in terms of having to pay and manage a fixed amount of monthly repayment which resets only every 3 month, we are of the view that the elasticity of 1-month SIBOR to any changes to rates makes it a more preferred index during periods of interest rate downturn.  On the contrary, when interest rate heads north, the better option is not floating rate on 3-month SIBOR but rather a fixed rate home loan.  Add to that the notion of a seemingly widening gap between 1-month and 3-month SIBOR when rates fall, our gutfeel (we cannot be 100% sure on this) is that homeowners would be better off on 1-month SIBOR rather than 3-month SIBOR over the long term.

 

Banks like to push 3-month SIBOR to borrowers instead of 1-month.  In fact, we have heard of some banks phasing out 1-month SIBOR altogether which may suggest it is less profitable than pegging their mortgage books to 3-month SIBOR? If indeed it is less profitable for lenders, surely it must mean homeowners would have more to gain on 1-month SIBOR somehow?  Food for thought.

 

MortgageWise.sg seeks to be thought leader for all things mortgage-related in Singapore.  We may be a small team but we deliver big value to our clients over time – giving our unique insights and half-yearly forecast on interest rates, and putting together exciting benefits for both new purchase loans (a special $1,800 legal fee for completed property) and refinancing loans (a $150 valuation fee offset), both subject to min loan of $500,000.  Other terms apply.

 

So, speak to our consultants now!

 

 

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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Mortgage Loan In Singapore

US Fed Cuts Rate!

In line with our expectation last month, US Fed has just announced a quarter percentage cut to its Fed funds rate to bring it down to within a range of 2% to 2.25%.  But this was much smaller than what the market has expected (a cut of 0.50%) and hence leading to a slight sell-off on Wall Street.

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We have argued last month that this really amounts to an insurance cut in a bid to extend a 10-year old bull market and this is exactly what Fed Chair Jerome Powell said: “I see the US outlook as being a positive one.  The downside risks are really coming from abroad.”

Indeed, the US economy is still holding up well with GDP for first half of the year averaging 2.6% growth, unemployment at 3.7%, 224,000 jobs added in month of June (average monthly of 172,000 this year), and with Fed’s preferred measure of inflation that strips out volatile food and energy prices staying stubbornly low at 1.6% (below Fed’s target of 2%).  The real threats are coming from abroad with US exports slowing down and business sentiments and investments in US dampened by trade war tensions as companies pulled back.

Whether this marks the start of a full interest rate cycle reversal (which Fed does not think so at this point) or just a blip depends a lot on the outcome of trade talks now resumed between the two global economic powerhouses; the outcome which is something hard to predict but we remain fairly optimistic that there will be some kind of a deal at some point.

This latest cut – the first in 3½ years since US Fed first started hiking rates back in Dec 2015 – has further vindicated our view at the start of the 2019 when we started recommending going back to SIBOR-based floating rate home loans and some clients were puzzled.  They asked why are we not proposing fixed rates (as offered and recommended by their repricing banks) against a backdrop of escalating rate hikes by more and more lenders in Singapore where most seen their mortgage interest increased by average of 0.60% in a short span of 4-6 months. Our view is that this pace of 9 rate hikes over 3 years by US Fed is unlikely to be sustainable with trade tensions already brewing in the horizon.  And indeed, US Fed has been forced to make a U-turn in March FOMC by tapering down on hike expectations from two to zero for 2019, to now a rate cut on the contrary!

Compare All Latest Rates 2019

 

We are likely to see more downward pressure on SIBOR in the coming weeks and months as a result of the latest rate cut and the general dovish and accommodative interest rate environment globally.  There is also the liquidity excess stemming from weaker economic activities in Singapore which is now coming to the fore after months of contraction in global manufacturing demand.

Speak to our team of consultants here at MortgageWise where we discuss interest rate trends and bring you the latest of our insights and analysis, along with accurate tracking of all FDR mortgage pegs by all banks here in Singapore. Better yet, refinance your home loan through us today to enjoy our special rewards benefit of Tangs shopping voucher (subject to min $500,000 loan).  See more details here.  Or pay a special legal fee $1,800 all-in (inclusive stamp duty & gst) for the purchase of private properties (resale only).  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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shock that banks can raise spreads on home loans

They Say SIBOR Is Volatile

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

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

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

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

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

Compare All Latest Rates 2019

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

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

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

us fed funds rate

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

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

Compare All Latest Rates 2019

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Fixed Or Floating – 3 Trajectories

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

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

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

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

Compare All Latest Rates 2019

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

us fed funds rate

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

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

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

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

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

Compare All Latest Rates 2019

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

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

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

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

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

Compare All Latest Rates 2019

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US Fed

US Fed Reverses Its Stance

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

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

 

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

 

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

 

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

 

Compare All Latest Rates 2019

 

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

 

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

 

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

Compare All Latest Rates 2019

 

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

 

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

 

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

 

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

 

Compare All Latest Rates 2019

 

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StanChart Ups FDR Mortgage Rates

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

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

 

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

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

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

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

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

Compare All Latest Rates 2019

 

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

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

 

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

 

Compare All Latest Rates 2019

 

 

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DBS bank singapore

DBS Hikes FHR Home Loan Rates

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

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DBS FHR Home Loan Rates

Source: DBS website

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

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

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

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

Compare All Latest Rates 2019

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

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

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

1. Consider Interest Offset Account

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

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

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

Compare All Latest Rates 2019

2. Stay Open To Creative Mortgage Solutions

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

Speak to us to find out more.

3. Work With A Mortgage Consultant

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

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

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

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Interest Rate Forecast 2019

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

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

Compare All Latest Rates 2019

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

SIBOR vs Fed funds rate

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

Compare All Latest Rates 2019

1. The Stakes Are Too High On Both Sides

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

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

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

2. Twin-Effect of Monetary Tightening

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

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

Compare All Latest Rates 2019

Our Forecast

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

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

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

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

Compare All Latest Rates 2019

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Mortgage Loan In Singapore

Fed Funds Rate Rises To Near 2.50%

In its latest December FOMC, US Fed has finished what it set out to accomplish this year – four hikes in 2018.  But it has now revised downwards its forecasted number of rate hikes in 2019 from three to two, as anticipated by the market from its recent rhetoric.

Compare All Latest Rates 2019

Fed funds rate now rises to a range between 2.25% and 2.50%, which is a pre-cursor to what will happen to SIBOR rate here in Singapore (see graph below).  More on that later.  First let us summarize the key points from Fed’s statement.

 

Striking a more sombre note, the Fed in December recognizes the likelihood of a slowdown in growth in 2019 in the midst of trade tensions, a strong dollar (hitting exports) and the tapering off of stimulus from tax cuts in 2018.  It now forecast a slower growth in GDP in 2019.

 

Key highlights of Fed’s December FOMC statement:

  • The committee now expects only 2 hikes in 2019 and possibly only 1 hike in 2020 to bring the fed funds rate to 2.9% by end of 2019 instead of the earlier forecasted 3.1%, and to 3.1% by end of 2020 instead of the earlier forecasted 3.4%.
  • US GDP will grow 3% instead of 3.1% in 2018, and 2.3% instead of 2.5% in 2019 as forecasted earlier
  • Unemployment rate will be at 3.7% by end of the year. Labour market has continued to strengthen with annual wage increments picking up to 3.1% in recent months
  • Inflation remained subdued with core inflation (exclude volatile energy and food prices) expected to rise only marginally from 1.8% to 1.9% by end 2018 and to hit the 2% target by end of 2019

 

Perhaps the best indicator of the new more dovish Fed’s stance is encapsulated in Fed Chair Powells’s remark that “I do think (low inflation) gives the committee the ability to be patient going forward”.  This signals a Fed that is prepared to look at changing data trends and makes its forecast and adjustment accordingly instead of following a fixed trajectory on planned number of rate hikes.

Compare All Latest Rates 2019

 

Here in Singapore, what we noticed in the last hike by US Fed on September 27, 3-month SIBOR rate moved up by about 15 basis points (or 0.15%) within a week from 1.63% to 1.76%.  The same could very well happen again, or within a short period of time.  What we are not too certain is how high will the benchmark 3-month SIBOR rate ises to this time – will it cross the all-important 2% psychological level? Or would it just stabilize near 1.90%?

SIBOR rate singapore vs fed funds rate

 

Either way, as SIBOR is a benchmark mortgage loan peg, after adding the bank spread, the final floating rate interest homeowners would have to get used to paying in 2019 would certainly be over 2% for most.  In fact, barring a near-term recession, we are expecting interest rates in Singapore to stabilize at slightly above current levels, ie. between 2.20% to 2.50% for most parts of 2019.  And fixed rates would be even higher at 2.50% to 2.80%.

 

At such elevated levels not seen in Singapore for over a decade, there will be much resistance from homeowners looking to refinance in 2019.

 

So, before the year is over and while everyone is still busy with all the festivities, it does pay to do a quick check on your current mortgage contract – those with lock-in expiring before August 2019 should take action now and contact us for a review of your mortgage refinancing options.  At this moment, we still have fixed rate home loans for private properties starting from 2.30%!

 

Before another fresh round of rate hikes by lenders in Singapore when we come back in January.

 

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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DBS Bank Singapore

DBS Home Loan Rates To Go Up

DBS has announced on its website it is raising its fixed deposit rates from 7-month to 60-month on 13 December.

DBS increase FHR 2018

Source: DBS website

 

What this means for homeowners whose mortgages are with DBS is that they are about to see a slight increase on their monthly repayment come next month, unless they have opted for fixed rates.  DBS home loan rates are tied to its popular FHR (Fixed Deposit Home Rate) mortgage peg.

Compare All Latest Rates 2019

 

In our opinion this round of increases on DBS home loan rates is appropriately calibrated at about half the usual increase of 0.30% we observed in each rate revision by banks this year.  DBS has increased by an average of only 0.15% (see table below) which is in keeping with the recent rise in the benchmark interest rate of 3-month SIBOR.  SIBOR has risen recently from its last trading level of 1.63% to the current 1.76% (see chart) and we are expecting it to rise further before the year is over with US Fed widely tipped to deliver on its 4thand final rate hike for the year in this month’s FOMC on 18-19 December.

 

Here is a snapshot of the FHR tranches affected:

 

FHR Tranches

 

Old ValueNew ValueIncrease ByEffective Date
FHR (ave 12/24 mth)0.975%

12M: 0.80%
24M: 1.15%

 

1.075%

12M: 0.95%
24M: 1.20%

0.10%13 Dec 2018
FHR18

 

0.95%1.10%0.15%13 Dec 2018
FHR9

 

0.80%0.95%0.15%13 Dec 2018
FHR8

 

0.50%0.675%0.175%13 Dec 2018

 

 

DBS, being the market leader, has always taken the lead in revising rates and we are expecting all the other lenders to follow suit very quickly.  Very probable, banks being privy to events in the interbank market, have already seen movements in rates in anticipation of the next tightening by the central bank. There are tell-tale signs as in recent weeks we have seen quite a number of banks raising their fixed home loan rates to levels not seen in Singapore in the last 10 years.  The prevailing 2-year fixed rate home loan rates has now hit 2.40%!

Compare All Latest Rates 2019

 

 

To give homeowners the right perspective on what we mean by broad market movements of late, here is a list of lenders who have moved up their fixed home loan rates in December:

 

As At 6-Dec-2018

 

Fixed Rate
(Nov-2018)
Revised Fixed Rate
(Dec-2018)
DBSYear 1: 2.28% (fixed)
Year 2: 2.28% (fixed)

Year 1: 2.48% (fixed)
Year 2: 2.48% (fixed)
Year 3: 2.48% (fixed)

Year 1: 2.38% (fixed)
Year 2: 2.38% (fixed)

Year 1: 2.68% (fixed)
Year 2: 2.68% (fixed)
Year 3: 2.68% (fixed)

UOBYear 1: 2.38% (fixed)
Year 2: 2.38% (fixed)

Year 1: 2.38% (fixed)
Year 2: 2.38% (fixed)
Year 3: 2.58% (fixed)

Year 1: 2.48% (fixed)
Year 2: 2.48% (fixed)

Year 1: 2.68% (fixed)
Year 2: 2.68% (fixed)
Year 3: 2.68% (fixed)

OCBCYear 1: 2.38% (fixed)
Year 2: 2.38% (fixed)
Year 1: 2.58% (fixed)
Year 2: 2.58% (fixed)
HSBCYear 1: 2.15% (fixed)
Year 2: 2.15% (fixed)

Year 1: 2.30% (fixed)
Year 2: 2.30% (fixed)
Year 3: 2.30% (fixed)

Year 1: 2.50% (fixed)
Year 2: 2.50% (fixed)

Year 1: 2.65% (fixed)
Year 2: 2.65% (fixed)
Year 3: 2.65% (fixed)

MAYBANKYear 1: 2.28% (fixed)
Year 2: 2.28% (fixed)
Year 1: 2.48% (fixed)
Year 2: 2.48% (fixed)

 

 

There are only a handful of banks yet to adjust their fixed home loan rates and we are expecting them to do so soon, so there now lies a small window of opportunity for those seeking to refinance before the year is over (those with lock-in expiry by June 2019 should call us for an obligation-free chat). For those who act fast, we could still get you fixed rate at 2.10% over the next two years which translates into substantial savings as we expect the hikes to continue for little more and stabilized at the 2.50% level.

 

Being thought leader in the mortgage space, it is our responsibility to report on rate hikes by all lenders in the market place so that we can be trusted by homeowners in Singapore to always provide the most accurate and up-to-date information on mortgage rates and news. Work with our small team of very experienced mortgage consultants who have been diligently serving since 2014.

 

 

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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