HSBC mortgage loan

HSBC SmartMortgage

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

Compare All Latest Rates 2018

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

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

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

HSBC SmartMortgage interest offset loan

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

Compare All Latest Rates 2018

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

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

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

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

2. Reducing Interest Costs Without Doing Actual Prepayment

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

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

3. Access To Liquidity With Minimal Cost

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

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

Compare All Latest Rates 2018

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

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

4. No Loading On Interest Rate With SmartMortgage

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

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

So, speak to us today!

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

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board rate or sibor rate

Review Of FDR Interest Hikes In 2018

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

Compare All Latest Rates 2018

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

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

BankMortgage PegOld RateNew RateIncrease ByEffective Date
DBSFHR180.600.800.201 Feb
SCB48FDR0.500.900.406 Feb
MYBFDMR361.201.400.2010 Feb
OCBC15FDMR
48FDMR
0.25
0.95
0.55
1.25
0.30
0.30
1 Mar
UOB36FDPR0.651.000.355 Mar
DBSFHR90.250.500.259 May
FHR
(ave 12/24M)
0.675
0.35(12M)
1.00 (24M)
0.80
0.60(12M)
1.00 (24)
0.1259 May
MYBFDMR361.401.800.4026 Jun
OCBC36FDMR0.650.950.302 Aug
OHR1.001.300.3016 Aug
UOB15FDPR0.250.700.4527 Jul
14FDPR0.250.600.3527 Jul
DBSFHR80.200.500.3024 Aug
FHR90.500.800.3024 Aug
FHR
(ave 12/24M)
0.80
0.60 (12M)
1.00 (24M)
0.975
0.80 (12M)
1.15 (24M)
0.17524 Aug
FHR180.800.950.1524 Aug
SCB48FDR0.901.100.208 Nov
9FDR0.300.650.358 Nov
36FDR0.720.970.258 Nov
DBSFHR
(ave 12/24M)
0.975
0.80 (12M)
1.15 (24M)
1.075
0.95 (12M)
1.20 (24M)
0.1013 Dec
FHR180.951.100.1513 Dec
FHR90.800.950.1513 Dec
FHR80.500.6750.17513 Dec
OCBC15FDMR0.551.250.7016 Jan 2019
36FDMR0.951.550.6016 Jan 2019
48FDMR1.251.750.5016 Jan 2019
OHR1.301.80-2.000.50-0.7016 Jan 2019
MBR(Mortgage Board Rate)0.801.20-1.300.40-0.5016 Jan 2019

Compare All Latest Rates 2018

Note we included the latest hike for OCBC as part of 2018 review as it was announced back in December even though it took effect only in 2019 (this week).  For 2018, we also included OCBC’s OHR and MBR which are essentially BOARD rates, not FDR mortgage pegs.  However, going forward we will not be able to track them as they are of BOARD nature –not in the public domain or published anywhere on the bank’s website, and over time the bank could adjust the value of BOARD for different batches of loans depending on which periods these were signed and hence it is no longer of a singular value, unlike FDR peg.

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

BankMortgage PegValue 1 JanValue 31 DecTotal Increase 2018
DBSFHR
(ave 12/24M)
0.675
0.35(12M)
1.00 (24M)
1.075
0.95 (12M)
1.20 (24M)
0.40
FHR180.601.100.50
FHR90.250.950.70
FHR80.200.6750.475
OCBC15FDMR0.251.251.00
36FDMR0.651.550.90
48FDMR0.951.750.80
OHR1.001.80-2.000.80-1.00
MBR(Mortgage Board Rate)0.801.20-1.300.40-0.50
UOB36FDPR0.651.000.35
15FDPR0.250.700.45
14FDPR0.250.600.35
MYBFDMR361.201.800.60
SCB48FDR0.501.100.60
9FDR0.300.650.35
36FDR0.720.970.25
HSBCTDMR240.650.650.00

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

Compare All Latest Rates 2018

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

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

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

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

Compare All Latest Rates 2018

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rising interest rate

Interest Rate Forecast 2019

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

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

Compare All Latest Rates 2018

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

SIBOR vs Fed funds rate

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

Compare All Latest Rates 2018

1. The Stakes Are Too High On Both Sides

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

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

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

2. Twin-Effect of Monetary Tightening

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

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

Compare All Latest Rates 2018

Our Forecast

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

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

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

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

Compare All Latest Rates 2018

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OCBC FDMR Home Loan

OCBC Hikes Home Loan Rates Across The Board

Following after DBS, last week OCBC announced hikes across its entire mortgage loan books (exclude SIBOR home loans which are market-driven and already risen) of approximately 0.55%, which is to take effect on 16 January 2019.  With two out of the three major mortgage lenders in Singapore announcing increases in its mortgage interest rate in the month of December which also saw US Federal Reserve hiking rates to near 2.50% in the US, there is no prize for guessing who will be the next to announce hikes.

Compare All Latest Rates 2018

The average increases this time is higher than what we would usually expect but we noted that in the last round of increases by OCBC in September, only certain tranches of home loans were affected.  Also, we know from our own sources that some segments of OCBC mortgage clientele have got their mortgage rate intact in September as the bank simply moved them to a new BOARD rate but kept the final interest rate unchanged.  What this means is that the bank is delaying the imminent hike and its impact on its clients until it is no longer able to do so with two more rate hikes from US Fed since.

Here’s a snapshot of the tranches affected:

Mortgage Pegs

 

Old ValueNew ValueIncrease ByEffective Date
15FDMR0.55%1.25%0.70%16 Jan 2019
36FDMR0.95%1.55%0.60%16 Jan 2019
48FDMR1.25%1.75%0.50%16 Jan 2019
OHR1.30%1.80-2.00%0.50-0.70%16 Jan 2019
MBR (Mortgage Board Rate)0.80%1.20-1.30%0.40-0.50%16 Jan 2019

Being a thought leader in the mortgage space in Singapore, we take it upon ourselves to track any movements in the home loans market by any lenders when they make announcements on changes to their published mortgage rates – primarily FDR or fixed deposit rate mortgage pegs.  The complexity of tracking increases when it comes to BOARD rates (like OHR and MBR above) which are internal lending rates not published anywhere on the bank’s website.  Also, the bank can decide to increase by varying amount for the same BOARD rate (eg. OHR where the increases are in the range of 0.50-0.70%) depending on which periods the loans are signed and hence it is almost impossible for any third party to be able to track these increases after a while.

MortgageWise will only be able to track the 5-year historical trending of FDRs from the various banks and map the movements of a single FDR tranche (initial launch tranche) from each bank against the benchmark 3-month SIBOR which you can find it here (OCBC’s latest increases reflected only after 16 January 2019).

With the latest round of rate adjustments from banks in December, most homeowners on floating rates would likely see their mortgage interest rising up to near 2%-2.20% level by our estimates, which is basically in-line with the prevailing floating rates (use our interactive Rates Display below to see the latest fixed and floating rates).

Compare All Latest Rates 2018

We will give our take on how we see interest rate moving in 2019 when we come back in the new year, so stay tuned to this blog.

At this moment, we do sense there is some resistance to refinancing to fixed rates which starts at 2.33-2.38%.  Not surprising given how much fixed rates have risen over the months.  And with uncertainties looming large in the global economy from trade rows between US and China, potential Brexit fallout from EU, a slowing economy in China, etc, we see more homeowners taking bets on floating rate home loans as we end the year with a stock market rout.  One thing for sure, it is getting harder to forecast on interest rate movements.

If your lock-in is expiring within the next six months or so, why not contact us now to stay abreast of the latest mortgage promotions from the various banks in 2019.  With a trusted mortgage advisor giving you the latest scoops on rate hikes and deviated rates promotion (for a limited period), you keep all your options open in a volatile market, be it fixed or floating rate home loans.

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

Compare All Latest Rates 2018

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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 2018

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 2018

 

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 2018

 

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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 2018

 

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 2018

 

 

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 2018

 

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Home Loan Best Deal

Best Home Loans In Singapore

Last Updated 1-Dec-2018

As the year winds down to a close, we thought we would do a review and update of the best home loans in Singapore in each of the category below (see Table of Content) as we near the 4th and final rate hike by US Fed in 2018 in its December FOMC.  This means that potentially we could see another spurt of rate adjustments by all major mortgage lenders as we start off the year in 2019, especially if 3-month SIBOR makes its dash to cross the all-important 2% level in the final weeks of 2018.

Hence, this review would be timely for those who are back from year-end vacations, to take this lull period from work to do a serious review of their mortgages, especially for those with lock-ins expiring in the 1st half of 2019 by 30 Jun.  Contact us for an obligation-free discussion.  For a home loan of $700,000 at an average interest over 25 years at 3.5%, when serviced to the very end of the tenure, the total interest paid to the bank would add up to $351,310, almost 50% of the original loan amount borrowed!  It is important to make sure you always sign onto best housing loan package with the lowest interest and best overall terms, be it you refinance or stay put with your current bank.  Let us help you achieve that.

As this post can only be updated periodically (see last updated date at top), we have input all the interest rate raw data from all major 16 mortgage lenders in the market and churn out the latest and most updated housing loan packages using our interactive Rates Display widget which you can access throughout this post or on our website:

Compare All Latest Rates 2018

 

Table Of Content

A. What Are The Different Types Of Home Loans & Mortgage Pegs?
B. Best Floating Rate (FDR/BOARD) Home Loans For Private Property
C. Best Floating Rate (SIBOR) Home Loans For Private Property
D. Best Fixed Rate Home Loans For Private Property
E. Best Home Loans For Private Property BUC (Building Under Construction)
F. Best Floating Rate (FDR/BOARD) Home Loans For HDB
G. Best Floating Rate (SIBOR) Home Loans For HDB
H. Best Fixed Rate Home Loans For HDB
I. Overview Of All Best Home Loans Across The Board

 

A. What Are The Different Types Of Home Loans And Mortgage Pegs?

In 2018, with removal of FDR (Fixed Deposit Rate) home loans by some banks, only 3 banks now offer such home loans pegged to a pre-designated sing dollar fixed deposit tranche rate:  DBS with its FHR8 (Fixed Deposit Home Rate), StanChart with its 36FDR, and HSBC with its 24TDMR (Time Deposit Mortgage Rate).  By and large, in view of rising rates in 2018, most homeowners have scurried to sign on fixed rate home loan this year, or at least take a bet on floating rate with the FDR mortgage peg which has proven to be a laggard and more stable alternative to SIBOR, notwithstanding the few rounds of rate hikes on FDR this year (see our chart on the tracking of FDR movements)

In general the three types are mortgage pegs used in Singapore are FDR, SIBOR, and the traditional BOARD rate set by banks.  FDR, being fixed deposit rates, are also set by banks but are published on banks’ website which makes them more transparent than BOARD.  SIBOR offers the most transparency as it is a rate administered by ABS (Association of Banks in Singapore) and determined solely by market forces in the interbank and hence no one single bank could unilaterally raise its value.

 

B. Best Floating Rate (FDR/BOARD) Home Loans For Private Property

Floating rate, as opposed to fixed rate, is when the interest rate is “reset” each time there is a change in the value of the underlying mortgage peg which can be FDR, BOARD or SIBOR.  The “spread”, or the mark-up above this peg to derive the final interest charged, is a contracted rate which will not change.  We will look at SIBOR as a category separately.

With general interest rate staying low below 2% in the past few years, floating rate home loans have been popular in Singapore until 2018, when fixed rate home loan become the preferred choice for most.

At the prevailing floating rate of 2.00%, for every $100,000 of outstanding loan, the monthly instalment works out to $423.85 on a tenure of 25 years. So for a typical home loan of $700,000, monthly instalment will come to $2,967.

Updated as at 10-Feb-2019new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan
Loan TypeDBS Floating FDROCBC Floating BOARDUOB Floating BOARDHSBC Floating FDRSCB Floating FDRMAYBANK Floating BOARD
Loan PegFHR8 = 0.675%MBR = 1.55%MR = 0.85%TDMR24 = 0.65%36FDR = 0.97%SRFR2 = 4.50%
Year 1FHR8 + 1.45% = 2.13%MBR + 0.75% = 2.30%MR + 1.45% = 2.30%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.45% = 2.05%
Year 2FHR8 + 1.45% = 2.13%MBR + 0.75% = 2.30%MR + 1.45% = 2.30%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.45% = 2.05%
Year 3FHR8 + 1.45% = 2.13%MBR + 0.75% = 2.30%MR + 1.45% = 2.30%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.45% = 2.05%
Year 4 & ThereafterFHR8 + 1.45% = 2.13%MBR + 0.95% = 2.50%MR + 1.65% = 2.50%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.12% = 2.38%
Lock-In Period2 years2 years2 years2 years2 years2 years
Partial Redemption Penalty1.50%Nil (up to 50%)Nil (left $200K)1.50%1.50%1.50%
Full Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.50%
Legal Subsidy/RebateYesYes0.40% of loanYesYes0.40% of loan
Subsidy Cap At$2,000$2,000$1,800$2,000$1,800$2,000
Min. Loan (for subsidy)$500,000$500,000$100,000$500,000$400,000$100,000
new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan

Compare All Latest Rates 2018

 

C. Best Floating Rate (SIBOR) Home Loans For Private Property

As the value of SIBOR has increased since the start of the year, even though banks have noticeably reduced the spread above this SIBOR peg, the final rate is now averaging 1.8% to 1.9%.

Generally those with a more dovish view on rates would consider taking on a SIBOR based housing loan as it would be the first to rise in any event of further tightening of liquidity in the market when US Fed continues on its current trajectory of rate hike.  Should the gap between fixed and floating continue to widen, more may be drawn to the more transparent floating rate after suffering couple of rate hikes on FDR mortgage peg in the past.  After all, should there be a reversal and global economy slides into recession because of trade war, SIBOR would also be the first to come down.

Some of the best home loans based on 1-month and 3-month SIBOR for the current month are summarised below:

Updated as at 10-Feb-2019new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan
Loan TypeOCBC Floating SIBORUOB Floating SIBORCITIBANK Floating SIBORHSBC Floating SIBORSCB Floating SIBORCIMB Floating SIBOR
Loan Peg3-month SIBOR1-Month SIBOR1-Month SIBOR1-Month SIBOR1-Month SIBOR1-Month SIBOR
Year 13-month SIBOR + 0.30%1-month SIBOR + 0.35%1-month SIBOR + 0.20%1-month SIBOR + 0.25%1-month SIBOR + 0.25%1-month SIBOR + 0.25%
Year 23-month SIBOR + 0.40%1-month SIBOR + 0.40%1-month SIBOR + 0.25%1-month SIBOR + 0.25%1-month SIBOR + 0.25%1-month SIBOR + 0.30%
Year 33-month SIBOR + 0.50%1-month SIBOR + 0.45%1-month SIBOR + 0.40%1-month SIBOR + 0.25%1-month SIBOR + 0.30%1-month SIBOR + 0.35%
Year 43-month SIBOR + 0.50%1-month SIBOR + 0.50%1-month SIBOR + 0.60%1-month SIBOR + 0.65%1-month SIBOR + 0.30%1-month SIBOR + 0.60%
Year 53-month SIBOR + 0.50%1-month SIBOR + 0.50%1-month SIBOR + 0.60%1-month SIBOR + 0.65%1-month SIBOR + 0.30%1-month SIBOR + 0.60%
Year 6 & Thereafter3-month SIBOR + 0.50%1-month SIBOR + 0.50%1-month SIBOR + 0.60%1-month SIBOR + 0.65%1-month SIBOR + 0.30%1-month SIBOR + 0.60%
Lock-In Period2 years1 year2 years2 years2 years2 years
Partial Redemption PenaltyNil (up to 50%)Nil (left $200K)Nil (left $200K)1.50%1.50%1.50%
Full Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.50%
Legal Subsidy/RebateYes0.40% of loan0.40% of loanYesYes0.40% of loan
Subsidy Cap At$2,000$1,800$1,800$2,000$1,800$2,000
Min. Loan (for subsidy)$500,000$100,000$100,000$500,000$500,000$100,000
new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan

Compare All Latest Rates 2018

 

D. Best Fixed Rate Home Loans For Private Property

Fixed rates has proven to be popular in 2018 against the backdrop of 3-month SIBOR rising from 1.12% to current 1.76% (as at Nov-2018) and banks  adjusting up their FDR rates repeatedly leaving many homeowners wary of floating rate home loans.

However, now that fixed rates are all above 2% psychological level, and with more uncertainties present in the global economy now due to trade wars, it will be interesting to watch how the market responds to the question of fixed versus floating rate mortgage.  Generally, a fixed rate in the range of 2% to 2.30% is still historically low and below the long-term neutral rate of 2.50%-3.00% that US Fed is trying to achieve by end of 2019.

At the lowest 2-year fixed rate of 2.10% , for every $100,000 of outstanding loan, the monthly instalment works out to $428.74 on a tenure of 25 years. So for a home loan of $700,000, monthly instalment will come to $3,001.

1-Dec-2018new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loanindia bank housing loannew purchase housing loan
Loan TypeDBS Fixed RateOCBC Fixed RateUOB Fixed RateHSBC Fixed RateMAYBANK FixedBANK OF CHINA FixedSTATE BANK INDIA FixedCITIBANK Fixed
Loan PegFHR8 = 0.50%MBR = 1.55%1M SIBOR1M SIBORSRFR2 = 4.50%3M SIBORBOARD = 6.00%1M SIBOR
2-Year FixedY1: 2.38% (Fixed)Y1: 2.58% (Fixed)Y1: 2.48% (Fixed)Y1: 2.50% (Fixed)Y1: 2.48% (Fixed)Y1: 2.10% (Fixed)Y1: 2.15% (Fixed)Y1: 2.28% (Fixed)
Y2: 2.38% (Fixed)Y2: 2.58% (Fixed)Y2: 2.48% (Fixed)Y2: 2.50% (Fixed)Y2: 2.48% (Fixed)Y2: 2.10% (Fixed)Y2: 2.15% (Fixed)Y2: 2.28% (Fixed)
3-Year FixedY1: 2.68% (Fixed)nilY1: 2.68% (Fixed)Y1: 2.65% (Fixed)nilY1: 2.25% (Fixed)nilY1: 2.48% (Fixed)
Y2: 2.68% (Fixed)nilY2: 2.68% (Fixed)Y2: 2.65% (Fixed)nilY2: 2.25% (Fixed)nilY2: 2.48% (Fixed)
Y3: 2.68% (Fixed)nilY3: 2.68% (Fixed)Y3: 2.65% (Fixed)nilY3: 2.25% (Fixed)nilY3: 2.48% (Fixed)
Lock-In Period2/3 years2 years2/3 years2/3 years2 years2/3 years2/3 years2/3 years
Partial Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.75%1.50%1.50%
Full Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.75%1.50%1.50%
Legal Subsidy/RebateYesYes0.40% of loanYes0.40% of loanYes0.40% of loan0.20% of loan
Subsidy Cap At$2,000$2,000$1,800$2,000$2,000$1,800$1,000$2,500
Min. Loan (for subsidy)$500,000$500,000$100,000$800,000$100,000$500,000$250,000$100,000
new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan

Compare All Latest Rates 2018

 

E. Best Home Loans For Private Property BUC (Building Under Construction)

There is no fixed rate for properties under construction and one can only apply for a free conversion within the bank (usually included as a feature) to a fixed rate home loan when it is near to T.O.P, or usually within 3-6 months of T.O.P.

The good news though is that as competition for new purchase loans at all the property launches and showflats are intense, banks would normally reduce their spread on such floating rate home loans when compared to those for completed properties.

At the prevailing floating rate of 1.95% for BUC properties, for every $100,000 of outstanding loan, the monthly instalment works out to $421.42 on a tenure of 25 years. So for a typical home loan of $700,000, monthly instalment will come to $2,950.

Updated as at 10-Feb-2019new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan
Loan TypeDBS Floating FDROCBC Floating BOARDUOB Floating BOARDSCB Floating FDRMAYBANK Floating BOARD
Loan PegFHR8 = 0.675%MBR = 1.55%MR = 0.85%36FDR = 0.97%SRFR2 = 4.50%
Year 1FHR8 + 1.45% = 2.13%MBR + 0.40% = 1.95%MR + 1.10% = 1.95%36FDR + 0.98% = 1.95%SRFR2 - 2.55% = 1.95%
Year 2FHR8 + 1.45% = 2.13%MBR + 0.40% = 1.95%MR + 1.10% = 1.95%36FDR + 0.98% = 1.95%SRFR2 - 2.55% = 1.95%
Year 3FHR8 + 1.45% = 2.13%MBR + 0.40% = 1.95%MR + 1.10% = 1.95%36FDR + 0.98% = 1.95%SRFR2 - 2.55% = 1.95%
Year 4 & ThereafterFHR8 + 1.45% = 2.13%MBR + 0.40% = 1.95%MR + 1.10% = 1.95%36FDR + 0.98% = 1.95%SRFR2 - 2.55% = 1.95%
Lock-In PeriodNilNilNilNilNil
Partial Redemption PenaltyNilNilNilNilNil
Full Redemption PenaltyNilNilNilNilNil
Cancellation Fee0.75%0.75%0.75%1.50%1.50%
Legal Subsidy/RebateNilNilNilNilNil
Subsidy Cap AtNilNilNilNilNil
Min. Loan$100,000$200,000$100,000$100,000$100,000
new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan

Compare All Latest Rates 2018

 

F. Best Floating Rate (FDR/BOARD) Home Loans For HDB

Floating rates for HDB property would usually be similar to that for private property in general.  The main difference between the two comes in the form of much lower legal subsidy or cash rebate given, which then increases the overall costs for refinancing from one bank to another.

For this reason, we tend to advise HDB clients to reprice especially for outstanding home loans of below $300,000 which is the minimum loan size for us to broker.  And we have good reasons for that which you may like to read in the form of a case study here.

At the prevailing floating rate of 2.00%, for every $100,000 of outstanding loan, the monthly instalment works out to $423.85 on a tenure of 25 years. So for a typical HDB home loan of $350,000, monthly instalment will come to $1,484.

Updated as at 10-Feb-2019new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan
Loan TypeDBS Floating FDROCBC Floating BOARDUOB Floating BOARDHSBC Floating FDRSCB Floating FDRMAYBANK Floating BOARD
Loan PegFHR8 = 0.675%MBR = 1.55%MR = 0.85%TDMR24 = 0.65%36FDR = 0.97%SRFR2 = 4.50%
Year 1FHR8 + 1.45% = 2.13%MBR + 0.75% = 2.30%MR + 1.45% = 2.30%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.45% = 2.05%
Year 2FHR8 + 1.45% = 2.13%MBR + 0.75% = 2.30%MR + 1.45% = 2.30%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.45% = 2.05%
Year 3FHR8 + 1.45% = 2.13%MBR + 0.75% = 2.30%MR + 1.45% = 2.30%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.45% = 2.05%
Year 4 & ThereafterFHR8 + 1.45% = 2.13%MBR + 0.95% = 2.50%MR + 1.65% = 2.50%TDMR24 + 2.13% = 2.78%36FDR + 1.08% = 2.05%SRFR2 - 2.12% = 2.38%
Lock-In Period2 years2 years2 years2 years2 years2 years
Partial Redemption Penalty1.50%Nil (up to 50%)Nil (left $200K)1.50%1.50%1.50%
Full Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.50%
Legal Subsidy/RebateYesYes0.40% of loanYesYes0.40% of loan
Subsidy Cap At$2,000$1,800$1,800$1,000$1,800$2,000
Min. Loan (for subsidy)$500,000$300,000$80,000$200,000$400,000$100,000
new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan

Compare All Latest Rates 2018

 

G. Best Floating Rate (SIBOR) Home Loans For HDB

SIBOR home loans, being a transparent mortgage peg, can actually work quite well for HDB homeowners as over the long term where business cycles swing up and down, homeowners may pay more initially when rate rises but the reverse is also true when SIBOR comes down first and they will reap the savings immediately.

The main concern is still that of refinancing costs for smaller loan sizes and hence homeowners are better off on a SIBOR floating rate with a constant and long-term low spread.

Some of the best SIBOR-based home loans for HDB are summarised here:

Updated as at 10-Feb-2019new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan
Loan TypeOCBC Floating SIBORUOB Floating SIBORCITIBANK Floating SIBORHSBC Floating SIBORSCB Floating SIBORCIMB Floating SIBOR
Loan Peg3-month SIBOR1-Month SIBOR1-Month SIBOR1-Month SIBOR1-Month SIBOR1-Month SIBOR
Year 13-month SIBOR + 0.30%1-month SIBOR + 0.35%1-month SIBOR + 0.20%1-month SIBOR + 0.25%1-month SIBOR + 0.25%1-month SIBOR + 0.25%
Year 23-month SIBOR + 0.40%1-month SIBOR + 0.40%1-month SIBOR + 0.25%1-month SIBOR + 0.25%1-month SIBOR + 0.25%1-month SIBOR + 0.30%
Year 33-month SIBOR + 0.50%1-month SIBOR + 0.45%1-month SIBOR + 0.40%1-month SIBOR + 0.25%1-month SIBOR + 0.30%1-month SIBOR + 0.35%
Year 43-month SIBOR + 0.50%1-month SIBOR + 0.50%1-month SIBOR + 0.60%1-month SIBOR + 0.65%1-month SIBOR + 0.30%1-month SIBOR + 0.60%
Year 53-month SIBOR + 0.50%1-month SIBOR + 0.50%1-month SIBOR + 0.60%1-month SIBOR + 0.65%1-month SIBOR + 0.30%1-month SIBOR + 0.60%
Year 6 & Thereafter3-month SIBOR + 0.50%1-month SIBOR + 0.50%1-month SIBOR + 0.60%1-month SIBOR + 0.65%1-month SIBOR + 0.30%1-month SIBOR + 0.60%
Lock-In Period2 years1 year2 years2 years2 years2 years
Partial Redemption PenaltyNil (up to 50%)Nil (left $200K)Nil (left $200K)1.50%1.50%1.50%
Full Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.50%
Legal Subsidy/RebateYes0.40% of loan0.40% of loanYesYes0.40% of loan
Subsidy Cap At$2,000$1,800$1,800$2,000$1,800$2,000
Min. Loan (for subsidy)$500,000$100,000$100,000$500,000$500,000$100,000
new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan

Compare All Latest Rates 2018

 

H. Best Fixed Rate Home Loans For HDB

As there are some banks that do not cater to HDB segments, or they have more attractive fixed rates only for loans above $500,000, HDB homeowners may find their fixed rates at the higher end of what is available in the market.

Exercise caution when selecting the best fixed rate for HDB as when the fixed rate term ends, the loan often reverts to a much higher floating rate which means homeowners would then need to incur high costs to refinance out should repricing terms not be favourable.  All such transaction costs would erode the potential savings of signing for a fixed rate home loan in the first place.  The best situation to go into a fixed rate is when the longer-term floating rate is still fairly attractive, or when there are plans to sell off the HDB at the end of the 2 or 3-year fixed term.

At the prevailing floating rate of 1.88%, for every $100,000 of outstanding loan, the monthly instalment works out to $418.04 on a tenure of 25 years. So for a typical HDB home loan of $350,000, monthly instalment will come to $1,463.

Updated as at 10-Feb-2019new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loanindia bank housing loannew purchase housing loan
Loan TypeDBS Fixed RateOCBC Fixed RateUOB Fixed RateHSBC Fixed RateMAYBANK FixedHONG LEONG FINANCESTATE BANK INDIA FixedCITIBANK Fixed
Loan PegFHR8 = 0.675%MBR = 1.55%1M SIBOR1M SIBORSRFR2 = 4.50%BOARD = 4.65%BOARD = 6.00%1M SIBOR
2-Year FixedY1: 2.60% (Fixed)Y1: 2.68% (Fixed)Y1: 2.68% (Fixed)Y1: 2.70% (Fixed)Y1: 2.58% (Fixed)Y1: 2.18% (Fixed)Y1: 2.50% (Fixed)Y1: 2.53% (Fixed)
Y2: 2.60% (Fixed)Y2: 2.68% (Fixed)Y2: 2.68% (Fixed)Y2: 2.70% (Fixed)Y2: 2.58% (Fixed)Y1: 2.38% (Fixed)Y2: 2.50% (Fixed)Y2: 2.53% (Fixed)
3-Year FixedY1: 2.88% (Fixed)nilY1: 2.88% (Fixed)Y1: 2.90% (Fixed)nilY1: 2.5% (Fixed)nilY1: 2.75% (Fixed)
Y2: 2.88% (Fixed)nilY2: 2.88% (Fixed)Y2: 2.90% (Fixed)nilY1: 2.60% (Fixed)nilY2: 2.75% (Fixed)
Y3: 2.88% (Fixed)nilY3: 2.88% (Fixed)Y3: 2.90% (Fixed)nilY1: 2.75% (Fixed)nilY3: 2.75% (Fixed)
Lock-In Period2/3 years2 years2/3 years2/3 years2 years2/3 years2/3 years2/3 years
Partial Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50%
Full Redemption Penalty1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50%
Legal Subsidy/RebateYesYes0.40% of loanYes0.40% of loanNil0.40% of loan0.20% of loan
Subsidy Cap At$2,000$1,800$1,800$1,000$2,000Nil$1,000$2,500
Min. Loan (for subsidy)$500,000$300,000$200,000$200,000$100,000$100,000$250,000$500,000
new purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loannew purchase housing loan

Compare All Latest Rates 2018

 

I. Overview Of All Best Home Loans Across The Board

To summarize all the best home loan rates and data points we have presented so far, below is an overview for what one may consider when seeking a new purchase home loan or refinancing this month.

25-Nov-2018Best Fixed Rate Home Loans

 

Best Floating Rate Home Loans
(on FDR/BOARD)
Private Property (Completed)

 

 

2.10% -2.30%BOC, SBI, MAYBANK1.88% – 2.08%DBS, UOB, OCBC, SCB
Private Property (BUC)

 

 

NANil1.90% – 1.95%SCB, DBS, UOB, OCBC, MAYBANK
HDB (Resale)

 

 

 

1.88% – 2.30%BOC, SBI, MAYBANK1.88% – 2.08%DBS, UOB, OCBC, SCB

 

 

 

We have provided a brief summary of the best home loans in Singapore in the month of November 2018.

We hope this would be useful for your comparison as we try to present the most salient information (rates, lock-in, legal subsidy, etc) of each home loan package neatly in a table form.  However, do note that as rates are dynamic in nature, we are unable to re-generate this table on a daily basis and the best way to access the most up-to-date information is still to use our interactive Rates Display below and to speak to us today for an obligation-free chat!  We can even run the numbers to show you how much is your potential interest savings when you refinance through us, and enjoy our special rewards like a $200 Refinancing Valuation Fee Offset, or a special Purchase Legal Fee of $1,800 all-in (including stamp duty, gst).

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Choosing the Right Mortgage Loan Peg

In recent months, some banks have stopped offering home loans based on fixed deposit rate and re-introduced BOARD rates for their home loan packages.

In this article we will take a closer look at the different types of mortgage loan pegs available in the Singapore market and how one is preferred over others at different periods of interest rate cycles.

Compare All Latest Rates 2018

 

What Is A BOARD Rate?

This is probably the oldest form of mortgage pricing widely practised all over the world where the bank pegs the home loan interest rate to a pre-defined lending benchmark called BOARD rate.  Banks normally have different BOARD rates for different purposes like commercial property loans, private property loans, HDB loans, etc.  Different banks also call it by different acronyms from MR (mortgage rate), MRP (mortgage rate plus), SRFR (Singapore Residential Financing Rate) to EFR (enterprise financing rate) for commercial loans.  No matter which name it goes by, the nature of BOARD rate remains – it is determined solely by the bank in accordance with general market interest rate movements.  The actual interest charged to homeowners would usually be BOARD rate less a discount factor, or more recently, it has become BOARD rate plus a margin.

The biggest problem with BOARD rate is that it is difficult to track as it is an internal rate determined by the bank from time to time and this information is not published anywhere publicly.

 

Why SIBOR Was Used To Price Mortgages?

To understand why this lack of transparency is an issue with BOARD rates, we need to revisit the history of how SIBOR (Singapore Interbank Offer Rate) became widely used as a mortgage loan peg from 2007.

SIBOR 30-year pattern

 

Back in mid-2000s when US Fed started its last tightening cycle, homeowners in Singapore were paying skyrocketing interest rates as high as 4-5%. These were variable packages on BOARD rates which was the only mortgage loan peg available in the market back then. One can imagine fixed rates would be even higher in those days.  As banks raised their BOARD rates, there was much unhappiness amongst borrowers and complaints which eventually led banks to seek out a more transparent loan peg to be used for mortgage pricing.  SIBOR or interbank lending rates, administered by the Association of Banks in Singapore (ABS), were used to price mortgages for the first time in 2007.  ABS would calculate and publish on its website the SIBOR rates for 1-month, 3-month, and so on based on the bid and offer quotes from 20 participating banks in the interbank market daily at 11.30 a.m.

Lenders could then price their mortgage loan packages based on the published SIBOR rates by adding a spread or margin.  SIBOR would become the most transparent (published daily) and neutral mortgage loan peg as no one bank could unilaterally increase its value.  Homeowners could also compare mortgage loan packages from the various banks based on the lowest spreads quoted.  Monthly repayments would be calculated or “reset” on a rate-setting date every 1-month, 3-month or even 12-month depending on the SIBOR tenure to which the mortgage loan is pegged to. The monthly repayments would stay the same until the next reset date.

Indeed, SIBOR-pegged home loans became popular and the pre-dominant choice amongst homeowners especially in the next decade when interbank interest stayed low for long periods.

Compare All Latest Rates 2018

 

FDR Mortgage Loan Peg – An Innovation In Singapore’s Market

However, when SIBOR started rising in late 2014 after oil price collapse and the end of loose monetary regime in the US, things start to change.  By this time, DBS pioneered a new category of mortgage loan pegs called FHR (Fixed Deposit Home Rate) where it pegs home loan interest to its pre-designated Sing dollar fixed deposit rates of various tenures from 12, 24, 18, 9 to the current 8-month.  This is likely a first-of-its-kind in the world for mortgages.  The market took to it by storm aided by the perception of meagre fixed deposit rates in Singapore, meaning mortgage loan interest pegged to FHR would likely stay low. Before long, other banks also launched their own versions of such mortgages based on fixed deposit rates, which we now refer to collectively in this blog as FDR (fixed deposit rate) home loans, and FDR took over SIBOR as the preferred mortgage loan peg in the last few years.

As interest cycle heads further north with US Fed now on track for 4 hikes this year after it last raised the federal funds rate in September, SIBOR being an interbank rate would always be the first to respond to any drying up of liquidity in the banking system.  On the other hand, as banks need to justify any increases to FDR loan pegs, there is usually a lag time before they play catchup with SIBOR.  So far this year, we have observed this lag to be generally around 3 to 6 months.  This re-affirmed our view that in an interest rate upswing cycle, FDR will be preferred over SIBOR due to this laggard nature – SIBOR would need to move first and quite significantly.

What is more uncertain is the choice of BOARD rate which is essentially like a “black box” where we are unable to track its exact movements over time.  Will banks exploit this lack of transparency to increase BOARD rate more often than necessary, or to increase even more than the run-up in SIBOR?  We can only hope that history does not repeat itself.

 

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 2018

 

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 2018

 

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 2018

 

 

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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5 Surefire Ways To Reduce Housing Loan Interest

As interest rate continues to run up unabated, it is timely to do a review on your housing loan and in this article we will look at 5 surefire ways you could reduce your borrowing costs.

Compare All Latest Rates 2018

 

1. Lock Down Fixed Rate Today

In this blog, we have been warning of rising home loan fixed rates since two months ago.  And as local banks announced raising their fixed rates further in November to 2.28% (2-year fixed), and HSBC ending their current fixed rate promotion (one of lowest) this week, we are drawing near to the scenario we predicted a while back – there will be no more sub-2% fixed rates in the market soon.  The last remaining banks to offer fixed rates of below 2% for housing loan are Hong Leong Finance (1.88%) for hdb property and Bank Of China (1.95%) for private properties of loan above $500,000.  Every one else is above 2% now with the withdrawal of HSBC fixed rate packages this week.

 

If US Fed follows through with one more rate hike in December and three more forecasted for 2019, there seems to be no reprieve in sight yet for homeowners, not until when the fed funds rate itches closer to its longer-term neutral rate of 3% by end of 2019.

 

For those with lock-in ending within the next 6 months (by April 2019), quickly contact us to lock down a fixed rate housing loan package now when it is still at the 2% range.  Yes, unknown to many, we can do that as early as 6 months before with some minor trade-offs in the period of fixed rate term one will enjoy.  Our experienced team of mortgage consultants will explain how it works.  As I put to you that if fed fund rate rises to just 2.50% (if we reduce the forecasted number of hikes going into 2019 due to trade war and undue influence from the White House), 3-month SIBOR here in Singapore is not going to stay at the current levels of 1.64%.  See our correlation chart.  This means that fixed rates for housing loan would most likely rise up by approximately another 50 basis points from where we are today.

 

2. Reduce The Tenure

This is certainly going against what most bankers and mortgage consultants would preach.  Before we explain this point, let us give one caveat – when this is a 1st loan on a property at the point of purchase, there is some merit in the argument to go for a longer tenure as in subsequent refinancing, certain banks may not allow one to increase the no of years from the original tenure of the loan.  Of course, reducing it is of no concern to any bank as long as one could still meet TDSR (total debt servicing ratio) with a higher monthly repayment that comes with a reduced tenure.

 

For those who has no concern on cashflow to service a higher repayment every month, and especially for owner-occupied homes where there is no monthly rental to defray interest costs, the best way to reduce interest costs is to shorten the tenure.

 

Most homeowners focus on reducing the interest rate per se during refinancing, but forgot to look a closer look at tenure as a lever to cut interests.  There are two drivers behind how much of the mortgage repayment you pay every month goes to interests and how much of it goes to reducing the principal loan.  Ceteris paribus, know this:

 

“The higher the interest rate, the bigger is the interest-component in the monthly repayment and less goes to reducing the loan;

AND

The longer the tenure of the loan, the bigger is the interest-component in the monthly repayment and less goes to reducing the loan.”

 

We have illustrated this point clearly with a case study in another article which you may want to read here.

Compare All Latest Rates 2018

 

3. Do Partial Repayment – Immediate And During The Lock-In Period

To pay down partially on the outstanding loan when one refinances is an obvious way to reduce interest costs.  The art is in deciding how much to pay down and how much to stash away as emergency funds or funds you could deploy quickly when opportunity arises like during a market crash etc.

 

Perhaps one good way is to do a combo loan – many in the market are still unaware of this option, which is available today via three banks.  Simply set a target how much one likes to pay down within the next two to three years.  For example, on a $700,000 housing loan, one may reason that with expected bonuses at year-ends and excess funds accumulating in the CPF Ordinary Account (OA) balance, there is a very high chance of paying down a further $100,000 over the next two years.  Simply take $100,000 in a floating rate housing loan with no lock-in or one that allows partial redemption, and the remaining bulk of $600,000 follow what we advocate in our first point – lock down with the lowest fixed rate housing loan as there is no intention to pay down on that portion.

 

Incidentally, one noteworthy point here – whenever cash flow is not a concern, one should always service the housing loan in cash instead of from CPF.  Until such time mortgage interest rate rises above the CPF OA interest of 2.50%, unlock the CPF funds to reduce the outstanding loan.  Why?  Think of it this way, if CPF Board wants to work hard to achieve a risk-free (to you) return of 2.50% p.a. by investing your money, let them do it.  If one uses his CPF funds to service the home loan instead, not only does he deprive himself of this guaranteed return, he has to make that 2.50% return per annum himself to pay back to his CPF as accrued interest when he sells the property later.  Tough.  Unless of course one is a professional fund manager by training and achieves a much higher annualised rate of return above 2.50%, then by all means service the mortgage from CPF and deploy his cashflow for investment.  But how many of us can do that consistently?

 

4. De-couple At The Same Time When One Refinances (And Buy A 2nd Property?)

This recommendation helps not only reduce interest costs in the long run, but one’s overall transaction costs for those planning to buy a second property for investment.  But it certainly carries some risk.  So, caveat emptor!

 

With new cooling measures announced on 6 July 2018, ABSD (additional buyer’s stamp duty) has gone up to 12% on a second property even for a citizen.  We have predicted that the trend for couples to “de-couple title” on their first private property will continue and become even more popular.  As de-coupling of property title involves significantly higher legal fees (market rate $5,000-$6,000), the best time to do it is during a refinancing exercise where there are banks who may still provide partial legal subsidy (most banks do not offer subsidy when there is a purchase component like in de-coupling).  Speak to our consultants who can advise you on this.

Compare All Latest Rates 2018

 

How can de-coupling then saves money when one has to spend more on transaction costs and put down more money for downpayment of a second property?  This requires taking a longer-term perspective.  First, a couple who are both citizens would save on paying 12% ABSD when the outgoing spouse (for example the wife) buys a property in her own name.  Next, although collectively they now take on more loan with the husband assuming the full loan on the first property, and the wife taking out a new purchase loan on a second investment property, the difference is – there is now rental income to help pay for interest costs on both housing loans.  We will illustrate this with one quick example below:

buying investment property

Total interest on both properties in 1st month = $1,250 + $833 = $2,083 is less than rental $2,500

 

The total interest costs is now paid for completely by the tenant.  This is of course an over-simplied example as we are putting in quite a number of assumptions:

 

  • The Tans have the funds for downpayment of for the 2nd property
  • Both husband and wife have much higher income now to qualify for a bigger loan on their own and they have the cashflow to meet a higher combined monthly repayment of $6,323 (additional $2,529 more every month due to the new purchase loan)
  • The investment property is highly-lettable with no or minimal vacancy periods between leases
  • There is minimal unexpected “holding costs” they will incur which erodes the yield for example repairs, contributon to sinking funds, etc.

 

(Note: In this example we are ignoring the usual transactions costs like normal 3% buyer’s stamp duty, agent’s commission, legal fees, etc. as we are not calculating net investment yield.  We are not getting into discussion on capital gains from asset appreciation over time hence we ignore the return of investment for deploying funds toward downpayment of 2nd property)

 

For this strategy to work, the key is the ability to achieve consistent rental income and for mortgage interest not to skyrocket so high like above 5% for long periods which then means they will need to “top up” and pay interests as the rent per se will not be sufficient to cover the interest-portion completely.  Having the  cashflow to sustain through such high-interest periods, if it happens, will be vital failing which they will need to dispose of the asset sometimes at a loss.

 

Still, you get the idea behind this – we always advocate property investment as a form of disciplined savings where the tenants help to pay for the property over the course of the loan.  Over the long term, investment property may be the best way to reduce interest costs as someone else helps to pay for it.

 

Incidentally, there are ways to get more loan from the banks based on assets including stocks and bonds instead of just income earned.  Speak to our consultants who can calculate the maximum loan for a new purchase loan or AIP (approval in principle) for you or your spouse.

 

5. Work With A Trusted Mortgage Consultant

Buying a second property for rental income may not work for everyone.  Seeking out a trusted professional mortgage consultant whom one could work with long term is what every homeowner could do and should.

 

Not only does having a personal mortgage broker saves one time in doing home loan comparison, it actually saves money when there are timely reminder calls to review the mortgage ahead of lock-in expiry date.  A good mortgage consultant would also be able to track developments in the industry including interest rate hikes by the various banks over time to aid clients in making the most informed decision, not to mention navigating the ever-changing regulatory framework on home loans.

 

 

We hope the fire ways outlined in this article will benefit you in saving real money, or at the very least let you see mortgage planning and management in a new light.  Contact us now to start saving on interest costs from 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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