Donald Trump will be sworn in as 45th President of United States in a matter of hours and all eyes will be on his first 100 days in office, from Europe, China to the rest of emerging markets (whose currencies were badly battered), and fund managers in financial market to corporate America, even US Fed.
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Closer to home, I believe all the lenders are also watching with a keen eye on events unfolding in the US affecting global trade, the strength of the the USD, and the pace of interest rate hike in 2017. And before the “storm” (spiking cost of funds when the dollar resumes its uptrend) if there is one, banks being opportunistic have seized this time to try and capture more market share at start of the new financial year by coming out with “limited time period” promotional offers on their DMR (deposit mortgage rate) home loans. Here’s a quick summary for the four banks offering DMR loans currently.
DMRs is the generic term we coined for the category of home loan pegs based on bank deposit rates, as opposed to the more traditional SIBOR/SOR or lenders’ own internal BOARD rates. The four banks that have introduced DMR mortgages in the past two years have chosen to peg DMR to pre-defined fixed deposit rates at the moment, ranging from 18-month to 48-month (and for specific deposit bands), but we are still hoping some foreign banks will start to offer DMRs pegged to some savings account rate which might make more sense for foreign lenders.
After a round of 1% DMR home loan packges by the 4 lenders in 2nd half of 2016, they have generally sensed the likely tightening of liquidity in money market this year and have now raised the minimum promotional rate to 1.50-1.60% range at start of 2017. All packages now come with lock-in which is something we do not quite advocate on a floating rate package given the current sentiments, unless the differentials between that and fixed rate is wide enough to justify the risk.
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Having said that, DBS does stand out as an outright winner. The CNY promotion on DBS home loans come with a new and interesting feature – a cap of 2% during the 2 years of lock-in. This greatly reduces the risk of a runaway interest rate should Donald Trump be successful in reviving the American economy and US Fed follows through with its forecast of 3 rounds of rate hikes in 2017. In that scenario and if we assume a similar increase here in 3-month SIBOR and DMRs, for the DBS package one will start 2017 at 1.48% but end the year close to 1.48% + 0.75% or 2.23% (3 round of increases at 0.25% each) without such a cap. But with the 2% cap feature, your interest rate increases will stop at 2%! In essence you can take this to be a 2-year fixed rate package at 2% but you are starting off at a low of 1.48%.
Would it be better than just to go for 2-year fixed rate home loan and remove all the guessing work? Maybe. Especially when there are still fixed rate packages below 2% right now but you have to work out the numbers after factoring in the savings at 1.48% with DBS. Speak to our experienced mortgage consultants today who can do an interest modelling for you based on certain assumptions and give you the lowdown on all the latest fixed rate home loan Singapore rates.
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