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FDRs Are Not Fixed Rates

Until now we still have clients thinking FDR (Fixed Deposit Rate) home loans are fixed rate mortgages.  They are not. They are just floating rate home loans which are pegged to a chosen tranche of fixed deposit by the bank for example the 15-month of OCBC home loans (now at 0.25%) which was recently launched on 19 July, replacing the earlier tranches of 36-month and 48-month.

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Take another bank’s example – DBS home loan’s new FDR package at 1.32% where it has chosen to peg to its 9-month fixed deposit instead, now also at 0.25%.  The mark-up above this FDR9 peg is set at 1.07% hence the final rate is 0.25% + 1.07% = 1.32%.  Now if the bank decides to hike its FDR9 from 0.25% to say 0.50%, then the final rate would rise up to 0.50% + 1.07% = 1.57%, whereas the contracted mark-up would remain at 1.07%.  The bank can do that by giving a one-month notice of any revision in its FDR.  Hence you see FDR is not a fixed rate mortgage where the interest is truly contracted at a fixed rate for the initial two or three years and will not change.

From time to time we do a snapshot of the various FDR home loans offered by the five lenders in Singapore and see how they stack up against one another:

table on fdr home loans Aug 2017

First notice the FDR rates at the moment are mostly in the range of 1.30-1.40%.  This is in fact very near to fixed rates where we could get you rates at below 1.50% in the first year (these are deviated rates not published in the open and you will need to speak to our consultants).

Next, in order to compete for new businesses, besides the rates, lenders will need to differentiate their packages from the rest of the market by introducing features like interest-rate cap or interest-offset account.  Some allow you to prepay up to 50% of the loan even during the lock-in, or throw in one free conversion should the bank move the FDR during the lock-in, etc.

We think while some of these features may have merits depending on one’s unique situation, they all serve to allay fears of having to be “locked in” for two years on a floating rate mortgage.  We have stated our view on this since the beginning – it is never a good idea to be locked in on a floating rate where you lose bargaining power with the lender, especially in an environment where interest is poised to rise from a historical low base.  If indeed necessary to go for a lock-in (for example when all the packages come with one), then try to go for one with the shortest lock-in like one year.  In fact, there is a floating rate package right now that comes with zero lock-in at a competitive rate!  Speak to our consultants today to find out more.

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Here’s what we think is even better recommendation – why bother to choose which feature has the “best protection” from the risks of a 2-year lock-in, when one can simply lock into a fixed rate mortgage of 2 years at comparable rates!  No guessing and no betting.  Simply exchange for total peace-of-mind with a fixed rate at below 1.50% and there will be no risks whatsoever.  We say this now because the gap between floating FDR and fixed rate is simply too close (within 0.15%) to make it worthwhile for anyone to assume the risks that comes with a lock-in.  Remember when one is locked in, and should the bank decide to raise its FDR, there is totally nothing the homeowner can do but to pay and serve out the next two years on higher interests and rising monthly instalments, not even asking for repricing (unless it comes with the option of a free conversion).

The likelihood of an increase in FDR is high, at least one time during the 2-year lock-in period which could mean 0.2% to 0.3% for most.  In fact, we speculate it could happen this year.  This is especially so now that 3-month SIBOR has moved in the last month from 0.96% to 1.12% presently.  And the last increase in FDR happened a long time ago almost 2 years back in December 2015 by a local bank.  The rule-of-thumb we often use is that when the gap between fixed and floating is less than 0.50%, there is merit in going for fixed rate.  What’s more now this gap is only at 0.15%.  One single hike will more than close the gap!

And do it soon before fixed rates should move again from its near historical lows.  Speak to our consultants today to find out what are your options on fixed rate mortgages where we could deviate down your rate to below 1.50% in the first year!  Better still for those buying a condo in Singapore now, take your loan through MortgageWise and enjoy an exclusive all-in purchase legal fee of $1,800 nett (including mortgage stamp duty) for completed private properties up to $3M (terms apply).

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

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