This past week (on 23 Jan 2017) Maybank became the latest lender to join in the battle for DMR home loans. DMR (deposit mortgage rate) is a term we coined to describe all home loans in Singapore which are pegged to the lender’s pre-defined deposit rate instead of the usual 3-month SIBOR (Singapore Interbank Offer Rate). The latter has been gaining popularity over the last 2 years and with this latest addition there are now five banks offering DMR home loans as follows:
More and more banks are removing BOARD rates from their home loan offerings and instead replacing them with DMRs. This is what we have predicted earlier that BOARD, being totally non-transparent, would very soon be a thing of the past with only a handful of lenders still offering.
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Eventually the market will choose between either pegging mortgage to either SIBOR or DMR which is the trend we foresee. Currently all five lenders opt for a chosen fixed deposit rate to be their DMR for mortgage products, but we are not dismissing that in future there may be more variations thrown in like pegging to a CASA (current account savings account), especially one that helps drive deposits for the bank.
Are DMR home loans truly beneficial to homeowners or are they just the “new BOARD” in disguise? So far the lenders who have launched DMR home loans have whipped out historical trends of their DMRs over the past 10 years to prove how their DMR have remained fairly stable since the global financial crisis of 2009. Should that trend continues then DMR is surely the clear choice over SIBOR which is the first to respond to any interest rate hikes. What is more important we believe is how the lenders manage DMR going forward as it is no longer a deposit or cost of fund per se to the bank, but also acts as a lever to raise interest margin when the need arises. To this end we will be tracking DMR movements closely and it pays to work with a competent mortgage planner like us for your long term benefit.
Maybank pegged its DMR to its 36-month fixed deposit rate for deposits between $1,000 to $50,000. As this rate is published on the bank’s website, just like the rest of the DMRs out there, it is a very singular and transparent loan peg and any movements will be picked up by the press and all the mortgage comparison sites out there. Lenders will need to deliberate carefully with each move on DMR and make sure that is justifiable with increased cost of funds, otherwise there might be backlash in the form of outflow of customer base to the next better DMR home loan package (and there will always be another bank more hungry for your business).
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Maybank also introduced two home loan packages on DMR with this launch – one floating rate package (as shown above) and another 1-year fixed rate package at 1.59%. We tend to favour the latter with the gap between fixed and floating narrowing now to within just 30 basis points. There is some perception in the market that it makes more sense to go for fixed rate of 2 to 3 years or longer. However given the still uncertain outlook there might be some merits in going for a shorter 1-year fixed for immediate savings, and the ability to lock-in fixed rates earlier in 2018 rather than 2020. Speak to our experienced mortgage consultants today who can do an interest modeling for you based on certain assumptions and give you valuable viewpoints to consider between fixed or floating rate mortgages.
Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.
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