This week OCBC made the market sit up with a significant move by replacing their existing FDR and BOARD rate home loans with a brand new mortgage peg called OHR which stands for OCBC Home Rate.
As thought leader in the mortgage space, we need to give our take on it and our initial assessment is that it can be quite an exciting new peg for the Singapore market if it lives up to its promise of taking reference on the long-term average of the 1-month and 3-month SIBOR. First let us present what are the new packages the bank has unveiled at the same time:
We will explain OHR shortly. First notice there is a fixed rate OCBC home loan package this time, a bank which has shied away from competing on fixed rates in recent years. That is good news for the market with more entrants of fixed rate home loan players. The bank fixed the rate for the first two years by contracting that it will not move OHR during this period, or what they call OHR Fixed. What is more interesting to us is the floating rate package at 1.35 for the first two years, and even if you include the year 3 rate of 1.40 that gives an average of 1.37 over the first three years (coinciding with the legal fee clawback period for refinancing cases) which will make it one of the lowest in the market for floating rate housing loans. This would be especially attractive to those with bigger loans like above $1m, especially if OHR remains very stable in the long term.
The big question on most people’s minds now would be – just how stable would OHR be? Or is it just another BOARD rate. Based on the average of 1-month SIBOR and 3-month SIBOR over the last 12 years at 1.0728 and 1.1990 respectively, the bank decides to start OHR off at the lower end of 1.00, instead of 1.10. Obviously for pricing sake, it needs to be a rounded figure instead of actual averages. That is understandable. We think the bank is being fair and transparent.
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Now let us answer the three most common questions we get on OHR from clients.
1. Is There A Preset Formula For Determining OHR?
The bank did not give preset formula on how it will determine OHR. To create greater confidence in OHR we hope the bank would consider doing that at some point.
2. What Is The Difference Between OHR and BOARD rate?
As there is only one set of historical values for 1-month SIBOR and 3-month SIBOR to average out, technically-speaking there should only be one single OHR, unlike BOARD where there could be many tranches within the same bank, depending on which period homeowners signed onto the loan, and no one really knows how many times the bank will move the BOARD rate in a year and by how much.. We expect OHR to be singular and only the spreads would vary over time for new versus existing customers, as interest rate rises and falls in Singapore. However, we need to monitor this closely going forward based on the collective feedback from all our clients over time. To this end, it will make sense for you to take your loan through MortgageWise.sg as you join the family here, where we will share with you the latest trends and analysis to help you make the most informed decision. Speak to our consultants today on OHR and more.
3. Is OHR Worth Considering?
We think yes. This is OCBC, one of the big three banks in Singapore. And for the bank to stake its entire mortgage portfolio on SIBOR and OHR home loans going forward, it run the risks of a huge exodus of loan customers if it mismanages OHR. Even when the bank finally adjusts OHR due to rising long-term averages of SIBOR, we expect most to be out of the lockin period two years.
We applaud the bank’s innovation here in introducing yet another alternative to the Singapore mortgage market, keeping it vibrant and competitive which can only be good a thing for homeowners as interest rate rises. Speak to our consultants today to find out more options for your home loan refinancing or enjoy a special purchase legal fee privilege of $1,800 all-in through us, if you are buying a private property soon.
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.