Just when we reported earlier this month how the battle for mortgage market heats up with the launch of Combo Plus loan from ANZ, another bank has just fired the next salvo.

In a significant move by OCBC this week, it launched its own version of a deposit-based home loan peg called 36 FDMR which stands for 36-Month Fixed Deposit Mortgage Rate, defined as the prevailing rate of OCBC’s SGD 36-month fixed deposit rate for deposits from $5,000 to $20,000. Currently this rate is at 0.65% p.a. To keep things simple at the start the bank is offering only one single package based on FDMR as follows:

OCBC 36FD MR PACKAGE

• Year 1  to 3      : 36FDMR (0.65) + 1.03 = 1.68% p.a.
• Year 4 on         : 36FDMR (0.65) + 1.50 = 2.15% p.a.
• 2-year lock-in
• One free conversion should the bank move its 36FD MR rate
• Cash rewards for refinancing:
  > $500,000 – $2000
  >$2M – $2500

Riding on greater awareness (how it works) now of deposit-based home loan first introduced and made popular by DBS with its FHR (Fixed Deposit Home Rate) in Jun 2014, it is a strategic move by OCBC to win back market share. In a way it benefits OCBC as the market is now more ready to accept such a product. At MortgageWise we applaud this move by OCBC which will help to deepen and widen the product offering in the marketplace for home loan solutions with local banks latching on to deposit-based peg for mortgages while their foreign counterparts like ANZ do the same on their slightly higher cost of funds but with lower spreads. It will be interesting to watch this space.

In fact we have predicted in this blog since earlier in the year that the remaining 2 local banks will have no choice but to respond at some point with a similar deposit-based product as they cannot afford to let DBS chip away relentlessly at their existing base seeking refinancing with rising Sibor. Clearly the market has taken to deposit-based home loan peg in a big way, which we are proud our team here at MortgageWise has a part to play in terms of educating and creating awareness for it. It is not difficult to see that if one ploughs through this blog. However we do not just recommend it for the sake of recommending per se. We truly believe it is a more superior peg for the longer term.

Our team at MortgageWise has studied the deposit-based mortgage pages for both OCBC home loan and DBS home loan in details and we will discuss more of these in the coming months. At the moment we think that be it 36-month fixed deposit rate (36FD MR) or the new 18-month fixed deposit rate (FHR18), they are of the same nature and present the same benefits and risks to the borrower. By default 36-month deposits is a higher cost of funds to the bank compared to 18-month, but the final interest after adding the spread that each bank levies is more crucial than which peg. The difference hence lies more in the overall package in terms of the spread and how much it goes up after the first few promotional years, lock-in periods, refinancing incentives like cash rebate, and innovative features like what OCBC offered – a free conversion if 36FD MR moves, like a safety net to homeowners.

We do believe OCBC has got a competitive deposit-based home loan in place which will now give DBS a run for its money.  As the two banks continue to tweak and improve its deposit-based mortgage offering and with possibility of a 3rd bank joining in the fray soon, this is a good development for Singapore home loan industry in Singapore which can only benefit homeowners going forward.

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 refinance home loan with us in the end notwithstanding the sheer number of brokers and agents out there.