Just last week, StanChart introduced their 3rd tranche of FDR home loans on 25 May 2018, where all mortgages will now be pegged to the fixed deposit rate of 36-month set at 0.72%, instead of the previous 9-month which will stop by end of May.
This would be the lastest FDR tranche in the market, and comes about 6 months after SCB came out with 9FDR back in Dec 2017. The time taken to “fill up” a new tranche of FDR seems to be getting shorter. This duration for a new tranche of FDR to be offered may be different for local versus foreign banks due to the different cost structures. For UOB, OCBC and DBS home loans, we have observed a new FDR tranche can be offered up to one-and-a-half years typically but we do expect this to be shortened as interest rises.
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There are some arguments we heard that longer-tenure FDR like 36-month would make a wiser choice than shorter ones like 8-month, because the absolute value of the peg is higher hence the spread (or the mark-up above the peg) on the loan would be reduced. Still, I do not quite fathom this as technically-speaking for FDR home loans, that is not the real spread for the bank which is the actual interest rate charged to borrowers less out the average cost of funds for the lenders. The real “blended” cost of funds across all funding sources be it deposits or interbank is unknown. For the three local banks, we can only gauge the growth in interest margin from their quarterly financial results which we do track in this blog.
If 36-month FDR is preferred for their higher peg value, then how does one justify that SCB’s new 36FDR has a value of 0.72% whereas Maybank’s 36FDR has a value doubled that at 1.40%? There is no point speculating how one bank would manage their FDR versus another and which bank would move up their FDR first. Rather, what is more certain is this – the bank that just introduces a new tranche of FDR is less likely to want to incur the wrath of its new customers by hiking it so soon. And it is for this reason that we would recommend SCB’s 36FDR for those looking at floating rate mortgages. Also, based on historical trends, the bank has further shared that the highest that 36FDR went up to was 0.95% back in Oct 2010 and lowest at 0.42% in Sep 2011. It is currently at 0.72%.
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However, there is something peculiar about mortgage interest rates in the Singapore market at the moment. As banks have moved up their floating rates slowly over the last few months, the gap between floating and fixed is now at its narrowest. In fact, with at least one bank still offering 2-year fixed rate at 1.75% for private property loan amounts above $500,000, the gap is just within 10 basis points! (lowest floating rate for completed properties is now at 1.65%).
Speak to our consultants today as this could be the best time to review your Singapore home loan with our Zero-Cost Refinancing benefit for all MortgageWise clients, terms and conditions apply. Those with no lock-in or with lock-in expiry within the next 6 months, take action now!
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