Finally as what we have predictd in this blog more than a year ago, UOB completes the picture with the launch of its DMR (Deposit Mortgage Rate) home loan this week which it calls FD Property Rate and is based on UOB’s SGD Fixed Deposit Rate for 36-month which is the same rate across all deposit bands currently at 0.65%, in short 36FDPR. With this move, all 3 local banks now offer DMR loans which are pegged to their pre-designated fixed deposit rates, DBS on its 18-month fixed deposit, and both OCBC and UOB on their 36-month fixed deposit.
Without doubt, DMR loans has gained massive popularity over the past year as SIBOR climbs from its low base from 0.60 at start of 2015 to highest point of 1.25 recently (before retreating last month), as homeowners scramble to look for a better and more stable loan peg. Some go for fixed rate packages which will revert back to floating anyway after 2-3 years when the fixed term ends, others prefer to take a more measured view on rate hikes and go for DMR loans on that fact that local banks consistently pay the lowest deposit rates which becomes a benefit if one pegs his mortgage interest to deposit rates.
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The next thing to watch will be how foreign banks respond to DMR loans which are indeed taking away much new loans as well as existing clients from them via refinancing. So far foreign banks have only responded with more aggressive fixed rates which are sporatic in nature due to limited tranches of funds available for such loans. We do believe that one or two might respond with similar DMR loans either pegged to fixed deposit or even savings account interest for some. Here at MortgageWise we do have some ideas on how foreign banks can compete more effectively with local banks in the mortgage space based on what we observe and the ground-level feedback we get from clients. We will share our views in later articles.
Another thing to keep a close watch on would be how the 3 local banks now manage its DMR rate with impending rise in SIBOR over the next few years – how fast do they move up and the magnitude of each move. Will it become the new BOARD rate which has left many clients with bad experience in the past. Working with a trusted mortgage consultany firm, you can count on us to track and share all these and more as we continue to bring you the latest developments in the Singapore mortgage market.
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Before we end, it is now most apt and a complete picture too for local banks if we were to stack the 3 DMR loans side-by-side for a direct comparison of its features and current interest:
On first look it may seem that all 3 DMR packages are similar with interest starting out at 1.80%. On closer look there are differences in terms of constant spread (loosely defined as the markup above the DMR peg) of 1.80% vs that of step-up spread after 3 years, terms on lock-in period and redemption and subsidy for refinancing. Do note that both DBS and OCBC do offer DMR packages that come with cash rebate for refinancing but on higher spreads. In the table above, we are only comparing the DMR package from each bank with the lowest rate. Which package one should go for whether with or without the cash rebate or legal subsidy is a factor of one’s loan size, and other salient considerations. Do speak to our mortgage consultants who can tell you more.
It is also noteworthy to point out here, something which we have re-iterated to all our clients over the past 4 months, notice how close FHR18 is to 36FDMR and 36FDPR, ie.0.60% vs 0.65%? How could 18-month fixed deposit rate be so near in value to 36-month deposit of another local bank? Well, some may not be aware, DBS has actually made its first hike on FHR18 on 23 Dec last year from 0.50 to 0.60, following closely after the footsteps of US Fed’s 1st historial rate hike. With no knowledge or reference to the banks’ cost structure and funding strategy, one would logically assume that the next one to hike their rates would be OCBC and/or UOB in order to level up with DBS. At last check, DBS’s longest fixed deposit tenure published on their website is for 24-month and the interest is currently at 1%. Having said that we do think that UOB/OCBC can still hold out for another 6 months or until such time when the Fed moves again.
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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