Earlier this month on 9 May, DBS revised the board fixed deposit rates from 9 to 12 months affecting DBS home loans on two FDR tranches – FHR9 and the original FHR (definited as the average between the 12-month and 24-month FD rate).  The changes are as follows:

Bank	Mortgage Peg*	Date*	Old Rate	New Rate	Increase By
DBS	FHR9	9 May	0.25	0.50	0.25
DBS	FHR (ave of 12M & 24M)	9 May	0.675 0.35(12M) 1.00 (24M)	0.80 0.60(12M) 1.00 (24)	0.125

* This is the date where the FD rate is adjusted, the FDR hike will only take effect after a 1-month notice by the bank which will be sometime in June.

With this latest move and the most recent broad-based hikes in February, almost all the past tranches of FDR home loan pegs offered by all six lenders with FDR home loans since 2014 have moved, except for OCBC home loans’s 36FDMR.  See our review on the last FDR rate hikes in February.

With US 10-year yields breaching the all-important 3% point and staying up, and with at least two or maybe three more rounds of rate hikes by US Fed this year with one upcoming in next month’s FOMC, the upward trajectory of SIBOR seems intact.  At MortgageWise.sg, we usually only adjust our forecast after the June FOMC if need be, and with SIBOR back to where we started the year at – above 1.50% (3-month SIBOR), we are likely to maintain our forecast that it will finally hit the 2% mark in over a decade before the year is up.

Does this mean that all of us should jump on the fixed rate mortgage wagon?  Yes and no.

The facts have held up FDR thus far to be a reliable and stable mortgage peg and a laggard to SIBOR movements.  On the whole, the increases to FDR peg has been in the region of 0.20% to 0.30% and coming only after a big movement of SIBOR by almost 0.50% in the past year.  And we have observed that it takes approximately a year and a half before lenders would hike a new FD tranche as it takes time to sign up a significant number of loans before any hike would be meaningful enough to lift interest margin.  That said, we would expect the next broad-based hike to happen in early 2019 for the current tranche of FDRs (FHR8, FDPR14, FDR9) on offer from the major banks, as these were launched mostly in Q4 of 2017.  This is also contingent on our forecast that 3-month SIBOR will hit 2% by end of the year which is another 50 basis point climb from the current levels.  However, we do think a few specific FDR pegs might hike much earlier before the year is up and most notably OCBC’s 36FDMR which has not moved since day one of its launch (still at 0.65%) which is kudos to the bank’s commitment to customers and augers well for those signing up for its new OHR home loan peg.

Still, at such snail pace of a mere 0.25% climb per year in FDR, it is not a clear-cut knock-out decision to go fixed yet.  One needs to look at various factors like the need to sell, paydown etc. which would not be available in most fixed rate home loans that come with lock-in periods.  The size of the outstanding loan is also important.  There are at least six factors to consider before deciding on fixed versus floating rate home loan and we have got that covered neatly in another article published in March in this blog.

Curently the gap between fixed and floating rate is still hovering in the range of 0.15% to 0.25% which predisposes the choice more to fixed in the current interest rate cycle.  We would thus recommend most to go on the lowest fixed rate for loans below $1m.  And to this end we make no distinction between local or foreign lenders, and between big or small banks.  A fixed rate contract is exactly what it is defined as – fixed repayment that one contracts with the bank during the fixed term. There is no need to side-guess which FDR peg will rise up by when and by how much.

But for bigger loans, every basis point savings count and it might still be alright to take a bet on FDR or even OCBC OHR with such snail pace of increases we have seen recently.  Incidentally, the smartest thing to do here might be to sign on to a FDR tranche that is newly-launched which in theory has the least propensity to move up in the near term for reasons we have articulated earlier.

If in doubt, speak to our dedicated consultants today who could do a review on your mortgage and calculate which package yields the most savings over time using our proprietary Interest Simulator.

And for those with no lock-in or lock-in expiry within 6 months, this could be the best time to review as we just launched our Zero-Cost refinancing home loan benefit for all MortgageWise clients, terms and conditions apply.

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.