Singapore HDB

An increases in fixed-rate packages by DBS Bank, OCBC Bank, and UOB on Tuesday, home loan rates soared beyond the 4% level.

UOB currently offers the highest rates of the three local banks, with a two-year fixed-rate deal costing 4.5 percent per year.

OCBC offers one- and two-year fixed-rate packages for 4.3% annually, while DBS offers fixed-rate packages with tenors of 4.25% each year for two years.

DBS official said that many customers are still opting for fixed-rate contracts in light of recent rate spikes in the United States.

To help its clients feel more secure, the bank is now providing loans with terms of three to five years, during which borrowers may lock in fixed interest rates.

According to Ms. Maryanne Phua, OCBC’s head of home loans, the bank has reinstated fixed-rate packages due to customer demand after briefly withdrawing them at the end of October.

She said that this was done so that clients could choose the term length that worked best for them.

The Monetary Authority of Singapore (MAS) has a 4% medium-term interest rate floor that determines the minimum loan amount that may be offered to borrowers. Current fixed home loan rates in Singapore are over this level.

Home Loan Packages

When interest rates go up, the mechanism in place to cap the average rate of interest on loans for the medium term guarantees that borrowers will act responsibly.

Although recent home loan rates have been higher than the 4% floor rate, borrowers should not be too anxious about paying more than they can afford.

The reason for this difference is that when determining the maximum loan amount that a house owner may borrow, OCBC uses a higher rate of 4.5 percent, while DBS uses a lower rate of 4.25 percent.

As a consequence, homeowners will be limited in the amount they may borrow; this is done to ensure that their monthly payments remain below the TDS ratio level, which states that a borrower’s overall debt obligations should be no more than 55% of his monthly income.

At the current 4% MAS medium-term loan rate, a homebuyer with a steady monthly income of $10,000 and a loan duration of 25 years may borrow around $1.05 million.

 

Based on OCBC’s medium-term rate of 4.5%, the maximum loan amount a homebuyer might get is about $1,000,000 USD.

Carrie Chee, a 39-year-old financial services manager, is one homeowner who is not too concerned about the recent rate hikes.

In April of 2021, Ms. Chee refinanced the loan on her two-bedroom apartment at a fixed rate of 1.18 percent per year. The two-year lock-in term ends in April 2023, at which point she may re-finance or re-price her loan.

Ms. Chee, meantime, is on the hunt for a new home, and if she finds one she loves, she will purchase it regardless of current loan rates.

Mortgage brokers have suggested that borrowers considering a loan repricing or refinancing choose a fixed-rate loan with a shorter term.

According to Mortgage Master CEO Mr. David Baey, borrowers have greater leeway with a one-year fixed-rate loan since they are protected against rate hikes in 2023. Moving to a variable rate tied to the Singapore Overnight Rate Average (Sora) in 2024 will allow them to take advantage of future interest rate decreases.

DBS continues to provide a Sora-based floating rate package with a spread of 1% over the three-month compounded Sora.

The promotional Sora package from UOB is based on a three-month compounded Sora + 0.7%, while the package from OCBC is based on a three-month compounded Sora plus 0.98 percent.

UOB’s floating-rate package is the most competitive at 3.3633 percent a year compared to DBS’s package at 3.6633 percent a year, based on the 3 month compounded Sora rate as of Tuesday’s close of 2.6633%. The annual interest rate for OCBC’s Sora package is 3.6433 percent.

Homeowners who can’t make up their minds may get a hybrid loan where part of the loan is fixed and part of it is floating, as suggested by Mr Clive Chng, at Redbrick Mortgage Advisory. Consequently, they will be cushioned somewhat against the impact of an increase in interest rates, while still standing to gain from a decline.

In a recent interview, Ms. Jacquelyn Tan, head of UOB’s group personal financial services, said that borrowers with floating-rate portions of their house loans had the option to prepay without penalty.

A DBS spokeswoman noted rising customer interest in the bank’s two-in-one house loan package due to the fact that the blended rate of these packages is often lower than fixed-rate loans.

Mr. Chng suggests an interest offset account for homeowners with spare funds. Those savings accounts pay out interest, which may be subtracted from the monthly payments on the mortgage.

At this time, interest offset accounts are only available via offshore financial institutions including Standard Chartered, HSBC, and Citi.

Another option is to use the extra money to pay down the loan balance and lower the monthly payment. Mr. Chng stressed that this meant the individual would be unable to get funds in an urgent situation.

Mr. Chng also said that homeowners might extend their loan terms to make smaller monthly payments.

He explained that while the interest would be higher in the long run, you would be better able to handle your short-term financial needs.