ST : Dream Home Loans

May 2, 2010

Dream Home Loans

The Sunday Times checks out the best offerings from some banks

By Gabriel Chen , Harsha Jethnani

If you thought low mortgage rates would stay unchanged this year, think again.

Over the last month or so, some banks have upped the spreads they charge above Sibor - the rate at which banks lend to one another - making Sibor-pegged home loans more expensive.

The three-month Singapore Interbank Offered Rate, or Sibor, was at 0.54 per cent last week, below the previous all-time low of 0.56 per cent in June 2003.

At DBS Bank, a home-buyer taking a loan of 80 per cent of his property's value around March would have paid a rate of Sibor plus 0.5 percentage point for the first year and Sibor plus 0.75 percentage point for the second.

A buyer opting for this Sibor- linked DBS package now will have to pay Sibor plus 1 percentage point for the first two years.

Some fixed-rate packages have also shot up recently.

Standard Chartered Bank's one-year fixed package stood at 1.25 per cent in March, but has risen to 1.95 per cent.

Sibor, which is already low as it tracks prevailing United States rates which are at rock bottom, fell further following gains in the Singapore dollar last month.

In line with the improving global economic outlook, interest rates in some countries have moved higher - with more rate hikes expected globally in the second half of the year.

Some experts tip Sibor to rise later this year and to go even higher from next year.

Standard Chartered economist Alvin Liew predicts the three-month Sibor rate will likely rise to 3 per cent in 2012.

'Mortgage rates are hitting one of the lowest levels in recent years,' says Providend's head of financial planning, Mr Eddy Cheong. 'I think, going forward, there is a high chance that rates will move up if the economy continues to improve.'

When interest rates rise, monthly instalments on home loans that are not fixed will be driven up.

This could have severe implications for buyers who have over- extended themselves with big mortgages, believing interest rates will always stay low.

'Do your numbers properly. Buying a home should be a blessing, not burden,' says Mr Apelles Poh, a financial planner with Professional Investment Advisory Services.

While some home loan rates are now higher, there are still bargains and benefits out there for the cost-conscious home-buyer.

The Sunday Times shopped around to find out what some banks have to offer:

Fixed-rate loans

If you want loans with fixed rates locked in for a term of three or five years, try DBS Bank.

Last week, the bank introduced its five-year fixed package, an unusual tenor in the market.

· Rates: Three-year package: The bank's current promotion requires a customer to also sign up for its mortgage insurance plan. Rates are fixed at 1.99 per cent for three years, and Sibor plus 1.25 per cent thereafter.

Standard rates are otherwise 2.2 per cent for three years, and Sibor plus 1.5 per cent thereafter.

Five-year package: For those taking up mortgage protection as well, rates are 2.25 per cent for five years and then Sibor plus 1.25 per cent.

Standard rates are 2.5 per cent for five years, and Sibor plus 1.5 per cent thereafter.

The managing director and head of DBS' consumer banking group, Mr Jeremy Soo, says: 'Our three-year fixed rate remains highly popular with home owners desiring more certainty in their repayment, especially with our three- and five- year fixed rates at a historical low'.

He says the current promotion includes mortgage protection, which is a 'key consideration for many home owners since mortgage is a long-term and significant commitment'.

Sibor-linked loans

If you are exploring Sibor-linked loans, HSBC will be the bank of choice. Its 'no lock-in' Sibor-pegged loyalty home loan is the only package that offers decreasing spreads over the tenor.

· Rates: You pay the three-month Sibor plus an additional 0.9 per cent for the first year, three-month Sibor plus 0.8 per cent for the second year and then the three-month Sibor plus 0.7 per cent thereafter.

'The interest spread reduction feature serves to benefit customers regardless of how Sibor rates move,' says Mr Sebastian Arcuri, head of personal financial services at HSBC Singapore.

This bucks the conventional home loan package, which typically sees interest rate spreads rise over the loan tenor, he adds.

Sibor-linked loans with flexibility

Citibank provides the best solutions if you are looking for flexibility through the widest variety of Sibor- linked loans.

Unlike other banks, Citi offers loans pegged to the one-month Sibor. Other loans are pegged to the three-, six- and 12-month Sibor. Lock-in period varies from zero to two years, and spreads are determined based on the size of the loan and customer relationship.

Citi offers the lowest rate on one-year fixed packages at 1.5 per cent. For its two-year fixed package, it charges 1.88 per cent for the first two years.

· Rates: For the first year, rates are Sibor plus 0.7 per cent to 1 per cent. For year two, rates are Sibor plus 0.9 per cent to 1 per cent, and thereafter Sibor plus 1 per cent to 1.25 per cent.

'Customers have the flexibility to switch from one tenor to another upon tenor maturity date,' says the business director for secured finance at Citibank Singapore, Ms Vibha Coburn.

As an example, clients can make use of the low one-month Sibor and subsequently, when the month is over, perhaps pick a 12-month Sibor if they feel that interest rates are likely to rise.

SOR-linked loans

For loans tied to the Swap Offer Rate, or SOR, OCBC and United Overseas Bank (UOB) are good picks.

UOB offers a package tied to the one-month SOR, now at 0.35 per cent, that allows customers to pay a fixed monthly instalment for a one-year period.

· Rates: For the first three years, rates are one-month SOR plus 1.25 per cent, and thereafter the one- month SOR plus 1.5 per cent.

In the first year, if interest rates increase, 'customers can be assured that their monthly cash flow will not be disrupted. Conversely, if the rates decline, customers can pay off more of the principal amount', says a UOB spokesman.

The one-year constant monthly instalment feature can be re-continued for subsequent years as the fixed monthly instalments will be re-computed based on the remaining tenor and interest.

SOR-linked with lowest rates

OCBC offers the lowest rates on loans pegged to the three-month SOR, which is hovering at around 0.39 per cent, with a two-year lock-in.

· Rates: SOR plus 0.75 per cent for the first year, SOR plus 1 per cent for the second year, SOR plus 1.25 per cent for the third year and SOR plus 1.5 per cent thereafter.

Ms Phang Lah Hwa, OCBC's head of consumer secured lending, advises buyers to guard against being swayed by just their sentiments.

Properly assessing your financial ability before making a commitment is important, she says.

'Consider longer-term issues, like affordability in the event that interest rates rise or instalment amounts increase,' adds Ms Phang.

Loans with variable rates

As for loans with variable rates, Maybank emerges the top of the lot, with the most affordable rates, with a two-year lock-in.

· Rates: The loans are tied to the bank's board rate, currently at 3.75 per cent.

Rates on the loans are discounted from this 3.75 per cent, starting at 1.18 per cent for the first year. Customers will pay 1.68 per cent in the second year, and then 2.28 per cent in the third year, and 3.25 per cent thereafter.

To mark its 50th anniversary, Maybank is offering a cash gift of $5,000 to customers who pick up the variable-rate loan, says consumer banking head Helen Neo.

Rates for loans inclusive of the gift are slightly different, at 1.68 per cent for the first year, 1.88 per cent for the second year, 2.38 per cent for the third, and 3.25 per cent thereafter.

The two packages offer 'customers discounts off the bank's board rate throughout the period of their loan tenor', Ms Neo adds.

gabrielc@sph.com.sg

harshamj@sph.com.sg