Last updated on 14 October 2018.
If you are looking for housing loan in Singapore, you will realise that there are a few different types of loan packages to choose from. Home loan borrowers are spoilt for choice with a myriad of loan packages that are offered by banks.
More than a decade ago, you can only find housing loan packages that are pegged to bank’s mortgage board rates. Bank’s board rate is internal cost set by the bank. Around 2006-2007, banks introduced packages that are pegged to SIBOR (Singapore Interbank Offer Rate) or Swap Offer Rate (SOR)
which offers more transparency. SIBOR and SOR are considered market rates.
In 2014, we saw DBS launched home loan packages pegged to their SGD Fixed Deposit rate. Other banks, like UOB, OCBC, Maybank, Stanchart and HSBC also followed suit in offering mortgages pegged to banks' fixed deposit rates, ranging from 8 months fixed deposit rate to 48 months fixed deposit rate.
In early 2018, some banks, like UOB, OCBC and Maybank have however switched back to packages pegged to Mortgage Board Rates. Leaving with only 3 banks, namely DBS, Stanchart and HSBC still offering fixed deposit rate pegged packages.
With this, we came across more customers checking on the differences between property loan pegged to SIBOR, Fixed Deposit rates and Board rates.
What are the main differences between SIBOR, Fixed Deposit Rate and Board Rate-pegged packages?
SIBOR is the most transparent as it is the average lending rate of more than 10 banks collated by Association of Banks in Singapore (ABS) on daily basis. The rate moves according to market. Banks are not able to control the rate. All banks are using the same SIBOR.
Fixed Deposit rate-pegged packages are controlled by the individual banks. Each bank has its own sets of fixed deposit rates. For example, DBS uses 8-month SGD fixed deposit rate (DBS FHR8) for their housing loan, Stanchart uses 36-month SGD fixed deposit rate (36MFDR) and HSBC uses 24-month SGD time deposit rate (HSBC TDMR24). You can easily track the respective fixed deposit rates as they are published on the banks' websites.
Earlier on, DBS has priced their package to the average of 12-month and 24-month fixed deposit (DBS FHR). The bank no longer offers such package now and has moved on to 18-month fixed deposit rate in 2016 and then 9-month fixed deposit rate in 2017. Currently, DBS packages are on 8-month fixed deposit rate.
Similar to Fixed Deposit rate-pegged packages, Board rates are also controlled by individual banks. Each bank has its own internal mortgage board rates. Currently, banks like, UOB, OCBC, Maybank, RHB and Hong Leong Finance are offering such packages.
Frequency of rate change
Home loan rates pegged to 1 month SIBOR are updated every month. Those pegged to 3 month SIBOR are updated every 3 months. Whilst those pegged to 12 month SIBOR is updated every 12 months.
On the other hand, frequency of change in Fixed Deposit rates is at the discretion of banks. There is no fixed timing and frequency. Generally, revisions are not as frequent as SIBOR. Banks' SGD Fixed Deposit rates were unchanged since 2011, until recent years, banks started to revise these rates. For example, DBS revised their Fixed Deposit rates in Dec 2015 after US Federal Reserve announced its first rate hike, and again in 2016 and twice in 2018.
Similar to Fixed Deposit rate-pegged packages, any change in Board rates are at the discretion of banks. There is no fixed timing. From recent experience, we understand that some banks adjusted their board rates upwards once or twice in 2015, when SIBOR is trending upwards.
Upside/ Downside Potential
All three types of rates, be it SIBOR, Fixed Deposit rates or board rates are already trending upwards with the increase in US interest rate. The pace will depend on economic factors as well.
For packages pegged to SIBOR, you may be paying lower when SIBOR is trending downwards. And when SIBOR is trending upwards, you may be paying more. You are actually ‘riding’ with the market rise and fall.
For Fixed Deposit rate-pegged packages, the reaction to any change may be delayed given that it is dependent on when the banks adjust them and how much they adjust. However, banks may also revise the rates ahead of an increase in interest rate, especially in anticipation of further rate hike by US Federal Reserve.
Similar to Fixed Deposit rate-pegged packages, the reaction of board rates to any change may be delayed given that it is dependent on when banks adjust them and how much they adjust. However, from past experience, we noticed banks increased their board rates when market rate goes up and rarely banks reduced their board rates when market rate comes down. The most they maintain the board rates and you pay the same home loan rates.
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