Banks Are Starting To Change Their Home Loan Packages – Should You Be Refinancing Your Home Loan Now? - moneysmart.sg

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A certain recently elected President might have caused the Asian markets to go completely bonkers for a day or so, but thankfully that same effect doesn’t usually apply that immediately when it comes to home loan interest rates, if not people would be perpetually scrambling to refinance their home loans.

That being said, there are always certain telltale signs when you know that something is up. As we’ve mentioned before, we already expect the US Fed to announce further interest rates increases in 2017, but one often-missed indicator of changes in home loan interest rates is how banks manage their home loan packages. With the 3-month SIBOR moving to 0.97% in Jan 2017, here’s an overview of what’s going on and what you should consider:

Where have all the home loans gone?

We’ve seen quite a few loan packages already pulled out from the market, with all the local banks having pulled out their attractive “1% for the first year, 1.45% thereafter” package already. But then again, we never expected that to stay for long anyway. The packages that are being pulled off the shelf are:

• DBS 1.68% 3 years fixed rate
• UOB 1.68% 2 years fixed rate

At the same time, packages such as the 1.5% or 1.6% throughout rate from UOB and DBS might get pulled from the market as well.

The thing about home loan rates is that everything is always very relative. While SIBOR might have just crossed the 0.90% mark for the first time in a couple of months, the 1-month SIBOR just in February this year was 1.12%, and the 3-month SIBOR stood at 1.25%.

At the same time in February, Fixed Deposit-linked rates started from around 1.8% and we might very well see returns to those sort of rates should the Fed increase the interest rate as expected in December. With that in mind, what are some good packages to consider right now if you are looking to either refinance or get a home loan for a new home?

Best Fixed Rates Now 

Given the general uncertainty in the market at least up until the end of the year, it won’t be surprising at all to see a big increase in people taking up fixed rates. In fact the two best fixed rates in the market now are with DBS and UOB (Updated Jan 2017).

UOB is now offering a 2 year fixed rate at 1.80% & & DBS  a 3 year fixed rate of 1.88%, and given what we’ve mentioned above, this is definitely an attractive package for people who are slightly more conservative about interest rates. You can find out more about this rate here.

If you’re not one for fixed rates, a good alternative would be the 1.5% 36FDPR rate offered by UOB. With no additional clauses (unlike DBS’s package that requires you to buy mortgage insurance) and a lock in period of 2 years, a 36FDPR (0.65%) + 0.85% interest rate throughout the loan tenure is a worthy alternative, especially if you consider that the highest the 36FDPR rate has gone in the past 10 years is 0.925%. You can find out more about this rate here.

We will keep this space warm in the coming weeks as we see more changes. Follow us on Facebook in the meantime to stay tuned.

Conclusion

When it comes to home loans, timing can be crucial, especially if you need to refinance your home loan. While it’s really anyone’s guess what might happen at a macro level, especially given that the US Fed has snooked us before by postponing the increase of interest rates, using other information such as how banks manage their loan products can give you a good indicator of where things are headed.

Refinancing your home loan doesn’t have to be a hassle at all, and if you need a bit more advice, you can always head on over to MoneySmart’s Refinancing Wizard and get some free help from Mortgage Specialists who can better provide some perspective.

Do you think home loan rates will increase drastically in the coming few months? Share your thoughts with us here.

Image Credits:
Leong Him Woh

Source: moneysmart.sg (16 Nov 2016)

How To Get A Suitable Mortgage Package In Singapore? - GET.com

Buying a property is probably the biggest financial commitment for most Singaporeans. Just as we ponder over our choice of a dream home, we should also do our homework when it comes to choosing a mortgage package to ensure that we keep our financial liabilities to a minimum.

Given the myriad of mortgage packages on offer, each with its own interest rate, fees and criteria, it can be tedious (especially for a new property owner) to navigate the various mortgage options and assess the impact of each one on the loan costs and repayment. Here, we at GET.com address the key questions that will help you in your quest for a suitable mortgage package.

4 Key Questions To Ask In Order To Find A Suitable Mortgage Package

1. HDB Or Bank Loan?

There are pros and cons to each type of loan. If you fulfill the basic requirements of applying for an HDB loan, the stability of interest payment (fixed at 2.6% p.a.) and more lenient payment conditions (smaller down-payment of 10% of property price which can be fully funded by CPF, no early repayment penalties) of a HDB loan would appeal to the more risk-averse.

On the other hand, bank loans could offer you more flexibility and rate options if you do not qualify for an HDB loan or prefer to capitalise on the interest savings associated with lower bank loan rates.

Do note that the Loan-To-Value (LTV) ratio at which banks may finance your property is capped at 80% of the property price, and 90% for HDB loan.

Regardless of whether you choose an HDB or bank loan, your total loan obligations cannot exceed 60% of your monthly gross income, according to the Total Debt Servicing Ratio (TDSR) requirement. Also, HDB flat and Executive Condominium owners are subject to the Mortgage Servicing Ratio (MSR) requirement, which limits your monthly mortgage repayment instalment to 30% your monthly gross income.

2. Fixed Or Floating Rate Loan?

Banks in Singapore offer mortgage loans pegged to either a fixed rate or floating rate. Under fixed rate home loans, interest rates stay the same for a fixed period of time during the initial 1 to 5 years. Floating rates, on the other hand, can change and are usually pegged to a type of benchmark rates – Singapore Interbank Offered Rates (SIBOR), Swap Offer Rate (SOR) or the bank's internal board rate.

Fixed rate loans allow you to better plan your finances because you'll know exactly how much you are going to pay each month. This gives you the stability to set aside a certain amount to service your monthly repayments. The downside is that interest rates for fixed rate home loans tend to be a little higher than floating rate loans.

On the other hand, floating rate loans usually start with lower initial rates but they are considerably more volatile as they follow industry benchmark rates SIBOR and SOR which are dependent on prevailing economic conditions, US Federal Reserve rate and USD-SGD exchange rate movements.

Floating rate loans have largely maintained their popularity in recent years given the subdued interest rates environment. The SIBOR and SOR have been on a downtrend since the beginning of this year, when the 3-month SIBOR and 3-month SOR rates rose to around 1.25% and 1.76% respectively following the Fed Funds rate hike in December 2015 after years of near-zero interest rates. Floating rates pegged to the SIBOR or SOR would benefit borrowers when interest rates remain low.

For those who are interested in floating rate home loans but would like to mitigate the risks or uncertainty in interest rates movement, you could consider a loan that comes with the flexibility to switch across different SIBOR tenures. Alternatively, a fixed-deposit home loan would provide more transparency in the annual interest rates since these are pegged to the bank's fixed deposit rate which is publicly available, rather than the mysterious board rate or more volatile SIBOR and SOR.

3. Other Factors To Consider?

Borrowers should look out for conditions associated with the loan to determine if they are eligible for refinancing and the costs they need to incur.

These include the lock-in period (time frame in which the borrower has to keep the mortgage with the bank), prepayment penalties (usually between 0.75% to 2% of loan amount prepaid), cancellation fees (usually between 0.5% to 2% of loan amount cancelled) and fees associated with refinancing such as legal fees (usually about 0.4% of the loan amount), valuation fees as well as 'clawback' of subsidies given by the existing lender. All these conditions are important in the long run and could work to your advantage or disadvantage down the road.

4. How To Get The Best And Latest Rates?

There are several ways of sourcing for a mortgage package. You could rely on word-of-mouth or consult individual banks, or make use of a home loan comparison platform like GET.com.

The former two methods might not be the most effective because a recommended loan could be less than ideal depending on your own financial circumstances and risk appetite; or lack in transparency as a result of respective banks presenting you with a limited view of the mortgage market.

A home loan comparison platform, however, provides added value, being a convenient and hassle-free way to find out for yourself which are the various home loan options available in order to make a well-informed decision. Moreover, there is no additional cost for you in financing your home this way. You can use the Home Loan Genius on GET.com to check out the latest and most attractive fixed or floating rate loans in Singapore, as well as compare the mortgage packages and apply for an appropriate package via the site.

Your Source For Home Loan Information

Find out more about home loan rates and what to look out for with the help of our handy property blog. Are you refinancing your home loans? If your answer is yes, then it'll do you good to consider these 3 things before you refinancing your home loan. Also, check out these 4 things you ought to consider whenever you're comparing home loans.

For those who are buying their first home, here's how much money you'll need to buy your first HDB flat. Fret not if the figures seem daunting, you might be eligible for some grants. It pays to do some research and find out if you're eligible for HDB grants that'll help offset some of the cost of your new home.

Grace Cheng

Updated Oct 31, 2016

Grace Cheng is a seasoned traveler who loves collecting points and miles, and is constantly planning where to go next using her miles. She is co-founder and editor-in-chief at GET.com. Email: g@get.com.

Source: GET.com

Interest Rates Will Rise In 2017 - How Will This Affect Home Loans In Singapore? - GET.com

Home loan repayment is one of the highest consumption items for households in Singapore. Ideally it can only take up to 35% of your gross income if you don't have any other debts (MoneySense, Singapore's national financial education programme, recommends that your total debt should not exceed 35% of your gross income).

However, keep in mind that the Mortgage Servicing Ratio (MSR), i.e. proportion of your monthly gross income spent on mortgage repayment, cannot exceed 30% for purchase of HDB flats.

Also, your Total Debt Servicing Ratio (TDSR) cannot exceed 60% of your gross monthly income. And remember that apart from home loans, this includes car loans, education loans, personal loans, credit card debt, and all other debts.

According to the Department of Statistics Singapore, 90.8% of Singapore households in 2015 were homeowners. And it is common to have floating home loan rates that are linked to SIBOR and SOR. The majority of housing loan packages offered by banks in Singapore are pegged to floating rates, with some 50% of overall banks' housing loan packages pegged to SIBOR/SOR and the rest being board-rate and fixed-rate packages.

In GET.com's guide to SIBOR and SOR-pegged home loans, we explain how a minor increase in SIBOR rates could result in a significant increase in home loan payments.

It's important to understand that SIBOR and SOR interest rates are affected by the U.S. Federal Reserve, which has just hiked up its rates for the second time in a decade by a quarter percentage point to between 0.50% and 0.75%.

Singapore banks are first and foremost regional intermediaries. According to the October 2015 report from the Federal Reserve Bank Of San Francisco, Singapore banks are now borrowing mainly from developed Asian countries, New Zealand and Australia, before lending out to emerging Asian countries.

So the consequence of the Fed raising interest rates is that the cost of funds will rise as Singapore banks will have to pay more to their lenders, as well as higher rates when borrowing from each other.

In addition, international capital moved out of the U.S. in search of higher yield when the Fed cut interest rates to 0.25% in 2009. Now that the Fed has raised interest rates once again with the intention of increasing its interest rates three times in 2017, currencies and equities of emerging markets may come under pressure, resulting in an even bigger outflow of capital for emerging markets.

This is expected to accelerate in 2017 and it will inevitably put even higher pressure on the cost of funds for local banks.

First Fed Rate Hike In 2016

The Federal Reserve moved to raise interest rates by 25 basis point on 14 December 2016 and this is a significant event for home owners. The exact words that changed this are:

"Today (14 December 2016), the Federal Open Market Committee decided to raise the target range of the federal funds rate by one-quarter percentage point, bringing it to one-half to three-quarters percent. In doing so, my colleagues and I are recognizing the considerable progress the economy is made toward our dual objectives of maximum employment and price stability."

U.S. Recovery

What drove the Fed to raise interest rates the second time in nearly a decade?

Fed Chair Janet Yellen explained this clearly in her press conference as quoted below:

"Over the past year, two and a quarter million net new jobs have been created, our unemployment has fallen further, and inflation has moved toward longer run goal of two percent. The committee judged that the modest increase in the federal funds rate is appropriate in light of the solid progress we have seen toward our goals of maximum employment and two percent inflation.

We continue to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain our objectives. We continue to expect that gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance."

In other words, the Fed raised interest rates because the U.S. economy has had a strong recovery and higher interest rates are now apt. One has to keep in mind that when interest rates are low, it comes at the expense of savers in insurance and pension products.

We can gauge the recovery of the U.S. economy from the labour market. After peaking at 10.2% in October 2009, the unemployment rate is now at 4.6% as of November 2016, as the U.S. economy expanded steadily.

Wages are also rising in the U.S. as a tightening labour pool forces companies to pay more for talent. Wages range from an average of $16 per hour to $21 per hour. Just to illustrate this better with some numbers, wages in the U.S. have risen 4.32% in October 2016 over the same month in 2015.

Among all the advanced economies, the United States remained on the firmest path of economic recovery. This is part of the ongoing global recovery story which is supported by research by Goldman Sachs.

Interest Rates Rise In Anticipation

On November 17, the Federal Reserve chair Yellen announced that a rate hike could come "relatively soon" as "the case for an increase in the target range had continued to strengthen". Just to reiterate, employment and inflation are the twin mandate of the Fed. So when the Fed chair announced that both targets are about to be met, it was a strong signal for the market.

Even before the interest rate hike for 2016 was made official, local interest rates had risen a day before the Fed's announcement was made. The 3-month SIBOR increased by 0.006% from 0.926% on Tuesday (13 December) to 0.932% (14 December) while the more volatile 3-month SOR rose by 0.062% to 0.818% on Tuesday, up from 0.756% on Monday (12 December).

This latest rate report came from Association of Banks Singapore (ABS) which provides SIBOR and SOR rate updates on a weekly basis. SIBOR and SOR are closely linked and they move in the same direction. Here you can learn more about SIBOR and SOR home loans.

The key rate to look at for home loans is the 3-month SIBOR rate as this is the rate which most home loans in Singapore use.

What Will Interest Rates Be In 2017?

The Fed promised a gradual rate hike and pledged to keep monetary conditions accommodative. Hence for borrowers, they should be focused on the pace and level of the rate hike in 2017.

So the questions we should be asking are: where will interest rates be in 2017 and how fast will they rise?

In fact, the Fed has already signalled a faster pace of hikes for the coming year in light of the Trump administration's promises to strengthen growth through deregulation, spending, and tax cuts. Instead of the once-a-year hike that we have just witnessed and also in 2015, the Fed is projecting three rate hikes for 2017.

At the moment, the Fed has forecast another three hikes in both 2018 and 2019 before the Fed funds rate trails off at a "normal" projected long-run rate of 3.0% in the near future, taking into consideration its expectation of the U.S. economy gaining traction.

So, what now? Frankly speaking, only time will tell.

As a home owner, you should move early in anticipation of the projected rate hikes next year which are likely to raise the Fed funds rate from the current 0.75% to 1.5% by the end of 2017.

What can you do? You can refinance your floating-rate home loan to a fixed rate home loan or you can refinance to a longer interest rate term (e.g: 12-month SIBOR) instead of the standard 3-month SIBOR.

Here at GET.com, you can compare home loans to find the cheapest home loans in Singapore.

Denise Bay

Updated Dec 29, 2015

Denise Bay is a staff writer at GET.com. Email: denise.bay@get.com.

Source: GET.com