SIBOR Forecast 2018 – Here’s Why So Many Singaporeans Should Be Refinancing Now - moneysmart.sg

Joanne Poh

January 17, 2018

If you are currently on a SIBOR-based home loan package, you need to take action now. The Singapore Interbank Offered Rate has risen sharply in 2018 and the SIBOR forecast is headed to a 10-year high.

For those who have taken out floating rate home loans, or for those coming out of fixed rate home loans, your interest rates are usually pegged to the SIBOR or SOR. When SIBOR rates rise, that means you need to fork out more cash in home loan repayments every month.

That could explain why so many Singaporeans are scrambling to refinance right now in hopes that they’ll be able to get a lower interest rate.

Why is this happening and should you be following suit? Here are some things you should know.

Based on the current rate history, the SIBOR forecast will keep rising in 2018

Beginning in around 2009, the SIBOR hit historic lows. This made home loans very cheap, which was obviously good news for homebuyers. The SIBOR trend was stable for so many years that many homebuyers didn’t think twice about signing up for floating rate home loan packages.

But beginning in 2015, the SIBOR has been on the rise, and the trend shows no signs of stopping, with the SIBOR forecast also taking into account what we already know about the US Federal Reserve interest rate.

The US Federal Reserve has raised interest rates four times since late 2016, which caused the SIBOR and SOR to rise in tandem. The latest was in December 2017.

The SIBOR trend is closely linked to the movement of the Fed interest rate.

The bad news for homeowners is that under Trump, rate hikes are likely to happen more often, with at least three scheduled in 2018 and 2019. This means that the SIBOR forecast may soon reach levels we’ve not seen since the start of the decade.As you can see, each recent change in the Fed rate – a sharp decrease in Dec 2008 and steady increases since Dec 2015 – has resulted in a subsequent drop and hike in the SIBOR in the following month.

Singaporeans who’re afraid they’re going to be paying a fortune in home loan interest are refinancing for several reasons, such as the following:

1. Switching to a fixed rate home loan

While floating rate home loans looked like an attractive choice due to the low and stable interest rates Singaporeans enjoyed for a few years, the prospect of a skyrocketing SIBOR trend in 2018 has convinced some people to refinance their floating rate home loans in favour of fixed rate home loans.

Note that this isn’t necessarily a good financial decision. Fixed rate home loans can give you greater peace of mind and stop you from getting a heart attack every time you receive your latest home loan bill, but that doesn’t mean you might not still be paying more overall, since fixed rate loan interest rates tend to be relatively high.

What’s more, most fixed rate packages only offer you a fixed rate for a number of years, after which your interest rate gets pegged to the SIBOR or a fixed-deposit rate home loan just like everyone else’s.

2. Refinancing to another floating rate home loan

Even if you aren’t looking to switch to a fixed rate home loan, refinancing to another floating rate home loan not based on the SIBOR might be a smart move. Such loan packages are known as fixed-deposit rate home loans.

At the time you took out your home loan, you might have enjoyed the best interest rates in town. But depending on their internal forecast, banks are constantly changing their interest rates, and whoever was offering the cheapest package last year has probably been upstaged by someone else.

In light of rising interest rates, homeowners are likely to feel the pinch and be motivated to refinance to get a lower rate.

3. Refinancing to a shorter term loan

The shorter your loan, the less interest you’re going to pay over time, even at a higher interest rate. So those who can afford to pay back their loans more quickly might want to consider refinancing to a shorter loan—after all, if interest rates are going to be higher, you want to be paying them for as short a time as possible.

However, do note that if you wish to do this, you will have to ensure that you have a lot of wiggle room income-wise, as the TDSR rules require that the sum of all your loan repayments (your home loan + any car loan, education loan, credit card debt, personal loan etc) do not exceed 60% of your income.

If the SIBOR trend in 2018 has thrown you into a panic and you’re thinking of doing one of the above, never forget that refinancing is going to cost you money—in the form of legal fees and pre-payment penalties, if any. Don’t forget to take that into account when calculating how much money refinancing actually saves you.

Find out if now’s the right time to refinance your home loan by comparing SIBOR and non-SIBOR linked interest rates using MoneySmart’s refinancing wizard.

Now that the SIBOR is rising, what do you think homeowners should do? Share your opinions in the comments!

Source: moneysmart.sg

OHR – OCBC’s New Home Loan Package: Is It Better Than DBS’s FHR? - moneysmart.sg

HOME LOANS

OHR – OCBC’s New Home Loan Package: Is It Better Than DBS’s FHR?

Peter Lin

January 11, 2018

Sick of playing catching with DBS’ home loan rate, OCBC has dropped their fixed deposit-linked home loan rate, the OCBC FDMR, and introduced a new OCBC Home Rate, or OHR.

Yes, Singapore has yet another acronym to deal with, but in this case, it’s a very good thing. Here’s why you should definitely consider the new OHR when getting a new home loan or refinancing your existing one.

What is OHR?

The OCBC Home Rate is the “long-term average of 1-month and 3-month SIBOR”. That’s the official definition of the OHR that’s been publicly advertised. Currently the interest rate is set at 1.00%.

Which two kinds of OHR home loan packages is OCBC offering?

To introduce the OCBC Home Rate, you can choose from a fixed rate and a floating rate.

That means that regardless of your preference – whether you prefer the stability of a fixed rate, or the cheaper floating rate that’s subject to change – you can find a suitable OCBC home loan.

	OHR Fixed	OHR Floating
Year 1	OHR + 0.75% = 1.75%(OHR is fixed at 1.00%)	OHR + 0.60% = 1.60%
Year 2	OHR + 0.75% = 1.75%(OHR is fixed at 1.00%)	OHR + 0.65%
Year 3	OHR + 0.70%	OHR + 0.70%
Year 4	OHR + 0.80%	OHR + 0.80%

(Table updated 11 January 2018)

What else is offered in the OCBC Home Rate package?

OCBC is offering one free conversion if the OHR changes, as well as up to 50% prepayment of the loan without penalty during the 2-year lock-in period for completed properties.

Here’s what a “free conversion” means:

If you find that the OCBC rates ever go up beyond your ability to pay, you can negotiate a new non-OHR package with the bank without any penalty.

This is not the first time OCBC has included this safety net, and all it means is that it puts pressure on OCBC not to adjust their rates too drastically. The last thing they want is for all their customers to take advantage of their free conversion.

As for the prepayment of up to 50%, it simply means that if you want to take advantage of the low OCBC Home Rate to pay off as much of your loan as you can, you can do so without any penalty, during the 2-year lock-in period. That’s a huge bonus.

Which package should I choose – fixed or floating?

Although you may enjoy the stability of a 2-year fixed rate, there’s a chance it’s going to be the more expensive option, since the rate is at least 0.30% more than the alternative at first.

However, after the first 2 years, the fixed rate becomes consistently more expensive than the floating rate. Do take note of this if you’re keen on the fixed rate.

But here’s the thing, because of the way the OHR is calculated, a floating rate actually might be just as stable as a fixed rate. And that’s what makes the new OCBC home loan so impressive.

Here’s how OHR will change the Singapore home loan landscape

Officially, the OCBC Home Rate is a “long-term average of 1-month and 3-month SIBOR”. However, what we understand is that “long-term average” is defined by OCBC as the average over a 12-year period.

This is where it gets interesting, because both the 1-month and 3-month SIBOR have dropped below 1% for most of the period between December 2008 and May 2017. That’s almost a decade!

This means that the OCBC Home Rate is more likely to hover around 1% for a significant point of time, regardless of how high the SIBOR climbs in the near future. Imagine that! By introducing this, OCBC has come up with an even more stable home loan rate than a fixed deposit-linked rate.

The other important thing to notice is the very high SIBOR rate pre-2008, which was around 2.5% in 2007, and 3.5% in 2008! This is very good for customers who take up OHR home loan packages, because it averages the 1-month and 3-month SIBOR over a period of 12 years.

Just to put it in perspective, for the OCBC Home Rate just to remain at 1%, SIBOR needs to go above 3% in the next year!

In other words, if SIBOR is any less than 3% in 2018, the OHR will drop below 1% over the next 2 years!

Wow! Can it really be too good to be true?

Unfortunately, yes. OCBC is smart to not announce publicly how the OHR is calculated. This means they reserve the right to change the definition of the OCBC Home Rate anytime they want. And changing the definition will of course affect how volatile the rate can get.

Think about it this way – if “long-term average” is defined as over a 10-year period instead of over 12 years, then every increase in SIBOR after two years will lead to an increase of the OCBC Home Rate.

Ultimately, you have to remember that OHR is a board rate. That means that the final decision on what the OCBC Home Rate is, is solely defined by the bank, not by external factors. While there’s a certain level of transparency because SIBOR values are public knowledge, ultimately, the transparency stops short of spelling out exactly how the OCBC Home Rate is determined.

But let’s be fair here… most home loan packages today are board rates

Just look at the fixed deposit-linked home loan rates and how popular they’ve become over the past 3 years. Despite being board rates, they’ve managed to capture the imagination of homeowners and have quickly dominated the home loan market. The key is the perceived stability of the fixed deposit-linked home loan rates, that the bank will not raise their fixed deposit account interest rates unnecessarily.

Keeping that in mind, the OCBC Home Roate is simultaneously the most stable of all home loan rates (because SIBOR was far below 1% for over a decade) and yet still ultimately a board rate (because OCBC has not revealed exactly how OHR is calculated).

So, does that mean I should switch over to the OCBC Home Rate?

We would definitely recommend it, especially if you’re still on a SIBOR-linked rate. You definitely have nothing to lose, especially if SIBOR is expected to continue to rise in 2018.

If you’re on a fixed deposit-linked home loan rate, you might prefer a wait-and-see approach.

Either way, the OCBC home loan packages have a 2-year lock in period for completed properties, which means you can definitely enjoy some of the lowest interest rates in the market today for at least the first two years.

(UPDATE 19/10/2017: In response to some queries, please note: This is not a sponsored post. We were not paid by external parties to write this. The views shared above are the shared opinions of the MoneySmart team, with our readers’ best interest in mind.)

Source: moneysmart.sg

Home loans get pricier as banks hike interest rates again - The Straits Times

OCBC Bank has raised its 2-year fixed rate package to 1.85 per cent from 1.75 per cent a year for each of the two years. ST PHOTO: JAMIE KOH

SINGAPORE (THE BUSINESS TIMES ) - Home loans are getting more expensive as banks jack up mortgage rates again to as high as 2.05 per cent, the second increase in as many months, in line with sharply higher interest rates.

This could dent some of the enthusiasm in the buoyant property market. One banker also warned that rising interest rates, coupled with declining rents and increasing vacancies raises the risk of defaults in investment properties as borrowers may not be able to cover the higher servicing costs.

Since the start of 2018, banks have hiked interest rates for both fixed and floating home loan packages by 10 to 30 basis points.

DBS Bank is now charging 1.95 per cent a year for each of the three years for its 3-year fixed rate package. UOB has increased its 3-year fixed rate package to 2.05 per cent a year for each of the three years.

OCBC Bank has raised its 2-year fixed rate package to 1.85 per cent from 1.75 per cent a year for each of the two years. The third-year rate is 1.90 per cent which is made up of the bank's home rate - currently at 1 per cent - plus 0.90 per cent.

The key 3-month Sibor or Singapore interbank offered rate surged towards the end of December to a high of 1.5 per cent on Jan 4, 2018; it had been range-bound for much of the second half of 2017 at around 1-1.1 per cent.

Used to price home loans, the 3-month Sibor has since eased to 1.3 per cent on Jan 12, 2018.

With the hikes from the US Fed Fund Rate in 2017 and the expectation of further hikes into 2018, market interest rates have been rising, said a DBS spokesman.

"This has translated to an increase in mortgage loan rates," he said.

It wasn't so long ago that both DBS and UOB were charging 1.85 per cent a year for each of the three years of their 3-year fixed rate packages in end-November 2017. And two months before that, in September 2017, their 3-year fixed rate packages stood at 1.68 per cent per year for each of the three years.

For every 10 basis points increase on a S$100,000 loan over 25 years, the monthly instalment goes up by S$4.80. So a 30 basis points increase for a S$1 million loan means an extra S$144 every month.

Floating rate loans are more popular among home buyers because fixed rate loans charge a premium of 20-30 basis points, said a banker.

Demand for fixed rate loans remains stable, the banker said. For borrowers who take fixed rate loans, the preference is for the 3-year fixed package as they want longer term certainty said the banker, whose bank sells both 2- and 3-year fixed rate deals.

Rising interest rates may skim some of the froth off the buoyant property market which has seen sales rebound sharply last year.

Pent-up demand for residential properties pushed total private home transactions to about 23,113 in the 11 months of 2017, compared to 16,378 for the whole of 2016.

Developers racked up 10,247 private home sales, excluding executive condominiums, in the first 11 months of 2017, surpassing the 7,972 units sold for the whole of 2016 and a yearly average of 7,576 units from 2014 to 2016.

Bankers caution buyers to assess the impact of higher rates before they make the leap, especially if they are looking at investment properties.

Property prices are affected by various factors, one of which will be mortgage rates, said Vasu Menon, OCBC Bank vice-president and senior investment strategist.

"Rising interest rates may curb the rise in property prices here, but it may not be enough to hurt property prices too badly on its own - especially if there are other positive drivers like a strong economy, a healthy job market and good wage growth," he said.

Given the current weak rental market, a rising interest rate raises the burden of servicing mortgages and reduces the appeal of investment properties, said Mr Menon.

"The ability to service the mortgage on an investment property depends on how easily the property can be rented out and the state of the rental market, which seems weak at the moment," he said.

Rents of private non-landed homes fell 0.5 per cent last year, moderating from a 5.9 per cent drop in 2016, according to flash estimates from SRX Property.

Unless a property owner can rent out his property easily, he may either end up owning a property that is vacant for long periods or have to slash rentals to secure a tenant, said Mr Menon.

"A combination of rising interest rates, lower rentals and prospects of a longer vacancy period, raises the risk of loan defaults among individuals that have investment properties."

Source: The Straits Times, Siow Li Sen (15 Jan 2018)

Singapore home loan rates starting to climb - The Straits Times

All three local Singapore banks have raised their home loan rates as interest rates continue to spike, and mortgage advisers warn of more hikes to come.

DBS Bank, OCBC Bank and United Overseas Bank (UOB), which collectively account for the lion's share of the housing loan market, have raised the interest on their fixed-rate and floating-rate packages since last month.

DBS and UOB have jacked up the interest on their three-year fixed-rate loans by 10 per cent a year. The fixed-rate packages now sell for 1.85 per cent a year for each of the three years. In October, less than two months ago, the rate was 1.68 per cent.

A DBS spokesman said it raised rates "in tandem with market interest rate environment and outlook". Demand for the revised 1.85 per cent three-year fixed-rate loan remains strong, he added.

Most popular is DBS' floating-rate loan, which is pegged to its fixed deposit home loan rate (FHR) and accounts for nine out of 10 loans sold, he said. The DBS floating-rate package charges 1.65 per cent a year. This is made up of a 1.45 per cent spread plus the FHR, currently at 0.2 per cent.

OCBC, which launched a two-year fixed-rate loan package in October, has increased the interest to 1.75 per cent a year for each of the two years, up from 1.65 per cent. The first year rate for its floating-rate loan is now 1.6 per cent, a jump from the previous 1.3 per cent.

Ms Koh Ching Ching, group head of the bank's corporate communications, said: "The revision of our home loan rates is in line with market conditions."

The home loan benchmark, the three-month Sibor or Singapore interbank offered rate, is up sharply. It was 1.21 per cent last Friday, up eight points from the previous Friday. The benchmark had been rising for five straight days.

UOB expects the three-month Sibor to hit 1.4 per cent by year-end, in response to tight liquidity conditions due to seasonal factors plus the likelihood of a third rate hike by the US Federal Reserve this year, in about two weeks.

Mr Darren Goh, executive director of mortgage broker MortgageWise.sg, has been urging home buyers in recent weeks to secure their rates for refinancing or new purchases.

The advice was extended to clients whose renewals may come up only early next year.

In a Nov 30 posting on his blog, Mr Goh said: "The banks have been slowly and quietly moving up their rates for both fixed-and floating-rate packages since the start of November, hence do take action quickly to lock down good rates for refinancing, or even purchase."

For those looking at fixed-rate packages, HSBC and Bank of China do not seem to have moved their home-loan rates yet. Their three-year fixed-rate home loans have stayed unchanged at 1.68 per cent as of Nov 27 - the latest available figures from the MortgageWise website.

A version of this article appeared in the print edition of The Straits Times on December 05, 2017, with the headline 'S'pore home loan rates starting to climb'. Print Edition | Subscribe

Source: 05 Dec 2017 (The Straits Times)