Results 1 to 2 of 2

Thread: Rates are up - it may be time to review the home loan

  1. #1
    Join Date
    Oct 2011
    Posts
    10,829

    Default Rates are up - it may be time to review the home loan

    Rates are up - it may be time to review the home loan

    Feb 25, 2018

    Here are some options home owners can consider to manage their mortgage commitments

    Lorna Tan
    Invest Editor/Senior Correspondent


    Rising interest rates are raising the spectre of higher monthly mortgage payments for many home owners, especially those with floating home loan packages.

    No one needs reminding that home loan repayments form a large part of our monthly expenses, so it is important to look at cash flow and set aside more funds to prepare for higher rates, says Ms Tok Geok Peng, executive director of secured lending at DBS Bank.

    Home owners should also review their mortgage package from time to time to ensure it stays relevant to their life stage, financial needs and cash flow situation, says Mr Matthias Dekan, head of customer value management at HSBC Bank (Singapore).

    "Typically, for most mortgage packages, interest rates may start to increase from the third or fourth year onwards, hence it is an ideal time to review for more attractive mortgage packages that would help to save on interest," he notes.

    He cited a new HSBC report that surveyed about 1,000 home owners here. It indicated that 62 per cent of mortgage holders switched providers, either to get a better deal or because of interest rate rises.

    Banks have hiked interest rates for both fixed and floating home loan packages recently by 10 to 30 basis points.

    DBS has been offering two new fixed-rate packages, both at 1.85 per cent for the first two years since the start of this month. Customers can also choose the floating rate or a fixed rate of 1.88 per cent for one more year.

    Last week, UOB revised its three-year fixed-rate package to 1.95 per cent a year for each of the three years.

    With the rate rises from the United States Federal Reserve last year and the expectation of three to four hikes this year, market rates have been heading north in tandem.

    With expectations of more rises this year, it is no wonder that some customers are refinancing their home loans to get some savings.

    The Sunday Times highlights the options home owners can consider to manage their mortgage commitments.

    WHAT ARE THE DIFFERENT TYPES OF HOME LOANS?

    Home loan pricing packages are based on interest rates that reference a benchmark, also known as a reference rate, says Ms Phang Lah Hwa, OCBC Bank's head of consumer secured lending. The three main categories rates are:

    •Market-pegged: This is determined by the market, and a single bank does not influence the value. One example is the one-month or three-month Singapore interbank offered rate (Sibor), which is typically used to price home loans.

    •Bank-managed: A bank decides on the benchmark value and can change it, usually offering customers 30 days' notice. Examples include the OCBC Home Rate, OCBC Variable Rate (Mortgage Board Rate) and fixed deposit-pegged rates offered by most banks.

    •Fixed: A bank determines the fixed rate for one to three years. After that the loan switches to a market-pegged or bank-managed rate, perhaps the one-year to three-year fixed-rate package most banks offer.

    Mr Lim Beng Hua, United Overseas Bank's head of secured loans here, says fixed-rate loans offer more stability as they generally come with rates that are set for the first few years.

    "When considering such loans, you should keep in mind they usually come with a premium. These loans are suitable for owner occupiers and those with a longer investment time horizon as partial repayments are generally restricted and come with a penalty," he adds.

    On the other hand, home loans pegged to the Sibor allow buyers to capitalise on current low interest rates, but they will change along with interest rate movements.

    Likewise, home loans pegged to fixed-deposit rates will be impacted by interest rates movements.

    Note that the difference between the two is that fixed-deposit rates loans are subject to change at the discretion of the bank.

    Mr Lim adds that UOB customers can choose a fixed-rate loan, a floating-rate one such as those pegged to the Sibor or FD rates, or a combination of both.

    WHAT IS THE INTEREST RATE OUTLOOK?

    Financial experts expect interest rates to rise this year. Last Friday morning, the three-month Sibor was about 1.25 per cent and the three-month swap offer rate (SOR) was about 1.3 per cent as of last Thursday.

    Ms Selena Ling, head of treasury research and strategy at OCBC Bank, says: "We expect that as global monetary conditions normalise, they should also gradually rise to around 1.55 per cent (for Sibor) and 1.5 per cent (for SOR) by the end of 2018."

    Mr Heng Koon How, head of markets strategy, global economics and markets research at UOB, expects rates here to be driven higher by stronger economic growth, higher inflation and further increases in US rates. "The pace of interest rate increases in Singapore will depend on the pace of inflation in both the US and Singapore. Stronger-than-expected inflation will lead to a faster interest rate rise," he says.

    "Our forecast for Sibor at the end of 2018 is 1.85 per cent compared with 1.13 per cent as at Feb 19. Our forecast for the three-month swap offer rates at the end of this year is 1.65 per cent, compared with 1.08 per cent as at Feb 19."

    WHAT ARE THE OPTIONS TO MANAGE HOME LOAN COMMITMENTS?

    There are several options to manage your home loan commitments, such as switching your loan to another package, right-sizing your loan amount via capital repayments or lengthening your loan tenor, says DBS' Ms Tok.

    She adds that as a home loan is a long-term commitment that requires careful planning, borrowers are encouraged to ask their bank's specialists to assess their needs and select the most suitable option.

    WHAT ARE THE FACTORS TO CONSIDER?

    HSBC's Mr Dekan notes that some owners are likely facing their first time refinancing.

    Before taking the plunge, he says they should check for any penalty as most home loan packages have a two-to three-year lock-in period.

    Also, consider changes to your life and financial needs and evaluate if a refinancing package gives the flexibility to cater to key changes, such as the intention to sell the property and rising interest rates.

    Another important consideration is to work out the cost of making a switch.

    Mr Dekan says: "There are usually costs involved to refinance a mortgage or home loan to another bank like legal fees and valuation cost, which can come up to around $2,500.

    "However, some banks including HSBC offer cash incentive or legal fee subsidy to help customers defray some of these costs."

    Ms Tok points out that some banks charge fees for an early redemption before maturity, or impose a three-month notice period. Home owners should also understand the terms of the new loan as some may impose a lock-in period or the interest rate might be adjusted at the bank's discretion.

    OCBC's Ms Phang says you should consider refinancing your home loan with another bank only if there are tangible benefits, such as interest savings - less cost of refinancing - or if you are able to secure an additional facility.

    Keep in mind that interest savings will diminish as rates rise.

    Property is a long-term commitment and you should consider your ability to pay your mortgage when interest rates change or when you enter into a different stage of life. It is prudent to ensure that you have sufficient funds set aside to cover your expenses, including home loan repayments.

    UOB's Mr Lim suggests that you review your circumstances thoroughly, know your total debt servicing ratio (TDSR) and mortgage servicing ratio, and be conscious that the retirement age is 65, which is an important influence on your refinancing application. The maximum loan tenure for a private property is 35 years while that of an HDB flat is 30 years.

    "You should also be aware of the additional costs such as penalty fees, legal fees, valuation fees and processing fees that may come with refinancing and switching banks," he adds.

    "You may also need to commit to a debt reduction plan or shorter loan tenure. Shorter loan tenures would require higher monthly repayments and a higher TDSR."

    Financial experts advise that borrowers should speak to their mortgage provider to find out what pricing options they offer existing customers.

    And do shop around. Many people are not aware that they can engage mortgage brokers to compare loan packages.

    This service is free for the borrowers, as these consultants get a fee from the banks if the transaction goes through.

    PICKING A SUITABLE PACKAGE

    As a mortgage is a long-term financial commitment, Ms Tok says borrowers should choose loan packages based on their needs instead of the short-term interest savings.

    Borrowers who prefer stability in repayments should consider a fixed-rate package as it lets them enjoy a flat interest rate for a period and at the same time protects them from rate rises.

    But this means the borrower must commit to the loan over the same time period as any prepayment will incur a fee.

    "For borrowers who want to enjoy the lower floating rate now but worry about future increases in interest rates, they could enjoy the best of both worlds with the DBS Managed Mortgage," says Ms Tok.

    "This feature allows them to allocate their home loan between a fixed-rate and a floating-rate packages.

    "In the current lower interest rate environment, they are charged a lower interest on the floating rate package. Yet when interest rate rises, they will be protected by the fixed-rate package.

    "For HDB flat owners who are usually more prudent, the POSB HDB Home Loan offers them interest savings as compared to the HDB Concessionary Loan, and caps the interest rate at 2.5 per cent, which is 0.1 per cent per annum below the HDB Concessionary Loan rate for the first five years."

    Regardless of interest rate trends, borrowers are strongly encouraged to set aside funds as a buffer against rate hikes or any unforeseen circumstances.

    Ideally, you should set aside some cash or liquid assets that can be used to pay monthly instalments for the next two years. This gives you time to restructure a loan or even sell the property if financial issues persist.

    Borrowers can also consider using cash instead of their Central Provident Fund savings to pay for their monthly home loan instalments.


  2. #2
    Join Date
    Oct 2011
    Posts
    10,829

    Default

    Help to better manage home loan as rates rise

    Feb 25, 2018

    DBS scheme helps flat owner get peace of mind with switch to fixed-rate package

    Lorna Tan
    Invest Editor/Senior Correspondent


    When public servant Amos Koh bought his four-room Housing Board flat in Bukit Batok in 2014 for $470,000, he took up a floating interest rate home loan pegged to the DBS Singapore Dollar Fixed Deposit rate, plus an additional component - a rate of 1.2 per cent which increases each year. By this month, this component will have increased to 1.25 per cent.

    Mr Koh, 39, was fortunate that DBS Bank has a programme that engages customers whose fixed-rate package is expiring, so they can explore switching to another fixed-rate package. By doing so, they can better manage their home loan commitments when rates rise.

    Last October, DBS reminded Mr Koh that the additional interest rate component would increase this month, which would mean higher monthly instalments.

    "DBS offered to help me plan so that I could manage the higher instalment amount. I thought it was a very nice gesture - a timely reminder so that I could plan ahead of the increase in interest rate," he said.

    "I eventually decided to reprice to a fixed-rate package last November, as I was worried that the interest rate could further increase.

    "With this repricing, my monthly instalment is reduced by $59 (from $1,567 to $1,508). More importantly, I enjoy peace of mind as my interest rate will remain unchanged over the next two years."

    Mr Koh now has a fixed-rate package where the interest rate is fixed at 1.48 per cent a year over the next two years with a two-year lock-in period.




Similar Threads

  1. Home loans: Review your mortgage for best rates
    By reporter2 in forum Finance and Legal
    Replies: 0
    -: 07-10-18, 11:56
  2. Time for action on home loan rates?
    By mr funny in forum Finance and Legal
    Replies: 1
    -: 19-07-11, 09:23
  3. Home Loan Review: May Bank’s Three Years Fixed Package
    By Zeng Han Jun in forum Finance and Legal
    Replies: 2
    -: 06-03-09, 23:25
  4. Banks unlikely to cut home loan rates
    By mr funny in forum Finance and Legal
    Replies: 0
    -: 21-04-07, 04:22
  5. Home loan rates set to become more transparent
    By mr funny in forum Finance and Legal
    Replies: 0
    -: 26-01-07, 10:31

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •