With the popular DBS's FHR facing its first direct competitor last month, I've decided to do a comparison here for borrowers who are stuck in between which floating rate is a better one.
OCBC package as below for private loan
1-3 years: 1.03% + FDMR36 (Fixed Deposit Mortgage Rate based on 36 months FD rate currently at 0.65%)
Thereafter: 1.50% + FDMR
Free conversion if there's any adjustment to FDMR
Lock-in Period: 2 years
Let me point out why does this package pale in comparison to DBS's FHR pegged loans.
This package from OCBC is similar to DBS package below;
1-3 years: 1.05% + FHR18 (Fixed Home Rate based on 18 months FD rate currently at 0.5%)
Thereafter 1.80% + FHR18
To take up mortgage insurance with Aviva (Monthly Fees can be as low as $30+ depending on the coverage that you're taking up)
Lock-in Period: 2 years
No partial prepayment penalty
In Singapore, majority of the market shares of FD goes to DBS as you can see that as a Government owned Bank, it automatically etched into people's mind that the Bank is most stable one of all in the island. Everywhere you go, you can always seem to find one of their Branch/ATMs nearby(for every one UOB/OCBC ATM, you find two or more DBS ATM usually).
With their majority shares on FD in the market, raising their FD will means that they have to payout to their customer the same interest as well which doesn't help them to get more client from mortgage sales.
Now we look onto the difference between the two effective rate.
DBS: 1.55%
OCBC: 1.68%
You can see the difference of it on the attachment that I've attached for a $1,000,000.00 loan with 30 years tenure.
Assuming interest don't go up, 3 years interest savings at DBS is already $3,794.03 more than OCBC.
Now that we're talking about interest remaining low for FD, I'll explain why DBS FD is better than OCBC FD.
DBS started this FHR product about 2 years back in 2013, nearly 3 years since it came into the market while OCBC just started 1 month ago. It started out with FD based on the average of 12 & 24 months which is at 0.25% and 0.55% respectively, deriving at 0.4% effective rate. Until recently that they decided to come up with FHR based on 18 months FD which I'd like to think that they're not earning much from this package as they want to keep FHR low, but at the same time, not wanting to increase the spread again.
With SIBOR going up tremendously since the start of year 2015, DBS FHR remains stagnant at 0.4% despite 3Month SIBOR(most common type of SIBOR that Singapore borrowers take up out from the rest of 1M,6M & 12M) going up 150% from 0.4% to 1% currently.
This shows that package pegged to FD rates likely stays more stable compared to SIBOR pegged. However, we're talking about FD from OCBC right here so we'll be back to it.
DBS FD rates is based on 18 months while OCBC is set at 36 months.
The difference is simple if you ever owned a FD account.
18 months FD means you're not tied that long compared to 36 months. When you're tied down longer, naturally, your interest yield is higher.
With Singapore Savings Bonds introduced few months back, it means competition indirectly to both bank. This means that OCBC has the higher possibility to shift up their interest to attract customer to save money with them as they;
- do not have the majority share in the market.
- 36 months FD needs to give out higher interest than 18 months FD, logically.
Very clearly, you can see that OCBC has a higher possibility to increase their FD compared to DBS.
1) Their FD is not on the same level playing field as DBS which means their FD is on a disadvantage and will always remain higher than DBS until they come up with FDMR18 months to match DBS's FHR18. (Apple to Apple comparison)
2) Free conversion doesn't help anything at all because when FDMR goes up, naturally, Board Rate and SIBOR pegged package are already ahead of them as FD rates is the last among the three to make any adjustment. (Eg: during March this year, most OCBC borrower(more than 2 years old client on their current loan) should received a letter from OCBC indicating that board rate increased from 4.5% to 5.1%) Should you convert to a free conversion, you'll be locked for another 2-3 years again which is not ideal for a board rate loan as you can see what happened to many borrowers from OCBC and UOB early this year, being subject to the bank's mercy.