What is DBS FHR?
You might have been hearing about this FHR from friends, property agents, bankers etc. So exactly what is it?
With all the banks competing in Sibor/Sor/Fixed rate loan packages, DBS has came up with a new index called FHR (Fixed Deposit Home loan Rate) in April 2014 to better compete in the market.
The first FHR index launched in 2014 is pegged to on the 12 month and 24 month fixed deposit rate under the $1000-$9999 category.
FHR(12M&24M) = 50% of the 12M FD rate + 50% of the 24M FD rate
Subsequently in 2015, DBS discontinued the FHR(12M&24M) and started FHR18 which is pegged to the prevailing 18 month fixed deposit rate. Ocbc has also started a similar index 36FD MR which is pegged to OCBC 36month fixed deposit rate.
How does these type of loan packages work?
Like Sibor or Sor packages which you are familiar with, the structure is as follows
year 1 : Bank’s Margin + FD Index
year 2: Bank’s Margin + FD Index
year 3 : Bank’s Margin + FD Index
Thereafter: Bank’s Margin + FD Index
FD index refers to the Fixed Deposit Rate of the bank.
year 1: 1.1% + FHR(12M&24M)
year 2: 1.1% + FHR(12M&24M)
year 3: 1.1% + FHR(12M&24M)
thereafter: 1.5% + FHR(12M&24M)
The bank’s margin 1.1% does not change. the only part that will change is just the FHR(12M&24M).
Let’s assume year 3 is 2015, FHR(12M&24M) in 2015 is 0.4% which means the interest for the year is 1.1% + 0.4% = 1.5%
but in 2016 which crosses into loan year 4, FHR(12M&24M) is increased to 0.6875%, and your effective rate becomes 1.5% + 0.6875% = 2.1875%
There is no specific time frame where the bank reviews their fixed deposit rates, it could be as long as 2 years or as short as 3 months for each review. Whenever the bank adjusts their FD rates, they will have to give the customers 30 days in writing informing of the changes.
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