As the battle for mortgage loan market continues, DBS has launched new mortgage loan packages pegging to its 9 months fixed deposit rate on top of its FHR18 packages. With the current 9 month fixed deposit at 0.25% p.a, it is the lowest index among all banks (UOB and OCBC fixed deposit linked mortgage loans is using 36 months, Standard Chart is using 48 months).
The reason fixed deposit linked mortgage loans are gaining traction is because it is not as volatile as Sibor/Sor or variable board rates, and its transparent!. You can just go to the bank’s website to find out the rates. One of the most popular question being asked is “Do i have to place fixed deposit with the bank?” The answer is no. The bank is just using it as an index for their mortgage loans.
If there is an adjustment to the fixed deposit rates, the bank will give you an advance notice of 30 days.
How does this type of fixed deposit linked mortgage loans works?
a typical package would look like
y1: 1.13% + FHR9
The 1.13% portion is the bank’s margin which will never change. The only part that will change is the FHR9. With FHR9 currently at 0.25%, effective rate for year 1 is 1.38%. If the bank adjusted FHR9 to 0.3%, effective rate for year 1 becomes 1.43%.
With current 3 months Sibor at 0.939% (March 2017), and adding in one of the lowest margin of 0.7%, effective rate is at 1.639%. A whopping 0.259% difference! If you have a 1 million dollars loan, that 0.259% equates to $2566 savings in interest in 1 year. You can go for a nice holiday with that kind of savings just like that! If you are still on Sibor/Sor packages with a margin of 1%, it is high time you do something about it.
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