Super-Cheap Home Loans Unveiled

Source : The Straits Times, August 19 2009

Two foreign banks offer new low rates in bid to entice mortgage market

TWO foreign banks operating in Singapore have just unveiled rock-bottom home loan deals in a bid to secure a bigger slice of the fast-growing mortgage market amid record private home sales.

Market observers say it is too soon to say if a full-blown mortgage rates war will erupt - but the latest rates are sure to get the attention of home hunters.

With private home sales seeing record growth, banks are rushing to grab bigger slices of the home loan market. -- ST PHOTO: LAU FOOK HONG

One key factor allowing super-cheap mortgages is the fact that a key interbank rate, which influences consumer loan and deposit rates, is tipped to stay at depressed levels well into next year.

The rate - the three-month Singapore interbank offered rate (Sibor) - is hovering at 0.68 per cent, near the all-time low of 0.56 per cent back in June 2003.

With such cheap funds on hand, HSBC has just launched a mortgage package with an interest rate of Sibor plus 1 per cent throughout the loan term.

This is a steal, compared with its Sibor-pegged loyalty package, with interest rates of Sibor plus 1.3 per cent in the first year, Sibor plus 1.2 per cent in the second, and Sibor plus 1.1 per cent after that.

Customers can save about 7 per cent in interest payments for a loan of $600,000 over 20 years, the bank said.

The package, available until Sept 30, is for both completed and uncompleted homes with a minimum loan size of $300,000.

It has no lock-in period and is for existing customers. Non-HSBC customers who want to get on the scheme must park at least $50,000 with the bank.

The other new cheap deal is from a small player, State Bank of India (SBI) Singapore. It is offering a jaw-dropping Sibor plus 0.6 per cent for the first year, Sibor plus 0.8 per cent for the second and Sibor plus 1 per cent for the third. The package is for completed properties only, and not for buildings under construction.

Sibor is very low now as it closely tracks the US Federal Reserve Fed funds target rate, which is near zero.

The earliest that the US Fed funds rate may be raised is in the second quarter of 2011, says Barclays Capital economist Leong Wai Ho.

Rates here are also near an all-time low because of measures taken by the Singapore authorities to keep plenty of liquidity in the system, given the global recession.

Bankers say some lenders have slashed the spreads they charge on Sibor-pegged loans to grab a bigger share of the red-hot home loans pie. This is in sharp contrast to several months ago when banks reportedly tightened lending criteria amid a bleak economic outlook and falling home valuations.

SBI Singapore is a much smaller home loans player here than the three Singapore banks - DBS Bank, OCBC and United Overseas Bank. Its eye-catching offer is unlikely to move market rates, say market observers.

'We're not talking about market share as we're new, but we really want consumers to know about us,' said Mr Seah Boon Ching, head of consumer banking at SBI's Singapore branch.

He said the bank secured some funds at a 'very competitive rate' and decided to pass this on to consumers via a very specially priced home loan package to commemorate Singapore's National Day.

It remains to be seen whether a mortgage war will erupt.

Foreign banks do not have a large pool of cheap deposits to draw upon. Still, if Sibor remains low, they can tap low funding costs and so can afford to dangle cheaper loans.

RHB Bank Singapore's country head, Mr Lim Hun Joo, said the bank is not keen to compete only on pricing, as 'there is a real risk of the bank incurring losses as a result of simply chasing after growth in their loans portfolio'.

'In fact, there have been banks that have suffered losses only in recent years as a result of offering fixed-rate loans at rock-bottom pricing,' said Mr Lim, who declined to name these banks.

Another banker said the local banks 'have been relatively quiet so far', but if property transactions accelerate further and the economic recovery continues, then there might be a rate war as the trio 'scramble for market share'.

Still, banks do not always compete on interest rates alone and some offer innovative products that set them apart.

Standard Chartered Bank's MortgageOne Optimizer, for instance, comes with an offset feature where customers can use interest earned on deposits to reduce the interest payable on their home loans.

Meanwhile, Citi's Home Saver is an index-linked home loan that offers customers one of the widest selections of index tenures in the market, ranging from one month to three years.

New Home Loan Deal From HSBC At Sibor Plus 1%

Source : The Business Times, August 18, 2009

HSBC has offered a new home loan that pegs interest rate to the three-month Singapore Interbank Offered Rate (Sibor), plus a spread of one percentage point.

The rate will be applied throughout the loan tenor and is valid for both completed and uncompleted properties with a loan size of at least $300,000.

There is no lock-in period, which is how long you would otherwise be tied to the bank and which allows it to penalise you if you decide to redeem your loan early.

HSBC's new loan offering comes as interbank rates are expected to remain tepid in the short term, especially as a speedy economic recovery is not on the horizon.

In comparison with the bank's current Sibor- pegged 'loyalty' home loan package - which charges spreads of 1.3 points for the first year, 1.2 points for the second year and 1.1 points subsequently - this new home loan could save about 7 per cent in interest payments for a loan size of $600,000 over 20 years.

The calculation assumes Sibor to be at 0.686 per cent as at Aug 3.

The new home loan is available to all existing HSBC customers who have an account, credit card or investment with the bank, and is part of the bank's 'relationship-based home loan' programme.

No minimum balance requirement is required for the offer. Current HSBC home loan customers can also apply for the new home loan package if they wish to review their loan.

Customers who have no account with HSBC can apply for this new home loan after they deposit at least $50,000 in deposits, investments or insurance with the bank.

HSBC's new home loan offer is available until the end of next month.

Banks Woo Home-Buyers In New Ways

Source : The Straits Times, August 10, 2009

Lenders offer innovative and varied products, moving away from old strategy of using low interest rates

THE recent surge in HDB and private home sales has seen a pick-up in the pace of lending among banks, which have come up with new and innovative loan products to lure home-buyers.

Compared to the first quarter, the second quarter saw the number of approvals more than doubled, said Mr Gregory Chan, head of consumer secured lending at OCBC Bank.

'We continue to see double-digit growth in sales, with a 30 per cent quarter-on-quarter increase in new mortgages as of Q2 2009,' said Mr Dennis Khoo, general manager of retail banking products at Standard Chartered Singapore.

Banks are introducing more variations in their loan products, not only to seize market share but also, in part, to avoid the old 'How-low-can-you go?' war of interest rates.

'The best mortgage is not necessarily the one with the lowest interest, but the one that best suits a customer's needs,' said Ms Sherry Leong, business head for home financial services at Citi Singapore.

'We consider it important to offer product innovation and differentiation along with good after-sales service that is relevant to our customers' needs.'

The Straits Times surveyed seven lenders and found many variations of the traditional fixed- or floating-rate mortgages. They include loans that allow changes in loan tenures, offer loyalty discounts, and even a few that earn interest like a savings account.


















For example, United Overseas Bank's latest HomePlus loan allows customers to earn the same interest rates on their deposits - of up to 75 per cent of their outstanding loan amount - in a separate bank account.

According to UOB, customers have the option of using the interest earned to offset their loan's interest.

Promotional rates for UOB's HomePlus are now at 1.5 per cent for the first year, 2.99 per cent for the second and 4.5 per cent for the third. But depending on the deposit amount maintained in an account with the bank, an implied interest rate on the home loan can be as low as 1 per cent in the first year and up to 3 per cent in the third year, said UOB.

StanChart's MortgageOne Optimizer also comes with an offset feature where customers can use the interest earned on their deposits to reduce the interest payable on their home loans.

'It is a smart money manager that optimises the deposits and mortgage loans of home-owners...automatically optimising returns by using the lowest interest-earning deposit accounts to offset the highest interest-paying loans,' explained Mr Khoo from StanChart.

Aside from an interest-offset feature that helps customers pay down their home loans faster, Citi's Home Saver is also an index-linked home loan that offers customers one of the widest selections of index tenures in the market, ranging from one month to three years.

With that, customers have the flexibility to switch from one tenure to another when the loan hits its maturity date, enabling them to react periodically on when to fix or float their interest rates, depending on their view of market trends.

'For instance, clients can take advantage of the low one-month Sibor now and then change to a 12-month Sibor later when they feel that interest rates are likely to rise, thereby fixing the rate on their instalments for that period,' explained Citi's Ms Leong.

'Conversely, a client who has chosen a six-month Sibor initially can switch to a one-month Sibor if he believes that interest rates could ease in the coming months.'

However, traditional heavyweights in the home loans market such as DBS Bank, OCBC and Maybank say plain vanilla loans with low fixed or floating rates linked to Sibor, or SOR, continue to remain popular, especially in today's low interest rate environment.

One particular feature in DBS' fixed- rate loans is the flexibility - which is usually not available for fixed-rate packages - of allowing customers to partially pay for their loans at any time within the period.

While DBS offers customers more freedom in managing their home loan, HSBC introduced a special feature to keep their customers banking with them.

'We are the only bank to reward customers for keeping their home loan with us by giving them a loyalty discount, in the form of a year-on-year decrease in the interest rate spread charged,' said Mr Sebastian Arcuri, head of personal financial services at HSBC Singapore.

'This benefit is also 'portable', giving customers the flexibility of carrying forward their loyalty discount to a new property when they finance it with us.'

HSBC says there is also no lock-in period for its loyalty home loan packages, so customers are not tied down.

HSBC's Sibor-pegged loyalty packages also come with a year-on-year decrease in the interest rates spread charged in the first three years, unlike conventional home loans, which typically see interest rate spread rise over the loan tenure.


UOB'S HOMEPLUS:

Allows customers to earn the same interest rates on their deposits in a separate bank account.

Customers have the option of using the interest earned to offset their loan's interest.

CITIBANK'S HOME SAVER:

Offers customers one of the widest selections of index tenures in the market, ranging from one month to three years.

With that, customers have the flexibility to switch from one tenure to another when the loan hits its maturity date.

HSBC:

Rewards customers by giving them a loyalty discount in the form of a year-on-year decrease in the interest rates charged.

There is also no lock-in period for its loyalty home loan packages, so customers are not tied down.

Breath Of Fresh Air In Home Loans Market

Source : The Business Times, August 8, 2009

Banks slash spreads on Sibor-pegged loans; 80 and 90% property financing now available.

CREDIT conditions have eased markedly in the competitive home loans market, thanks to improved confidence and liquidity in the property sector. Banks have slashed the spreads they charge on Sibor-pegged loans, and mortgage brokers report the renewed availability of 80 and 90 per cent financing for property.

This is in sharp contrast to the backdrop that prevailed in the first quarter when amid gloom over the economic outlook and falling home price valuations, banks reportedly tightened lending criteria.

At that time, the spread on Sibor loans soared past 1.75 per cent depending on the loan-to-value ratio and whether the property is to be owner-occupied or for investment. For investment property, banks reportedly declined to offer financing higher than 70 per cent. Even for owner occupied home loans, 80 per cent was just about the maximum financing that banks would offer.

Now is a good time to secure fairly low interest rates, whether you're in the market for a new loan or looking to re-price or refinance your current loan.

The three-month Sibor has been hovering at about 0.68 per cent for a few months, not far from the 10-year low of 0.56 per cent in 2003, based on Bloomberg data. The swap offer rate or SOR, which is used by banks such as OCBC stands at about 0.62 per cent.

Most observers do not expect interbank rates to trend up in the near term, particularly as the sustainability of the economic recovery remains in question. A UOB spokesman says: 'Interest rates are anticipated to remain relatively flat at the current level in the months ahead. The trend for home loan rates will be dependent on market competition, cost-of-fund environment as well as global economic conditions.'

Based on rates obtained by Morgan Mortgage International, a mortgage consultancy, OCBC has some of the most attractive rates. Its variable rate package - home loans based on its 'value rate' or board rate - is quoted at 1.68 per cent for the first three years. While SOR loans with no lock-in are reportedly quoted at a spread of 1.25 per cent, those with a one-year lock-in charge an attractive spread of 0.85 per cent for the first year.

Fixed rate loans are also available with the first year rate quoted at below 2 per cent, for those who prefer certainty in their monthly payments.

Morgan's Patrick Tan says that the firm has seen a 50 per cent increase in loan applications. 'Refinancing activity is slowing down and making way for new loans . . . We believe we've reached the bottom in interest rates.'

The loan rates are supportive of an upturn in the property market, particularly as risk-free interest rates in terms of deposit rates and Singapore government bond rates remain low. A number of banks pay just 0.125 per cent for modest amounts. The yield on two-year SGS is quoted at 0.383 per cent, and five-year SGS at 1.34 per cent.

There are, of course, other factors that have buoyed sentiment, as reported in BT on Thursday. Pent-up demand is one factor, arising from the fact that current pricing is still below the 2007 peak. Yet another factor is a slowing of Housing & Development Board construction over the years.

Says Joseph Chong of New Independent: 'The outlook is always uncertain, but it is less uncertain today than it was six months ago. We're watching for policy errors like premature tightening. If there are no errors, the outlook is pretty good.

'Right now, it's not just rates that are low, but the availability of money is high. The asset cycle is turning and liquidity is plentiful.'

An OCBC spokesman says: 'The housing market is currently very vigorous and we see great strength for new properties in the mass market. In the last few months, we've seen a lot of upgraders like young families entering the private property market.'

For now, it seems the bank sees little signs of froth. 'We do not see great movements in the bigger priced properties, current movements are more or less limited to the mass market. We also do not see a great deal of speculation either as these transactions involve mostly owner-occupied homes.'

HSBC Offers New Lure To Keep Home Loan Customers

Source : The Business Times, July 22, 2009

HSBC is offering customers of its declining-rate-spread home loans who sell their houses a chance to continue benefiting from lower interest rate spreads, if they take out a new loan with the bank.

The latest tweak to its variable-rate mortgage offering is aimed at persuading customers to stay with the bank, even if they sell their home and redeem their existing loan.

HSBC charges customers of its Sibor-pegged home loans the three-month Singapore interbank offered rate or Sibor, plus an extra margin or spread that declines after the first year.

When the bank launched its Sibor-pegged 'loyalty' home loan package last July, the spread was 0.75 percentage points above Sibor in the first year, 0.65 points in the second year and 0.55 points subsequently. The current spreads are 1.3 points for the first year, 1.2 points for the second year and 1.1 points subsequently.

In March this year the bank launched a new 'relationship-based' home loan package that charged a spread that started at 1.5 percentage points above Sibor in the first year, then declined by 0.075 point each year until the 10th year, when the spread fell to zero, before rising again to 1.2 points subsequently.

Since then, the spreads have been revised. They now start at 1.2 points in the first year and fall by 0.1 point each year until they reach 0.8 point, where the level stays until the ninth year. The spread then falls to zero in the 10th year, and rises to 1.3 points subsequently. Sebastian Arcuri, head of personal financial services at HSBC, said the response to both packages has been 'extremely positive', with three-quarters of the bank's home loan customers choosing one of the two, instead of fixed-rate loans.

With the latest 'portability' feature, customers who sells their home and redeem their mortgage early - say, in the third year - and takes out another Sibor-pegged home loan with HSBC for a new property will pay the same spreads as before on the redeemed loan amount, instead of starting at the top rate. If the Sibor rises significantly, however, the overall interest rate paid by a borrower may still increase from one year to the next.

Mr Arcuri said the feature will help customers save on interest. 'With loan portability, our customers can enjoy the freedom and flexibility to redeem their loan, buy a new home and still benefit from a lower interest rate spread on their home loan year on year,' he said.

To qualify for the rate-spread discounts and the portability feature, customers must keep at least $100,000 in deposits, investments or insurance with HSBC.

HSBC Home Loans Offer 'Portability' Perk

Source : The Straits Times, July 22 2009

Scheme allows borrowers to carry forward the discount level they have reached to their new home.

HSBC borrowers with either the bank's Singapore Interbank Offered Rate-pegged (Sibor) loyalty package or its Sibor-pegged relationship- based loan package will now not lose any of the time-related loyalty discounts they have earned when moving house.

The bank has launched a loan 'portability' feature for those with these packages. This allows them to carry forward the discount level they have reached to their new home. Customers can sell their property and continue from where they left off on the sliding interest rate spread offered to them under the two specific loan schemes.

For the relationship-based home loan package, HSBC customers see a year-on-year decrease in the interest spread until the 10th year, when it hits zero.

The Sibor-pegged loyalty home loan deal cuts the interest rate spread at the end of every anniversary year, up to the third year of the loan.

The two packages - both launched last year - are designed to reward longer-term borrowers.

Typically, loans pegged to the Sibor - the rate at which banks lend cash to one another - have either flat or increasing interest rate spreads.

Under the new arrangement, if a customer has a Sibor-pegged relationship-based loan and sells his property in the third year of the loan when the interest rate is 1.69 per cent - Sibor plus 1 per cent, assuming Sibor is 0.69 per cent - he can enjoy a first-year loan interest rate of 1.69 per cent on his new property.

From there, he can go on to enjoy the year-on-year decrease in interest rate spreads offered by his original Sibor-pegged deal with the bank.

Mr Sebastian Arcuri, HSBC's head of personal financial services, said that loan portability meant customers can enjoy the flexibility to redeem their loan, buy a new home and still benefit from a lower interest rate spread year on year.

He added that for customers to enjoy this benefit, they must have a total balance of $100,000 and above in deposits, investments and insurance with HSBC. They must also finance their new home loan, on a completed property, within six months.

Tips On Refinancing Your Home Loan

Source : The Sunday Times, July 19 2009

Your existing lender may give you a lower rate, but it may not be the best deal.

With banks aggressively marketing their promotional packages, some home owners are looking into their current home loan interest rates and contemplating refinancing.

Refinancing refers to a situation where the property owners move from one mortgage loan package to another with the intention of (1) saving money by reducing interest rates; (2) restructuring the loan by including cash term loan or overdraft facilities; (3) moving to a different loan structure, such as from the conventional interest rate package to one that is linked to the interest rate of a current account.

However, do bear in mind that the low rates that are advertised may come with certain terms and conditions which may not suit your financial planning requirements. Here are some things to consider:

Flexibility: If you are planning to sell your property in the short term - say in one year or so - you may not

want to get into a new package that locks you in for a period longer than you intend to keep the loan. If you do go ahead, be prepared to pay a lock-in penalty which is usually between 1per cent and 2 per cent of the loan amount as well as 'claw back' amounts.

The lock-in period is usually a percentage of the original or reducing loan amount. And claw back applies to the amount that must be returned to the lending bank should you terminate the loan. This usually includes legal subsidy, valuation, fire insurance or cash rebates.

Certainty: If you are currently in a fixed rate package where there is certainty and predictability, are you comfortable about moving to a variable package with volatility and uncertainty? Variable loan packages linked to the Singapore Interbank Offered Rate or the Swap Offer Rate are key products offered by most banks.

Before you sign into a seemingly attractive loan rate from a competing bank, check if your existing lender can offer you the same rates or terms that first drew your attention. Most lenders - once they know their borrowers wish to refinance - will be inclined to beat their competitors, particularly if the client is one with good financial standing and payment record.

For clients without fantastic payment records, it may be difficult to refinance as the new bank may not want to take them in. In such situations, there is more reason for the home owner to try to negotiate for better rates from his existing lender.

Advantages of staying with existing lender

To keep loans that they might otherwise lose, many lenders have loyalty programmes designed to recapture borrowers who are determined to refinance.

If you are currently in a lock-in period, it may be more advantageous to stay with your current bank and re-negotiate rates as moving to another bank may be costly. For instance, you have to incur a settlement cost with your existing lender before you move to a different bank and this may include a lock-in penalty and claw back amounts. Sometimes, the new lender may entice you by offering to pay the penalty subsidy, that is, absorbing all your present settlement cost. But this often comes with conditions, such as longer lock-in periods, some up to seven years.

Moreover, if you are not looking to take any cash out of your home loan but only seeking to reduce the interest rate, the lender may elect simply to reduce the interest rate on your current loan rather than refinance. This avoids all settlement costs except for some charges required for changing the contract.

Disadvantages of re-pricing with your current lender

Most banks do expect their existing client to re-negotiate loan rates. As such, they have in place a standard 'rate change package'. However, though the rate offered by such packages is usually lower than your existing rate, it is higher than current market rates offered to new customers.

For example, if the market loan rate is 2 per cent, the lender might offer you 3 per cent because your mortgage rate is currently 4 per cent. But a similar borrower moving to another bank may be offered 2 per cent.

In addition, you may not get the best service from your existing lender, since there is little incentive for the lender to close a deal at a lower mortgage rate than previously. This may not be deliberate but new loans are generally being signed faster than re-pricing loans. However, of late, most banks have set up a special re-pricing team and hence service levels for existing customers have improved.

Refinancing with the same bank is not cost-free either, as most would charge at least $500 to $800 to cover costs like the mortgage stamp fee.

On the flipside, most banks offer a legal subsidy to new customers who are refinancing. So as long as the refinancing results in net savings, the client will consider doing so.

Finally, do note that whether it is re-pricing with the current bank or refinancing with another bank, once you have signed the Letter of Offer, there is no turning back and the cancellation penalty kicks in if you change your mind.

The writer is the managing director of mortgage consultancy firm Global Creatif Financial. www.globalcreatif.com

Don't Let Your Home Loan Haunt You

Source : The Straits Times, July 12 2009

In picking a mortgage package, factors such as interest rates and lock-in period matter.

Nothing beats having your own pad - especially the very first home you own.

For me, it was a 732 sq ft studio in Siglap that I bought in 2005.

When I paid the 1per cent deposit for the place, everything about it was perfect. It had an unblocked view of the East Coast, nice Italian marble flooring, a spacious kitchen (yes, single men do cook) and a huge balcony.

It had all the ingredients of a picture-perfect yuppie life.

I saw myself chilling out on lazy Saturday afternoons on the balcony, whipping up al dente pasta in the kitchen and taking cool evening walks by the beach, which was just around the corner.

So, like most Singaporeans, I emptied my CPF account, signed up for a home loan and, three months later, became the proud owner of my very own bachelor pad.

Buying my first home was a relatively painless and seamless process at the time.

All I did was put my John Hancock down on some papers - actually legal documents which I did not even bother reading - and there I was: a 20-something, first-time homeowner with a $250,000 mortgage.

Everything was cool until I received a letter from my bank just a couple of weeks before my first instalment payment was due.

It was my first mail at my new address and naturally I was ecstatic about opening it, but my fervour died when I read its contents.

The letter said something to the effect that because of fluctuations in the interest rate environment, my monthly instalments would have to be increased. In other words, I needed to pay more each month to service my home loan.

I was shocked. I had not even started unpacking my cartons of belongings and here was the bank telling me my monthly instalments had been raised.

That, however, is the reality that many often face when taking a home loan with variable interest rates, as I would later learn.

Buying a home is arguably one of the biggest financial commitments people will have in their lifetime, and a home loan is the heaviest debt they will have to pay if they take up a mortgage.

It baffles me now that I had actually signed up for a quarter-of-a-million dollar loan without carefully considering the conditions that were tied to it.

As the saying goes, the devil is in the details, and my sin was complacency. But what was an even bigger surprise was that many first-time homeowners were just like me.

I polled my peers and found that most of them also could not recall details like what interest rates their loans were on, how much their monthly instalments were, or even when their loan tenures would end.

Maybe we were just so preoccupied with the excitement of getting that dream home that we ignored the due diligence that should have gone into our hunt for the loan.

For me, the sheer number of banks that offered home loans and the various options available certainly added to the confusion. But I recently found out - when I was buying my second home - that a little research can go a long way in avoiding nasty surprises.

So if interest rates are what really matters to homeowners, then it will probably be a relief for you to know that there are really only two main types of home loan in the market: loans with fixed interest rates, and loans with variable or floating interest rates.

With a fixed rate loan, you are somewhat protected from the fluctuations of interest rates, and typically you can expect to pay the same monthly instalment for at least the first few years of the loan tenure.

So if you want some sense of certainty that your monthly payments will always remain the same, go for a loan with fixed rates. But it is only really any good if you sign up for the loan when interest rates are low.

However, if you do sign up for a fixed rate loan, bear in mind that the annual fixed rate - which these days could go as low as 1.5per cent per year - usually ends after the initial one to three years, depending on your bank. After that, you will be charged the bank's prevailing variable or floating rate, which for many is where the confusion and worries start.

Loans with variable or floating rates are of course the other alternative you could choose right from the start.

The interest rates of these loans are benchmarked against references like the Singapore Interbank Offered Rate or Sibor.

Sibor is the average interest rate at which banks borrow from one another. The key determinant of this is the United States Federal Reserve rate and overall liquidity, or availability of funds, in the banking sector.

Since the economic crisis broke, the Fed has so far managed to keep interest rates at 0.25per cent, a historical low. At the same time, Sibor has hovered at just around 0.7per cent in the last half year.

Industry observers say that because banks here are highly capitalised - meaning they have ample supplies of cold-hard cash - Sibor will likely remain low for now, unless the Fed rate suddenly spikes.

There is also another type of variable loan, one where interest rates are pegged to the Swap Offer Rate or SOR.

SOR essentially comprises Sibor plus the lending costs incurred by the banks, and is calculated over a period of time: usually three or six months.

For example, if your loan is based on a three-month SOR, your interest rate will be the three-month SOR plus a small margin for the bank, and that rate will be revised every three months.

Like Sibor, SOR is available to the public in newspapers and on the Internet. But SOR is also affected by the exchange rates of the US dollar versus the Singapore dollar, so it tends to be a little more volatile than Sibor.

Of course there are other factors to consider when signing up for a home loan. They include making sure you have the capacity to service the monthly payments, and are comfortable with the interest rates and lock-in period that come with the loan package.

Lock-in periods determine how long you are tied to the bank and allow it to penalise you if you decide to redeem your loan early.

So do not just get excited over what are now staple freebies such as legal fee subsidies, property insurance or even the free shopping vouchers that come with some home loan packages.

Getting the right home loan can mean more peace of mind and maybe even some savings in the long term.

Shop around for a loan that fits your needs instead and keep an eye on the details that really matter when signing up for one - whether it is a fixed or floating rate loan.

You really do not want to match your dream home with a nightmare of a home loan.

Making Sense Of Housing Loans

Source : The Business Times, July 9, 2009

Can't tell your Sibors from your SORs? Get a quick primer here

SENTIMENT seems to have made a 180-degree turn in the property market in recent months with buyers coming out in force as the economic outlook stabilises. Sellers have been known to up asking prices by 10 per cent or more. Some home buyers who were taking a wait and see attitude a few months ago rushed in to buy properties.

Taking the plunge: Before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35% of your gross income

But before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35 per cent of your gross income. On top of that you should set aside enough funds to service at least six months of your housing loan instalments. This would provide some buffer should you suffer a pay cut or job loss.

Home buyers might also want to take note that supply of homes should be ample, going forward. Between 2009 and 2013, a total of 55,838 condo units are expected to be completed, according to numbers from the Urban Redevelopment Authority (URA). The supply more than meets the average demand of about 8,000 units a year.















Some developers are offering an interest absorption scheme (IAS), where the developer helps the buyer pay the interest on the housing loan while the property is under construction. Of course, such a scheme typically raises the sale price by 2 to 5 per cent, so there really is no free lunch.

Also, note that housing loan packages tied to the IAS generally charge higher interest rates. The difference can be 0.5 per cent or more. And because the IAS is offered by a single bank, taking it means losing the freedom to shop around for the best loan package. So you could forgo savings in interest of several thousand dollars.

Under the IAS, only the interest is paid while the principal outstanding is not reduced. Thus, when your property is completed, your housing loan outstanding will be higher than that of someone who has been making progressive payments.

Lastly, should the developer get into financial difficulties, the buyer is still liable to the bank for the interest on the housing loan.

Short loan tenor vs long loan tenor

Some people choose to pay off their housing loan as quickly as possible to save on interest payments. On the other hand, there are people who want to stretch the loan repayment period to the maximum so they have smaller monthly cash outflows.

Instead of going to either extreme, you could consider matching the loan tenor to your intended retirement age. For instance, if you're 40, you can take up a 20-year loan that will be paid off by the time you retire at 60.

Interest rate outlook

Sibor or the Singapore Interbank Offered Rate is the average interest rate at which banks lend or borrow local dollars from one another in Singapore. The two main factors that affect Sibor are the United States Federal Reserve rate and liquidity, or availability of funds, in the local banking sector.

The US Federal Reserve has maintained interest rates at 0.25 per cent, a historical low. Sibor has stayed slightly below 0.7 per cent in the past six months and is likely to remain there as long as US interest rates are low and liquidity here is ample.

If you want certainty of interest rates for the next few years, then go for a fixed-rate housing loan, which can be as low as 1.5 per cent for the first year.

So what is the difference between Sibor and SOR? The latter stands for the Swap Offer Rate, which comprises the Singapore Interbank Offer Rate plus market reserve costs. It represents the average cost of funds used by banks in Singapore for commercial lending.

Swap also accounts for the exchange rate of the US$ vs S$. Thus, SOR tends to be more volatile than Sibor. If you want lower volatility, go for a loan pegged to Sibor rather than SOR.

Should you aim to be debt free as soon as possible?

Most personal finance books recommend that you should aim to be debt free as soon as possible. In my opinion, as long as you have not overborrowed, you can plan to pay off your housing loan by the time you retire.

If you think about it, a housing loan is the cheapest loan on the market. In Singapore, the interest rate on a housing loan is currently about 2 per cent, while a car loan is about 4 per cent, a renovation loan 7 per cent and a credit card 24 per cent!

So it is difficult for people to fail to beat housing loan interest rates. Why? Imagine that you know nothing about investing. Just putting money into endowment savings plans gives you annual returns of about 4 per cent over a 20-year period.

Say a person has a $200,000 housing loan to be repaid over 20 years. Assuming an interest rate of 4.5 per cent on the loan, the total interest paid over 20 years is only $105,515.

If he has $200,000 in cash or CPF savings and uses this money to earn a yield of 3.5 per cent, in 20 years, he would have earned $168,453!

Most people forget that interest on a housing loan is calculated on a reducing balance basis while savings compound (interest is added on interest).

Thus, you can get ahead financially if you focus on making your cash or CPF funds work harder for you than by trying to pay off your housing loan as soon as possible.

To get an unbiased view of the housing loan packages offered by banks, you can talk to an independent mortgage broker. After all, bank officers can only offer packages from the bank they work for.

Typically, the service offered by a mortgage broker is free as they are paid separately by the banks.

Dennis Ng is a certified financial planner with 16 years of bank lending experience. He founded mortgage consultancy http://www.HousingLoanSG.com in 2003

StanChart Marks 150 Years With New Home Loan Deal

Source : The Straits Times, May 11 2009

1.5% fixed mortgage interest rate up in the offering.

STANDARD Chartered (StanChart) in Singapore is the latest bank to unveil attractive home loan packages for homebuyers and owners, as interest in residential property purchases continues to pick up.

It is introducing a package with a low interest rate of 1.5 per cent per annum for the first year.

For the second year onwards, customers will pay an annual rate equivalent to the three-month Singapore Interbank Offered Rate (Sibor), plus 1.35 percentage points.

The promotion, which applies to any new mortgage taken up with the bank from yesterday till June 15, is part of StanChart's 150th anniversary celebration.

It will also throw in freebies like free valuation, legal subsidy of up to $2,000, and free fire and home content insurance.

There is also an additional perk for priority banking customers who hold StanChart's Visa Infinite card.

A quick check shows StanChart's offer to be one of the more attractive ones in town, particularly if Sibor continues to languish at well below 1 per cent.

A comparable package by Maybank - touted by the bank as the lowest three-year fixed rate home loan in town - fixes its first, second and third year rate at 1.6 per cent, 2.2 per cent and 2.9 per cent, respectively.

There is no minimum loan amount required for application.

For StanChart, the minimum loan quantum is $100,000, while the lock-in period is just two years.

Said StanChart retail banking products general manager Dennis Khoo: 'With this offer, they (customers) can enjoy more flexibility in their finances to be more agile and responsive to market changes.'

Stanchart Offers 1.5% Fixed Mortgage Interest Rate

Source : The Business Times, May 11, 2009

Chartered Bank has introduced a mortgage package at a fixed rate of 1.5 per cent per annum for the first year for any new mortgage taken up with the bank from May 10 to June 15, 2009.

For the second year onwards, customers pay a rate of three-month Sibor plus 1.35 per cent per annum.

Dennis Khoo, general manager of retail banking products, said: 'Our customers have been the heartbeat of Standard Chartered over the last 150 years in Singapore. To thank our customers, we are offering exceptional value in the form of a fixed first-year mortgage loan at 1.5 per cent until 15 June 2009. This allows our customers to lock-in best-in-value and low rates for the next year. With this offer, they can enjoy more flexibility in their finances to be more agile and responsive to market changes.'

Mr Khoo added that Standard Chartered has become the largest qualifying full bank (QFB) in the Singapore mortgage market over the years.

This package is offered in conjunction with the bank's 150th anniversary in Singapore this year.

In addition, Priority Banking customers who hold the Standard Chartered Visa Infinite Card and take up the fixed rate package will get bonus points of 100,000 air miles.

Likely Pitfalls In Getting A Housing Loan

Source : The Business Times, March 26, 2009

Problems can arise from changes in valuations, deferred payments and loan-approval criteria

IF YOU are looking to buy a property, beware of potential pitfalls, including those related to getting a housing loan.

In the past, most home buyers would pay the one per cent option to secure the property before looking for a housing loan. If you do this now, you might regret it and here's why.

Mitigating risks: Securing a housing loan has become more tricky with fast-changing circumstances in terms of property valuation, loan-approval criteria and one's financial situation. It is always safer to get a loan approved before committing to buying a property

It has been clear over the past few months that property prices in Singapore have turned down. And with global economies expected to weaken further, the trend for property prices is more likely to be down than up in the months ahead.

So, even before you put money down on your option, check the market valuation of the property. There have been instances where buyers checked the market valuation of a property with the bank only to get a nasty surprise some weeks later when they finally write out a cheque for the option. That's when they find out that the bank's valuation of their property has gone down.

Latest valuation

We know an instance where someone purchased a property for $2 million and then found out some months later that the valuation had fallen by about 10 per cent to $1.8 million. In other words, he ended up having to fork out an additional $160,000 in cash as the bank was only willing to grant a loan of $1.44 million, or 80 per cent of the revised valuation of $1.8 million, rather than the original loan of $1.6 million.

The buyer could have avoided this pitfall if he had gotten a mortgage broker to check the latest indicative valuation within a few days of buying the property.

Another problem can arise with deferred payments. In 2007, properties were selling like hot cakes and many people had bought them from developers under the deferred payment scheme. That's where buyers were only required to come up with 10-20 per cent of the purchase price and pay nothing more until the property obtains its temporary occupation permit (TOP) about three years later.

According to estimates, more than half the buyers who bought property under the deferred payment scheme have yet to apply for a housing loan. In the past year or so, many properties have seen their values fall by 10 per cent to 30 per cent, so when these buyers finally apply for a home loan, they are likely to have to cough up an additional 10-25 per cent of the purchase price.

For example, someone who bought a property for $1 million in 2007 would see the current valuation of the property drop to about $800,000. In other words, he would probably be able to get a maximum loan of 80 per cent of $800,000 - or $640,000. That's $160,000 extra that he would have to foot in cash or CPF savings. In effect, he is putting up 36 per cent of his purchase price upfront.

With global stock markets falling further in recent weeks as economic conditions deteriorate, property valuations might drop further. Thus, if you have bought a property under a deferred payment scheme but have yet to apply for financing, I strongly advise you to get financing as soon as possible.

There are housing loan packages out there which offer free loan conversions. If you apply for a housing loan now and a better loan package comes along when the property reaches TOP, you can always convert to a more attractive package without penalty.

Getting financing earlier is safer too, should there be any adverse change in a home buyer's financial position, such as a pay cut, or deteriorating credit standing due to delays in paying existing loans. Then, the home buyer might not be able to obtain any financing for his property at all!

To mitigate the risks of falling collateral value, banks have become more cautious in granting financing for properties. Very few banks are willing to offer 90 per cent financing, and if they do it would primarily be for first-time home buyers.

Banks are also more stringent in assessing the borrower's ability to service and repay debt. There are instances where property speculators might only obtain financing of 70 per cent for properties bought for investment purposes. For borrowers who have a slightly weaker credit profile, financing might even be capped at 60 per cent of the purchase price or valuation, whichever is lower.

Prudent step

To be prudent, property buyers should approach a mortgage broker to help secure a prior bank loan approval before committing to a property. By doing so, you would avoid the danger of being unable to obtain sufficient bank financing for your property.

The silver lining in all this is that interest rates are also dropping. Over the past year, the Singapore inter-bank offered rate (Sibor) - the interest rate at which banks borrow from one another - has fallen from over 2 per cent to about 0.7 per cent currently.

If you had taken a home loan one to two years ago, chances are you might be paying an interest rate of 3-4 per cent. It is possible for you to refinance your loan today and end up paying as low as 1.65 per cent, from say, 3.5 per cent. Assuming an outstanding loan of $300,000 and a remaining loan period of 20 years, by refinancing, you might save as much as $5,500 in the first year alone! Even after deducting the cost of refinancing of about $1,000, you are still $4,500 better off.

Thus, refinancing your existing housing loan now might be one of the best ways to 'create money' for yourself by cutting down on your interest expenses.

You can also take advantage of cheaper mortgage rates by borrowing more if your property has appreciated from its original price. If you had bought your property a few years ago, chances are its current valuation is still much higher than your purchase price.

Say, you had bought a property costing $1 million five years ago and have an outstanding loan of $500,000 on it. The current valuation might be $1.5 million. Thus, even if you take out an additional loan of $500,000, bringing the total loan amount to about $1 million, it works out to just 67 per cent of the property valuation and well within the 80 per cent financing limit for a property.

The good news is that the additional loan of $500,000 comes at a low interest rate of about 2 per cent, which is possibly the cheapest loan a typical consumer can obtain.

Securing a housing loan has become more tricky with fast-changing circumstances in terms of property valuation and loan-approval criteria. One's financial situation might also change due to pay cuts and threat of retrenchments. So to be safe, get your home loan approved before you commit to buying your property.

The writer is a Certified Financial Planner with 15 years of experience in bank lending. He co-founded an independent mortgage consultancy portal www.HousingLoanSG.com in 2003

HSBC's New Home Loan Offers 'Loyalty Discount'

Source : The Straits Times, March 12, 2009

Borrowers enjoy interest rate spread that decreases every year for 10 years

HSBC has unveiled a new home loan pegged to the Singapore Interbank Offered Rate (Sibor) that rewards longer-term borrowers with an interest rate that gets
increasingly competitive over time.

Its new loan package sees the interest rate charged on top of the three-month Sibor - the rate at which banks lend cash to each other - trimmed each year.

Typically, loans pegged to the Sibor have either flat or increasing interest rate spreads.

The new product follows HSBC's launch last year of a similar package, which cut the interest rate spread at the end of every anniversary year, up to the third year of the loan.

For its new 'loyalty package', HSBC customers will see a year-on-year decrease in the interest spread until the 10th year, when it will hit zero.

During the first year, borrowers will pay an interest rate spread of 1.5 per cent above the three-month Sibor.

The spread is then reduced by 0.075 percentage point at the end of each anniversary year.

HSBC has made the arrangement even sweeter for its Premier customers whose interest rate spread will be cut by 0.1 percentage point at the end of each anniversary year.

In the 10th year of the loan, the interest rate spread will be reduced to zero for all customers.

Thereafter, the rate reverts to Sibor plus 1.2 per cent for the remaining tenure of the home loan.

Mr Sebastian Arcuri, head of personal financial services at HSBC Singapore, said the response to its earlier Sibor-pegged loyalty package had been 'extremely positive'.

'In giving customers a loyalty discount on the interest rate spread for their Sibor-pegged home loan, we want to help them maximise the value of their relationships with us,' he said.

But observers caution that home buyers must do their homework before choosing HSBC's latest mortgage.

First, Sibor can be volatile and those looking for fixed cash flow and protection against interest rate movements should opt for fixed-rate packages.

'If Sibor starts to exhibit volatility down the road again, these lower spreads might not mean much to customers,' said Mr Geoffrey Ying, head of the mortgage division at financial advisory firm New Independent.

A DBS Bank spokesman said: 'In selecting the package, customers need to consider how the rates are determined and how stable they are.

'A three-month package would require one to actively monitor the interest rate environment and review the loan structure regularly.'

Next, customers should average out the interest rate spreads over 10 years and see how the savings compare to other offers.

'There is no free lunch,' said United Overseas Bank's head of loans Kevin Lam. 'The package is effectively a lock-in because you need to stay long enough to enjoy the zero (interest spread).'

HSBC said that to enjoy its new home loan, customers must have an average annual balance of $100,000 or more. It added that there was no lock-in period for the loan.

HSBC Home Loan Rewards Loyalty

Source : The Business Times, March 12, 2009

Rate keeps sliding for long-haul customers in face of refinancing war

HSBC has just come up with a sexy mortgage deal in a bid to keep its customers - on the condition that borrowers park at least $100,000 at the bank.

Borrowers who stay with the bank for 10 years exactly see their first-year spread of 1.5 percentage points - that is the margin they pay on top of the three-month Sibor rate - slide and eventually disappear in the 10th year. Thereafter, the spread jacks up back to 1.2-points.

Sibor is the interbank or wholesale rate and Sibor-plus packages are popular with borrowers betting that this will remain low as governments pump money into the banking system to tackle the global recession.

A home loan war is looming with HSBC's offer hot on the heels of other initiatives. Last week, Maybank announced the lowest three-year fixed-rate deal in town.

Some bankers claim that hardly anyone sticks to a bank for 10 years, with three years the norm before fickle borrowers are tempted away.

HSBC said that those who stay will enjoy a steady year-on-year decreasing interest rate spread.

The spread for the first year starts at 1.5 points on top of the three-month Sibor. This is reduced by 0.075 of a point at the end of each anniversary year.

If customers keep their loans, their spread falls to zero in the 10th year.

The loyalty discount works only if customers deposit a minimum $100,000 of assets such as deposits or investments and insurance with HSBC.

After the 10th year, the interest rate spread goes back up to 1.2 points for the remaining tenure of the home loan.

There is no lock-in period so borrowers have full flexibility, said HSBC.

Over 10 years, HSBC customers pay an average of 1.08 per cent while it's an average of 1.425 per cent over the first three years, noted United Overseas Bank head of loans Kevin Lam.

He said that UOB has a fixed-rate three-year loan where it charges the cost of funds plus a 1.25-point spread for borrowers whose loan to value ratio is 80 per cent. For no lock-in, the spread is currently 1.75 points.

Mr Lam noted that for 'safe' borrowers, that is those whose loan to value ratio is low - say 50-60 per cent - UOB is willing to charge a lower spread.

Loan to value ratio refers to the loan quantum versus the value of the property and with property prices still sliding, banks will reward customers who borrow less.

DBS Bank too has loyalty Sibor-plus packages with the spread sliding up to three years.

Under its package, customers financing loans of 60 per cent or less of valuation can enjoy a spread which starts at 1.1 points for the first year and falls to as low as 0.8-point in the third year. Thereafter, the spread is 1.25 points.

This applies only to completed owner-occupied properties.

'When customers commit a longer period with us, the interest rate spread is also reduced,' said a DBS spokesman. 'This loyalty reward is still available to this day and available for three and 12-month (Sibor) packages for customers, including those new to our bank.'

In these recessionary times, borrowers still have some options as banks try to outwit one another to sell their loans and, to give it credit, HSBC was the first to launch loyalty loan packages, keeping rivals on their toes.

Last July, HSBC unveiled its innovative Sibor plus loyalty offer with year-on-year decreasing spread for the first three years of the loan.

In The Post - UOB's Foray Into Heartland Home Loans

Source : The Business Times, March 10, 2009

Bank ties up with SingPost to sell HDB loans and challenge rivals on their turf

In a surprise move, United Overseas Bank (UOB) has tied-up exclusively with SingPost to sell HDB home loans, muscling its way into mass market mortgages that have so far been dominated by rivals DBS Group Holdings and OCBC Bank.

UOB which has previously targeted private property buyers and the affluent yesterday said it has forged a strategic alliance with SingPost to distribute UOB HDB Home Loans.

The bank will initially start with four SingPost outlets and plan to have up to 24 post office branches by the end of the year to sell HDB homes loans. SingPost has 62 branches all over the island.

'The latest move extends UOB's HDB home loans' distribution network beyond its 57 branches,' UOB and SingPost said in a joint statement.

The exclusive arrangement is for more than 5 years, said Claudia Lim, SingPost corporate communications manager.

SingPost dedicated staff trained by UOB will be selling the HDB home loans, said Ms Lim.

Eddie Khoo, UOB's executive vice-president for personal financial services, said the latest initiative 'is really about bringing convenience to customers by extending the bank's distribution network beyond the walls of our own branches to reach customers'.

'At the macro level, and in the longer term, we see this as a strategic investment as this additional channel enables us to serve our customers better through convenience and accessibility.'

The surprise move will likely spark off a fierce tussle with rivals DBS and OCBC who may seek to protect their turf. Both banks claim to be the market leader. DBS said it has captured HDB buyers through its POSB customers while OCBC has focused on HDB mortgages from the time the government liberalised the market in Jan 2003.

'POSB is the market leader in HDB home loans,' said a DBS spokeswoman. The bank has 53 POSB branches.

'We were also the first in the market to introduce POSB Home Ideal First for first-time homeowners, offering them a 7-day return policy which allows them to assess if the home loan is suitable for their needs,' she said.

Gregory Chan, OCBC head of secured lending, said the bank's team of mobile home loan specialists visit potential customers who are too busy to come to its branches, to explain details of home loan packages and to process applications.

'At the same time, we work with property agents from the largest property firms in Singapore who are in direct contact with home buyers and help market our home loans. This business model has served us well and we continue to be the top player in the HDB home loan market,' said Mr Chan.

Mass market home loans are just about the safest products as Singapore enters its worst recession ever because the prices of HDB homes did not surge wildly during the property bubble. And now, they are not skidding sharply.

In contrast, the prices of some high-end properties have crashed as much as 50 per cent from the peak reached last year. A Citigroup report in January said that, in the high-end segment, properties have seen price corrections of about 35 per cent from a year ago and they could fall by another 30-40 per cent this year.

David Conner, OCBC chief executive, said last month while announcing the bank's 2008 results that negative equity for its property portfolio was low because of the bank's focus on HDB home loans.

He also noted that HDB mortgages are for owner occupation and the loan quantums are small.

'A big part of our portfolio is HDB - prices have not gone up as much - and we do not anticipate a big fall,' he said.

OCBC's home loan book negative equity was 0.7 per cent while 81 per cent of homes for which it has made loans are owner-occupied.

Do Your Homework

Source : TODAY, Thursday, February 26, 2009

Some mortgage rates are rising; shop around before making a choice

As global interest rates fall, you would expect more homeowners to be tempted into taking up mortgages pegged to the Singapore Interbank Offered Rate (Sibor) or Swap Offer Rate (SOR).

After all, the three-month Sibor rate is currently around 0.68 per cent — just shy of its all-time low of 0.63 per cent.

However, instead of resulting in lower mortgage rates, interest payments on these pegged loans have surprisingly started to rise.

Rather than passing on savings from cheaper inter-bank lending, most financial institutions are now charging higher premiums above Sibor and SOR to reflect higher default risk, given that the economy has turned.

Banks have turned increasingly cautious over lending.

Last July, someone taking out a mortgage with DBS Bank would have paid a rate of Sibor plus 1.25 percentage points for an80 per cent loan.

Today, DBS’ mortgage rates start at Sibor plus 1.75 percentage points, with no lock-in period.

That means the total interest rate paid would now be 2.43 per cent, up from 2.25 per cent last July.

Similarly, spreads over SOR have widened.

Tellingly, some financial planners Today spoke to suggested that home-buyers should consider fixed-rate loans instead.

“Personally, I would lock in for as far as possible,” said Mr Sani Hamid, Financial Alliance’s director of wealth management.

That is because Sibor rates — while now low — rose to as high as 3.1875 per cent in 2005.

At DBS, Sibor fixed rate mortgages start at 3.25 per cent for a one year lock-in period on an80 per cent loan.

In contrast, fixed rate mortgages charge interest rates at a stable interest rate that is fixed and guaranteed in the first few years. This means that the monthly instalment amount is fixed for this period.

This brings about stability and certainty about how much you will be expected to pay in the long-run.

Another tip: Shop around for — and even ask — for the best rates possible in the competitive markets, note financial planners. You may just get a rate that is better than those published.

Pay-Interest-Only Deal For Cash-Short Home Owners

Source : The Straits Times, January 13, 2009

DBS scheme eases borrowers' burden for six to 18 months

HOME owners with mortgages at DBS Bank can ease some of their financial burden by opting to pay only the interest on their loans for periods of up to 18 months.

The bank sees the scheme as a way of helping cash-strapped borrowers who are worried about their ability to repay their mortgages amid the deepening economic gloom.

The scheme could potentially benefit 'tens of thousands' of borrowers with home loans at DBS.

It can mean an immediate reduction in the monthly amount a borrower must fork out as a key portion of the payment - the loan principal - can be set aside.

Take a 25-year home loan of $500,000 pegged at an interest rate of 3.5 per cent.

A borrower will have to pay $2,504 a month - covering both interest and principal.

But by opting to pay the interest only, his monthly payment drops to $1,439, putting an extra $1,065 into his pocket.

So even if a working couple loses one income, which is a growing threat in the downturn, they can likely keep paying their mortgage - and keep their home.

They can also pay the monthly instalment using Central Provident Fund cash if they are only servicing the interest on the loan.

They can resume monthly payments on the principal portion of their loan when their cash flow situation improves.

The periods for paying interest only can extend from a minimum of six months to 18 months.

'The last thing we want to do is to foreclose on people's homes. Come and talk to us early if you have any financial problems,' said Mr Koh Kar Siong, head of consumer deposits and secured lending at the bank, yesterday.

Homeowner Rose Tan, 40, who has a DBS mortgage on her condominium flat, welcomed the move: 'This is a friendly gesture from DBS. At least, I know they won't treat me like a leper if I approach them for help in lowering my housing instalment.'

The flip side is that paying interest-only means you are not paying off any of the loan itself so you will have fallen behind.

DBS is the largest bank here and a key player in the private housing loans market. It is also a big lender to HDB flat-owners through its POSB network.

It has 'tens of thousands' of mortgage borrowers.

To get the go-ahead, a borrower must give the bank an update of details such as employment and other financial commitments.

The scheme is applicable to cash-strapped borrowers as well as those in the pink of financial health.

DBS will advise them within a week if their applications to pay interest-only on their loans has been approved.

Mr Koh said the updates are needed to enable DBS to fulfil its fiduciary duty and ensure that borrowers have the means to repay their loans eventually.

Besides offering interest-only instalments, DBS is extending an option to allow home owners to extend the tenure of their loans, which will lower their monthly instalments.

Mr Koh said there has not been any sharp rise in the number of borrowers asking DBS to alter their loan repayment terms but banks are unlikely to be immune to the economic slowdown.

'About 90 per cent of our home loans are taken up by borrowers who occupy their properties. We want to help them to tide over this difficult period,' he said.

DBS' move has stirred hopes among traders and home owners that by acting in such a pro-active manner, there will be fewer foreclosures and this will help the wobbly property market to get back on its feet eventually.

Banks such as MayBank and OCBC Bank told The Straits Times that they preferred to take a case-by-case approach to assist home owners who have taken up loans with them.

Mr Gregory Chan, OCBC's head of secured lending, said: 'In the event that our customers' needs change during the duration of their loans, we are open to reviewing their financial positions and borrowing limits, and advising them accordingly.'

HDB Home Loan Defaults On The Rise

Source : The Sunday Times, Jan 4, 2009

Number of cases has jumped by 8,000 since year-end 2003, making up 8% of all such loans

The number of home buyers defaulting on their home loans for three months or more has risen significantly over the last five years.

Figures obtained by The Sunday Times from the Housing Board show that the number of these defaulters has jumped by about 8,000 since the end of 2003.

Also, such defaults have climbed from 5per cent to 8per cent of all HDB home loans.

The figures underscore what seems to be a growing problem. From one in 20 borrowers being in arrears, the proportion is now one in 12.

Parliament was told recently that 33,000 out of 420,000 HDB home loan borrowers were in arrears for more than three months.

When asked for historical data, HDB said that at the end of 2003, 25,000 flat owners out of the 517,300 households with HDB loans were in similar arrears.

At the end of 2002, the number was even lower - at 4per cent, or about 21,800 of the 540,000 households.

On the decreasing number of total HDB loans, market analysts say this is likely due to new rules that took effect on Jan1, 2003, which stated that those upgrading their flats for a second time, as well as all downgraders, must borrow from banks instead of the Housing Board.

HDB loans - which offer a concessionary rate - are available only for first-time buyers or first-time upgraders.

Analysts told The Sunday Times that the increase in defaulters was likely due to the fact that HDB flat prices were 'very much lower in 2003' than they were last year.

HDB flat prices have risen steadily over the last four years during Singapore's property boom to a 'new peak', said ERA Asia-Pacific associate director Eugene Lim.

'Incomes were also on the rise. During good times, it is possible that some home buyers overstretched in a rising market and may now be in a fix as the economy sinks into recession,' he said.

HDB flat prices enjoyed a spectacular bull run with a 17.4per cent gain in 2007, the strongest growth in a decade.

Latest estimates last Friday showed that while private property prices fell 4.3per cent last year, HDB flat prices rose a further 13.9per cent.

Property agency PropNex's chief executive officer, Mr Mohamed Ismail, said an increase in affluence and higher costs of living over the last five years could have contributed to the higher incidence of people being in arrears.

Finally, HDB rarely repossesses defaulters' flats, leaving their numbers to accumulate in the system. Some home owners in arrears can take up to a few years to pay off debts.

Still, the number of HDB home owners in trouble is clearly on the rise.

Members of Parliament interviewed confirmed the trend, noting a rise in residents seeking help for home loan problems at their Meet-the- People sessions.

Dr Teo Ho Pin, Mayor of the North West District, MP for Pasir Ris-Punggol GRC Teo Ser Luck and Aljunied GRC MP Cynthia Phua are among those who have noticed the trend.

In many cases, said Dr Teo, home owners were retrenched or had to switch to lower-paying jobs and could not maintain their loan payments.

'A lot of them are coming to me for help to find them jobs,' added Mr Teo.

The MPs pointed out HDB's various assistance measures, such as allowing for the restructuring of loans, postponing payments, and even helping borrowers to downgrade to smaller flats.

The HDB also said it has several comprehensive measures to help such cases.

Banks which give market-rate loans for HDB flat purchases say they have not yet seen a significant increase in the number of defaulters.

Maybank said there had been a slight increase 'but nothing at an alarming rate'.

OCBC and DBS said there had been no significant increase in arrears.

Mortgage consultant Dennis Ng from portal www.HousingLoanSG.com said banks generally charge defaulting home owners higher interest, but will, on a case by case basis, help those facing difficulties to restructure their home loans.

Repossession of their flats is a last resort.

Looking ahead as the recession deepens, MPs said more HDB borrowers will probably have problems paying off their mortgages.

Madam Phua said the limited supply of smaller flat types could become a problem that needs fixing quickly as families start to downgrade.

The HDB is addressing this by beefing up the supply of two- to three-room flats to around 4,000 over the next two years for lower-income families and those home owners who need to downgrade.

These, however, will be ready only in two to three years. 'We'll have to explore other options in helping such default cases in the coming year,' said Madam Phua.


Helping Home Owners

Two years ago, renovation contractor Ting Kah Ping was up to his neck in debt, owing the Housing Board more than $80,000 for his home loan. He was unable to meet the instalments.

Today, the father of four owns a flat without an outstanding loan - and he said it is thanks to the HDB.

Mr Ting, 54, and his wife bought a four-room flat in Tampines in 1998 for $112,800 but started having problems paying the instalments about five years ago.

Work as a renovation contractor was inconsistent and he was unable to service his loans regularly. He approached the HDB for help and it agreed to let him make smaller payments and, for a time, postpone his payments for half a year.

Still, despite his wife taking on part-time jobs while looking after their four children, now aged 11 to 21, they had difficulty paying their debts.

The HDB advised the couple to downgrade their flat and, earlier this year, they sold their home for $303,000. With the money, he bought a three-room home nearby and fully paid up his debt to the HDB.

'I'm just glad the HDB did not force me to give up my flat or take it back. I think banks wouldn't have had as much patience,' Mr Ting said in Mandarin.

He is one of many home owners whom the HDB hopes to help with its various initiatives.

The board will consider allowing them to pay reduced loan instalments on a temporary basis and work out a solution to their financial situation.

Owners can also sublet a room to generate income, or include working family members as joint owners to help pay for the flat.

The board may also consider providing an additional HDB loan to help owners downgrade to a smaller, more affordable unit.

It's Not That Hard To Get A Renovation Loan

Source : The Sunday Times, Dec 21, 2008

No change in loan criteria despite tough times; contractors also have not raised prices

Want to renovate your home? You will be glad to know that getting a renovation loan is not any tougher these days.

According to the Monetary Authority of Singapore's notice for unsecured credit facilities, it has not lowered the maximum cap of six times the monthly salary of the borrower, or $30,000, whichever is lower, for renovation loans since 2003.

A DBS Bank spokesman confirmed that the number of applications for renovation loans has remained relatively constant, and there has not been any change in the criteria for the approval of such loans.

'As renovation loans are governed by regulatory guidelines, the bank has to abide by these guidelines when processing these applications,' the spokesman added.

DBS and Standard Chartered set their minimum loan amounts at $5,000. RHB Bank's minimum loan amount is $10,000. There is usually an administrative fee of 1 per cent of the approved loan.

A check with five banks showed that interest rates can start from 3.88 per cent per annum for RHB Bank, to OCBC Bank's range of between 6.25 per cent and 10.5 per cent per annum.

The rates are subject to change and depend on the choice of interest rate packages.

The interest rates are also usually based on monthly rest, which means that each monthly repayment reduces the loan amount and interest charges.

Applicants have between one and five years to repay a loan.

On the renovation contractors' side, the Singapore Renovation Contractors and Material Suppliers Association said contractors have not increased prices over the years.

Mr Gerald Mark, director of Wing Khiong Construction, said this was because of fierce competition.

'If we increase prices too much, we will lose customers,' he said.

He added that the market practice is such that contractors are reluctant to raise or cut prices too much. As a result, prices remain more or less the same and any increase is 'marginal'.

According to the association, a new three- or four-room HDB flat costs about $15,000 to renovate, although it was quick to clarify that all prices quoted were a rough guide and varied from contractor to contractor.

Mr Mark said the price includes flooring, kitchen cabinets, painting and plumbing works, curtains and cornices.

For the higher-end renovation of HDB four-room flats, prices can go up to between $80,000 and $100,000, he said.

'This is because of the owners asking for design carpentry works, such as the construction of false panel walls,' he added.

Still, the current downturn has led some home owners to tighten their belts. Contractors said that in these tough times, customers are either forgoing renovation works if they have a choice, or cutting down on renovation budgets.

Mr Richard Soon, manager of Luck Ann Construction and Renovation, said in Mandarin: 'If nothing is wrong with your home, you wouldn't do any renovation.

'People are thinking of their rice bowls. Even if they need to renovate, they will do so only at a lower price and not go for the full works.'

Mr Mark agreed, saying: 'What makes it obvious is that usually, the stretch from September up until January, Chinese New Year, is our peak period. So we can see clearly that there is not as much activity now as there was in the year before.'

HSR Property Group executive director Eric Cheng noted that not many people want to renovate their properties, so business has dropped.

'With lower demand come lower prices. You can negotiate for lower prices as companies would be more willing to give a better price,' he said, adding that one might be able to get discounts of between 10 and 15 per cent.

'After Chinese New Year, the rates could be more attractive.'

Lower Sibor Attracts More Home Buyers

Source : The Straits Times, Dec 13, 2008

0.9% rate sees more interest but analysts warn of risks

INSTALMENTS for many home loan borrowers are set to fall after the all-important interest rate at which banks lend funds to one another nosedived to about 0.9 per cent this month.

Many home loan packages are pegged to this rate - known as the three-month Singapore Interbank Offered Rate (Sibor) - so when it goes down, so do Sibor- linked home loan instalments.

According to economists, the three-month Sibor should remain at these depressed levels into the new year.

OCBC Bank economist Selena Ling said the three-month Sibor is reacting to a couple of factors.

One is the widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting on Tuesday.

The Sibor closely tracks this rate.

Another factor: continued measures by the Singapore authorities to pump liquidity into the system, against a backdrop of global and domestic recession.

In September, the three- month Sibor spiked to 2 per cent as the global credit crunch hit home here. Banks were afraid to lend to one another for fear of not getting repaid.

With the rate coming down sharply, more and more home buyers are looking at Sibor- linked loan packages.

Mr Geoffrey Ying, head of the mortgage division at financial advisory firm New Independent, estimates that six out of every 10 customers he is seeing are enquiring about Sibor-linked packages not only for high-end units, but also for HDB flats.

A year ago, when Sibor was significantly above 1 per cent, only three or four customers out of 10 would show interest.

It is easy to see why Sibor- linked packages have become the talk of the town, given the potential savings.

Suppose you want to buy an HDB flat. The best rate in the market is the 2.6 per cent annual rate for those qualifying for an HDB concessionary loan. This rate is pegged at a level 0.1 percentage point above the prevailing CPF ordinary account interest rate.

By comparison, at Standard Chartered Bank, for example, if you choose a two-year lock-in, its Sibor-linked package works out to Sibor plus a spread of - in this case - 0.95 per cent.

So if three-month Sibor stands at 0.9 per cent, you pay an annual rate of 1.85 per cent - lower than the HDB concessionary rate.

Still, financial experts say homebuyers must be careful. When Sibor falls, borrowers with a loan pegged to it gain as they will be paying a lower interest rate. But conversely, if the benchmark rate heads up, mortgage instalments also rise.

'We think though, that Sibor still has the potential to spike up, given that risks still remain out there,' a United Overseas Bank spokesman said.

Borrowers need to think carefully about choosing between two loan options, experts say.

Since January 2003, when banks were first allowed to provide loans for HDB flats, many homebuyers have opted for Sibor-linked packages as Sibor was very low, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

In June 2003, the three-month Sibor bottomed out at 0.5625 per cent, but then surged to as high as 3.56 per cent three years later.

Mr Leong said that historically, the HDB rate of 2.6 per cent has been lower than rates for Sibor-linked packages.

More importantly, homebuyers with an HDB concessionary loan who switch to a bank loan cannot go back to the HDB if bank rates suddenly rise above the board's 2.6 per cent concessionary rate.

Experts think that banks are far more inclined than the HDB to repossess properties in the case of loan default.

'During the economic slowdown, there'll be people who'll struggle to meet monthly payments. Sure, Sibor- linked rates are low now, but if you want certainty, you'll choose HDB's,' said Mr Patrick Lim, associate director of financial advisory firm PromiseLand.

Take Mr David Lee, for instance. The 35-year-old engineer said that even though he is paying more now because he chose an HDB concessionary loan, he is not going to switch to a Sibor- linked package any time soon.

'I don't mind the slightly higher rate for peace of mind,' he said.

Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore, is on record as saying that 'repossession would be a last resort, after all other measures have failed'.


Why Sibor is down

# There is widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting next Tuesday. Sibor closely tracks this rate.

# Continued measures by the Singapore authorities to pump liquidity into the system.