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The dollars and sense of home loans

Posted by luxuryasiahome on November 22, 2009

Get a package that matches your income profile and appetite for risk

Home buyers were recently advised not to throw caution to the wind in their anticipation of fulfilling the Singapore dream of snapping up a private unit.

The Monetary Authority of Singapore (MAS) earlier this month flagged two scenarios in which the private property sector could falter. Lately, it has levelled off somewhat, after a strong rebound.

MAS warned that property buyers could not assume that interest rates on home loans will stay at their current rock bottom levels indefinitely.

If the economy rebounds, interest rates are more likely to rise over the longer term, MAS cautioned.

This, in turn, would drive up monthly instalments on home loans that are not fixed.

If that happens, any home borrower who over-extended himself with a big loan could face serious problems.

The second scenario that MAS laid out: Home buyers could suffer losses from falling home prices as a result of a possible market correction if economic growth proves weaker than expected.

The Sunday Times takes a closer look at key factors to weigh up when taking out a home loan.

Affordability issues

In order to ensure prudent financial planning, Mr Dennis Ng, spokesman for www.HousingLoanSG.com – a mortgage consultancy portal – suggests that home buyers track their total monthly debt repayment obligations.

These repayments should not exceed 35 per cent of their household income.

For example, suppose your car loan instalment is $800, other monthly bills are $1,200 and your housing loan instalment is $3,000. That adds up to a total monthly debt repayment of $5,000.

Assume a monthly household income of $10,000.

That means half your income is going into debts. In the language of financial experts, that is called a debt-servicing ratio of 50 per cent.

That is not advisable as it is well above the maximum recommended debt-servicing ratio of 35 per cent.

Mortgage consultancy firm Global Creatif Financial helps its clients work out the maximum amount they can borrow. Firstly, it takes into account its clients’ individual and/or combined income (with spouse) derived from employment, trade, property or other income.

This amount would then be used to deduct monthly commitments including mortgage loans, car loans, bank loans, overdraft and credit card bills, said its managing director Annie Lim.

From there, Global Creatif calculates how much cash the client has left after fulfilling his monthly obligations. Using a desired loan term and an applied interest rate, it calculates the lump sum that the client can potentially borrow.

Another tip from Mr Ng is that prospective home buyers should not assess the affordability of a home they are eyeing by using current low interest rates.

Before the downturn in 2007, home loan interest rates were hovering at a higher rate of about 4 per cent.

So to be prudent, home buyers should calculate their instalments based on a higher interest rate of, say, 4 per cent instead. This would give them a better sense of whether they could afford the instalments if rates change.

Home buyers should set aside sufficient funds to meet future instalments should interest rates move up.

One’s long-term repayment ability should take into account the stability of your source of income and the available Central Provident Fund (CPF) savings for the down payment and monthly loan servicing, said a spokesman for United Overseas Bank (UOB).

Consider a 25-year housing loan of $500,000 at a current rate of 2 per cent.

If indeed rates rise to 4 per cent, then monthly mortgage instalments will jump 24.5 per cent or about $520.

Using the same rate revision, if the loan is a higher $800,000, the hike in monthly instalments is about $830.

If the property is meant for investment and you are using the rental earned to fund your monthly loan instalments, you might want to factor in a possible drop in rental rates, added Mr Ng.

This is because rental rates fluctuate and it is only prudent to be prepared for the possibility of lower rental income to ensure you can still afford the instalments if rental rates fall.

Mr Ng advised home buyers to factor in a possible 10 to 20 per cent drop in rental.

Let’s assume that the property is rented out at $3,000 a month. Rental falls of 10 and 20 per cent translate to lower rentals of $2,700 and $2,400, respectively.

Whether you are buying a house to live in or as an investment, it is prudent to have sufficient cash or CPF savings on standby to pay for at least six months of housing loan instalments in the event of unforeseen circumstances.

This means that if your loan instalment is $3,000, you should have $18,000 in cash and/or CPF monies set aside to cover six months of instalments.

Interest rates movement

Financial experts generally believe that home loan rates will stay low for the next six to 12 months.

Singapore home loan interest rates are very much affected by the Singapore Inter-bank Offered Rate (Sibor), pointed out Mr Ng. ‘Sibor is in turn affected by two factors, United States Federal Reserve interest rates and the liquidity in the Singapore banking system. And the US has indicated it is likely to keep interest rates low for the time being,’ he said.

Sibor is the interest rate at which banks lend to one another and is partly influenced by the supply of and demand for funds.

UOB said it expects Sibor rates to remain steady at the current level of 0.7 per cent for the next six months.

However, in the event that the US economy recovers, the US Federal Reserve might increase interest rates. If that happens in, say, about a year’s time, interest rates here would likely rise as well.

Mr Ng recalled that Sibor was 3.58 per cent in 2007 and above 2 per cent last year. It dropped below 1 per cent only this year when the US cut interest rates to a historic low of 0.25 per cent. For the last 10 months, it has been about 0.7 per cent. As a result, some consumers may have the misconception that Sibor is always below 1 per cent.

‘Consumers need to be mentally prepared for Sibor to go up to 2 per cent in more than one year’s time,’ he cautioned.

Another indication that home loan rates are likely to remain low, at least in the coming months, is the introduction of low one-year fixed rate packages by the financial institutions, said Ms Lim.

‘The general sentiment in the market is that rates will remain low for the next 12 months,’ she said.

Whether rates will indeed start creeping upwards a year from now depends on how long it takes for the global economy to right itself, but Ms Lim is certain that rates will move upwards more than three years from now.

Fixed or variable home loan packages

Naturally, the benefit of a fixed package is certainty: You know how much your instalments are for a set period.

The key difference between most fixed rate and variable packages is that the former comes with a lock-in period where you are penalised for any premature exit from the package.

Variable packages usually do not impose a lock-in period. Therefore they are recommended for clients who are not sure if they would be holding on to their properties. A no-lock-in package is deemed to be more suitable as the home buyer is not slapped with a penalty payment if he sells his property and redeems his loan. Also, variable packages tend to feature lower interest rates than most fixed rate packages, noted Ms Lim.

‘These variable packages are also suitable for clients who feel that they are comfortable with any short-term fluctuations and/or feel that rates will generally remain low in the short term,’ she added.

However, a variable rate, as the name implies, means that the bank can change the interest rate any time. For example, a three-month rate would re-set every three months. At the end of each three-month period, it could be higher or lower and you would pay more or less accordingly.

Fixed rate packages are suitable for clients who want certainty and peace of mind, and are not comfortable with rate fluctuations.

If you are unlikely to sell your house in the next three years, Mr Ng suggested that now might be a good time to lock in the low interest rates. You might want to consider fixing interest rates for the next two to three years.

Looking at present circumstances, both Mr Ng and Ms Lim would go for variable packages with no lock-in, as the sentiment is that rates would remain low at least for the next one year.

‘Since Sibor is unlikely to go up in the next six to 12 months, one might be better off opting for a one-month or three-month Sibor package. In the event that the Sibor starts rising, one can opt to switch to a 12-month Sibor package,’ said Mr Ng.

One-month Sibor is currently at 0.4375 per cent, three-month Sibor is 0.68 per cent while 12-month Sibor is 0.9 per cent. So if you choose the latter, you might end up paying more interest while interest rates are still low.

Source : Sunday Times – 22 Nov 2009

Contact us at info@lushhomemedia.com or +65 9631 8037 for info and assistance on home financing.

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Seize the rates

Posted by luxuryasiahome on November 20, 2009

WE WILL probably never see interest rates lower than now. Here is how you can take advantage of the low rates by re-financing your home loan.

It’s harder to shop

In the old days – three years ago – banks used to post home loan rates on their websites. It was easy to go to six or eight websites and compare. It also made lending more competitive.

It’s not like that any more. Few banks post their rates online. You have to call and they promise a bank officer will call you back the next day.

When – and if – they do, they usually ask more questions than they answer. It is part of the bank’s strategy to ‘know your needs’.

Sound familiar?

It’s a page taken from the life insurers’ play book. Insurance agents typically do a ‘needs analysis’ soon after getting a new customer.

Supposedly, it is to sell exactly what the customer needs.

Maybe. But it also gives financial institutions a chance to size you up.

They learn your level of financial sophistication, what you can afford and how much they can sell you.

Like life insurers, banks also want you to buy their high-margin products. For banks, that means variable and fixed rate loans tied to board rates.

While they are profitable for banks, they are costly to borrowers. Your best bet is pegged-rate loans.

Group re-financing

If you switch your home loan to another bank, it’s called ‘re-financing’ or ‘loan conversion’.

If you go back to paying the low first-year rate at the same bank, it’s called ‘re-pricing’.

Most people are better off re-pricing. By not switching banks, there is no need to pay again for legal and other fixed costs.

Another strategy is to form a group.

Tell banks that a few people want to re-finance their home loans. For sure, banks will be excited at the prospect of all that business.

All you need are 6 or 8 friends who are interested in re-financing. Of course, they are under no obligation to go through with the deal.

The key is to shop around. Once you have a low rate, take it to the other banks and ask if they can do better.

You are likely to end up with the lowest rate banks can offer without losing money. A final word. The best advice is probably: ‘Don’t neglect refinancing.’

When your lock-in period ends, you can save by re-pricing or re-financing your loan.

Don’t let your bank keep raising your home loan rate year after year.

Call the bank today and say: ‘Re-price!’

Pegged rates are best

ARE HDB loans really best? The advantage is they are more stable and haven’t budged in the past 10 years.

Bank rates are more volatile but also cheaper. The lowest bank mortgage is a ‘pegged’ interest rate. It costs about 1 per cent less than HDB’s 2.6 per cent. It means you save about $1,000 a year for every $100,000 you borrow.

SOR and Sibor

Pegged rates are tied to a base lending rate known by abbreviations like SOR and Sibor. They are published daily in Business Times.

For example, a bank might offer a three, six or 12-month Sibor rate.

The three-month rate will re-set every three months. At the end of each three-month period, it could be higher or lower and you will pay more or less.

If you want a more stable but higher rate, you can choose the 12-month Sibor.

It re-sets every 12 months and is similar to a one-year fixed-rate loan.

For example, the three-month Sibor rate is about 0.7 per cent now, and the 12-month Sibor is 0.9 per cent.

A bank might offer Sibor plus a mark-up of 0.8 per cent. Then, you would pay 0.7 + 0.8 = 1.5 per cent for a home loan that re-sets every three months.

If you re-set every 12 months, you would pay 0.9 + 0.8 = 1.7 per cent.

Banks also offer pegged fixed-rate home loans, which should cost about the same as the 12-month Sibor rate. If it costs more, it is probably not pegged but linked to a ‘board rate’.

Those loans are almost always more expensive, especially after the lock-in has ended. You are better off with pegged rates.

Source : New Paper – 11 Nov 2009

Contact us at info@lushhomemedia.com or +65 9631 8037 for info and assistance on group refinancing.

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HLF stirs waters, cuts HDB home loan rates

Posted by luxuryasiahome on November 10, 2009

DBS says it, too, is offering revised low rates; OCBC says it remains competitive

Hong Leong Finance (HLF) has slashed its HDB home loan rates in a bid to undercut the competition amid a low interest rate environment, but it seems some banks might have been even quicker on the draw.

Yesterday, HLF said its latest HDB home loan rates are 0.50 per cent lower than its last promotional rates.

It now offers variable rates at 1.33 per cent, 2.13 per cent and 2.83 per cent for the first, second year and third year respectively. The variable rates are based on a board rate which currently stands at 4.25 per cent. Its new two-year fixed-rate package charges 1.63 per cent and 2.63 per cent in the first and second year respectively, totalling 4.26 per cent.

But rival DBS said it too has new lower home loan packages applicable to both HDB and private properties. A DBS spokeswoman said the bank ‘just’ revised its home loan rates.

DBS’s variable package charges the same 1.675 per cent based on three-month Sibor plus one per cent for every year of the loan. The three-month Sibor or Singapore interbank offered rate is 0.675 per cent. Borrowers can also opt for a two-year fixed rate at 1.88 per cent for both years which amounts to 3.76 per cent.

At OCBC, the variable rate for three years is the same 1.66 per cent each year and based on its board rate of 4.5 per cent. Those who want a two-year fixed can pay 1.99 per cent per year.

‘OCBC Bank’s home loan packages will remain competitive to respond to market conditions,’ said Phang Lah Hwa, head of consumer secured lending, OCBC Bank.

HLF, Singapore’s largest finance company, said the new rates apply until the end of the year and are for up to 80 per cent financing.

‘The revision in rates is to ensure that our package is one of the lowest in the market,’ said an HLF spokeswoman.

‘We hope that with the new rates, our customers will continue to support us and allow us to capture a bigger slice of the HDB market which is presently very active and healthy,’ she said.

HLF said customers who sign on with a minimum loan of $200,000 will also get a choice of KrisFlyer air miles or dining vouchers with five hotels in Singapore.

‘There has been an increasing demand for HDB flats and we pride ourselves with moving with the market and the changing needs of our customers,’ said Ian Macdonald, HLF president.

‘Response to Hong Leong Finance’s earlier home loan promotion has been very encouraging and we are confident that the new rates will perform just as well,’ he added.

Source : Business Times – 10 Nov 2009

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That new HSBC loan: too clever by half?

Posted by luxuryasiahome on November 6, 2009

Why not give customers the money outright?

LAST Friday, when given the HSBC press release on its new Sibor plus equity-linked mortgage, I spent at least 15 minutes trying to figure out how it worked. The result was that I was so consumed with the promise of thousands of dollars that I paid no attention to the home loan itself.

Eventually, I had to swallow my pride and talk to an HSBC executive to understand how taking a mortgage from HSBC would put money in my pocket. The idea was quite simple: a borrower could get potential cash rebates based on an equity index over a 24-month period.

The rebate is 0.25 per cent of the outstanding loan amount. This index has to hit or exceed 130 per cent of a specified barrier level on each valuation date, which occurs on the first trading day of every quarter for a borrower to hit pay dirt. At the inception date of the equity-linked home loan on Nov 2, 2009, the barrier point index is 315.50.

Hence, on the first trading day of each quarter, commencing April 2010, if the index is more than 410.15 (being 130 per cent of 315.50) in the official closing for that day, the customer will receive a cash rebate of 0.25 per cent of the loan outstanding; if the index is less than 410.15, no cash rebate will be given. HSBC said that while the customer may get nothing, no one loses any money; it’s essentially giving borrowers a lottery ticket.

Beware the ‘Shell effect’, though: potential gains could be wiped out if interest rates jump next year and the stock market tanks, as central banks rein in liquidity and the bank ends up with moody customers.

Or stock markets move in a volatile manner and crash on the valuation day, putting home loan borrowers on edge – one day thinking they were getting $1,500, and the next day seeing it evaporate. The $1,500 possible rebate per quarter is an example given by the bank based on a $600,000 loan.

Or if the gimmick works too well and the bank ends up paying out huge amounts of cash rebates, will shareholders then suffer? And is it really a ‘free’ gamble for those who have a bullish view of the stock market?

Obviously, some bright spark worked on creating the promotion, after which the bank’s relationship managers had to be trained to explain it to customers, all of which involved some costs – money which could have been better used by just giving it to customers, one would think.

To protect the risk to the bank – in case the index does exceed the 130 per cent level every quarter – presumably HSBC has bought some kind of insurance.

It’s pretty serious money; it’s like paying a maximum 2 per cent – which is much, much more than what the bank pays fixed depositors.

It’s understandable why HSBC thought up the promotion. Mortgages are very boring products, and it is difficult to compete or lure customers without giving them something. Banks have often found themselves slashing prices in order to compete – and that’s not desirable as it can become a vicious spiral downwards in terms of profits.

So what’s the real idea behind the promotion? If it’s to give money to customers to entice them to sign up for the mortgage, why not give it to them outright? Just pay it every quarter over the same 24-month period to keep the customer from jumping ship.

After all, everyone understands money.

Source : Business Times – 6 Nov 2009

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HSBC equity-linked loan with cash rebates

Posted by luxuryasiahome on November 2, 2009

HOME buyers can now take a punt on the stock market while diving into the resurgent property market.

HSBC is launching today an equity-linked home loan package that also offers cash rebates to its customers – a first in Singapore.

It will give all new and existing HSBC Premier customers in Singapore a chance to enjoy quarterly cash rebates over a period of two years if a certain stock index that it is linked to does well.

A minimum loan size of $200,000 is needed.

The package – which applies to both new and refinancing loans – is tied to the Morgan Stanley Capital International Singapore Free Index, which currently tracks 27 stocks, including those of the three local banks, the Singapore Exchange and Singapore Press Holdings.

Under the package, which does not come with a lock-in period, customers will pay an interest rate pegged to the three-month Singapore Interbank Offered Rate (Sibor) plus 1.1 per cent throughout the loan tenure.

A cash rebate amounting to 0.25 per cent of the loan outstanding will be granted in each quarter if the index reaches or exceeds 130 per cent of a specified barrier level on each valuation date.

This specified barrier level refers to the value of the index when the market closes today.

Come valuation time, if the index closes below 130 per cent of today’s level, no rebate will be paid. Customers do not need to bear any costs should that happen.

Valuation is scheduled for the first trading day of every quarter, so the first valuation exercise would take place in April.

To illustrate, let’s assume the index closes at 320 points today.

A customer who takes up this package will pocket a rebate if, on the valuation date, the index outperforms the benchmark by at least 30 per cent, that is, it rises to – or above – 416 points.

For a $600,000 home loan with a 20-year term, the customer stands to receive total cash rebates of up to a maximum of $11,389 over the two years, HSBC said.

Financial advisers say that an interest rate equivalent to Sibor plus 1.1 per cent is not unreasonable and is quite ‘in line with the market’.

Mr Geoffrey Ying, who heads the mortgage division at financial advisory firm New Independent, noted that global equity markets are trending up because of cheap funds, brought about by central bank actions around the world.

‘This will also make the attainment of that 0.25 per cent rebate that much easier,’ he argued.

Standard Chartered Singapore’s general manager for retail banking products, Mr Dennis Khoo, said that since there is no guarantee of any return, Singapore customers might not be that keen as they are known for their practicality.

‘Stanchart will not follow suit,’ he said. ‘Our strategy is to price competitively, but differentiate ourselves through our wide range of mortgage loan products and vital services…and the advice we offer to home buyers.’

HSBC’s new home loan offer is available until Nov 30. To qualify for HSBC Premier, customers must maintain a total relationship balance of at least $200,000 with the bank.

Source : Straits Times – 2 Nov 2009

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HSBC unveils equity-linked home loan

Posted by luxuryasiahome on November 2, 2009

HSBC has unveiled a first-in-the-market equity-linked home loan package in which customers could receive quarterly cash rebates over two years – at no additional cost.

There is also no lock-in period for the new package – and cash rebates given out are not subject to claw back if the home loan is redeemed, the bank said in a media release.

The loan package, open to all new and existing HSBC Premier customers in Singapore, charges an interest rate of Sibor+1.1 per cent throughout the loan tenure, but also offers the opportunity to receive potential cash rebates for two years.

The cash rebate will be granted in each quarter if the equity index to which the home loan package is pegged – in this case, the Morgan Stanley Capital International Singapore Free Index (SGY) – hits or exceeds 130 per cent of a specified barrier level on each valuation date. This occurs on the first trading day of every quarter.

Eligible customers will then receive in that quarter a cash rebate of 0.25 per cent of their outstanding loan, which will be credited into their home loan repayment account.

If the SGY index closes below 130 per cent of the barrier level on each valuation date, no cash rebate will be paid out.

Either way, HSBC said there will not be any cost to customers relating to the performance of the index.

Sebastian Arcuri, head of HSBC Singapore’s personal financial services, said the package was designed to ‘recognise and reward’ customers for their dedicated relationship with the bank.

‘Through this new and innovative home loan offer, we want to enable them to capitalise on market opportunities and earn potential cash rebates on their home loans, which they can use in any way they want,’ he said. ‘We’re confident that this initiative will further strengthen the HSBC Premier proposition and give our Premier customers even more value and reasons to bank with us.’

The package is applicable to both new and refinancing loans for completed properties with a temporary occupation permit obtained with a minimum loan of $200,000.

‘With the economy showing signs of improvement, our new proposition may prove to be a timely opportunity for customers to benefit from the recovering equity market,’ said Mr Arcuri.

Source : Business Times – 2 Nov 2009

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Incentives abound for home buyers looking for property loans

Posted by luxuryasiahome on October 17, 2009

Some banks are rolling out new services and attractive mortgage packages to increase their market share in the private housing loan sector.

Banks such as Standard Chartered has set up a service counter to offer loan evaluations at show flats.

Said Dennis Khoo, general manager of Wealth Management Consumer Banking at Standard Chartered Bank: “I think it’s even better prudence because before (a buyer) puts down the money, he can quickly – within 15 minutes – check, and then go and put the money down knowing that he’s making a good decision.”

The mortgage war among the banks has seen interest rates being revised downwards.

However, the lowering of rates is not the only weapon. Some banks are also trying to gain a greater market share by providing incentives such as air tickets and dining vouchers.

Said Ang Tang Chor, senior executive vice president of Consumer Business at Hong Leong Finance: “We do not only compete in interest rates, we also have what Singaporeans like… (such as) travel, as well as eating at various outlets in Singapore.”

But despite the incentives, home buyers say low interest rates remain the most important factor.

Source : Channel NewsAsia – 17 Oct 2009

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Lenders try new ways to woo home buyers

Posted by luxuryasiahome on October 17, 2009

THE surge in home sales is prompting two lenders to try new marketing approaches to snare a share of the fiercely competitive mortgage market.

Tried-and-tested strategies like launching more innovative mortgage products and offering better interest rates are now standard procedures.

But some lenders are also trying more radical ways to lure borrowers – like product giveaways, snazzy marketing and that extra bit of service.

‘Banks can cut rates only up to a certain level. They have to come up with more innovative ways to attract customers,’ said Ngee Ann Polytechnic real estate lecturer Nicholas Mak.

Standard Chartered and Hong Leong Finance (HLF) are both looking for an edge with new products and approaches.

StanChart has just launched its Approval-in-Principle service initiative aimed at people in property showrooms. Potential buyers will be able to obtain in-principle approval, including advice on loan size and tenor, in just 15 minutes. All they have to do is to provide the bank official with some basic information, including their monthly income and financial commitments.

As these numbers are ’self-declared’, the loan is approved only after the necessary documentation is presented and checks are done.

The StanChart service will be on offer this weekend at Far East Organization’s Mi Casa showflat, a condominium development in Choa Chu Kang town centre.

‘Banking is about service,’ StanChart’s general manager for wealth management Dennis Khoo told The Straits Times. He said the service will give customers peace of mind knowing how much they can borrow.

‘If I know with a good level of certainty that my loan would be approved, I can go ahead to issue the cheque deposit for my option to purchase,’ he added.

IT professional Calvin Chin, who is considering buying a property, called StanChart’s new service a convenience, but observed that ‘for a bank to be at the showroom, it looks like the start of a home-loan marketing war’.

StanChart has also launched Mortgage Protector, a bundle comprising a two- year fixed-rate package at a 2.4 per cent interest rate, with an insurance plan that provides total coverage for the entire loan amount from the onset.

Customers who sign up will get a Visa Platinum Card with a three-year waiver of annual fees and $50 cash back.

HLF has taken another route by becoming the first finance company here to collaborate with Singapore Airlines. If a person takes a $200,000 loan with HLF, for instance, he can get either 3,000 KrisFlyer miles or $200 worth of food and beverage vouchers. A higher loan value means more air miles or more vouchers.

‘We want to extend an extra-special treat to our customers to help celebrate the excitement of a property purchase,’ said HLF president Ian Macdonald.

Bank officers at rival lenders advise people not to be swayed by marketing ploys but to look at factors such as how the rates are determined, the type of flexibility available to make repayments and the commitment period.

OCBC Bank’s head of consumer secured lending, Mr Gregory Chan, said: ‘While best pricing and marketing gimmicks support a promotional drive, consumers in our matured market are discerning and most will select a bank based on a combination of appropriate package and engagement experience.’

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, recalled that decades ago, banks frequently dangled treats when consumers signed up for home loans.

But the practice died out after the banks took much flak from industry participants as these giveaways influenced consumers to base their decisions ‘on freebies rather than choosing a home loan based on the merits of the loan’.

Source : Straits Times – 17 Oct 2009

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Stanchart offers loan approval at the showflat

Posted by luxuryasiahome on October 17, 2009

STANDARD Chartered Bank yesterday announced a new service initiative at property showflats through which potential homebuyers will be able to obtain in-principle approval and advice on housing loan quantum and tenor in as little as 15 minutes.

To kick-start the service, it will be offered as a value-added feature this weekend at Mi Casa in Choa Chu Kang. The bank said it is the first in the industry to offer such a service.

Developer Far East Organization will release two new towers at the 457-unit Mi Casa, where the take-up rate has been good since sales started in March.

Stanchart said it will be able to offer loan approval in principle in 15-60 minutes if customers provide basic information such as monthly income and other financial commitments, without official documents. They can then follow up by sending their documents to the bank, which can grant actual approval in as little as two days.

‘If customers see a unit they like and want to book it before others see it, they want to know how much they can borrow and for how long,’ said Dennis Khoo, Stanchart’s general manager for retail banking products.

Stanchart has also introduced a new mortgage offering – Mortgage Protector, a bundle of a two-year fixed-rate package at 2.4 per cent with MortgageCover, a single-premium mortgage-reducing term assurance plan for two years.

Mr Khoo said that through approval in principle and the mortgage protector bundle, it aims to offer a seamless loan application process.

Source : Business Times – 17 Oct 2009

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Making sense of home loans

Posted by luxuryasiahome on September 24, 2009

We survey what’s on offer by major banks and discuss key features of the packages. By FELDA CHAY and SIOW LI SEN

WITH the recent home buying spree, one pertinent issue is how to pick the best home loan from among the dozens on the market. What with all the different plans and reams of fine print to go through, the search for the right home loan can often be a headache. Here, online websites can be a boon by making comparison of features easier. Check out smartloans.sg which has details of home loan packages from eight banks – HSBC, Standard Chartered, Rashid Hussein Bank (RHB), Maybank, UOB, OCBC, POSB and DBS.

The fixed rate package from Stanchart and floating rate package from HSBC are currently the most popular among users of the website. And it is constantly trying to add new banks to the list, with talks now ongoing with Citibank Singapore. Smartloans.sg’s chief executive Vinod Nair says he expects the bank’s packages to be listed on the website soon.

While the large variety of loan schemes available may leave many house buyers confused, Mr Nair says that there are a few things to keep in mind. ‘It depends on why you are buying the property. If you are buying it for investment purposes, you should take the floating packages because there are usually no lock-ins for floating rate packages. Also, they are usually pegged to rates like Singapore Interbank Offered Rate (Sibor), which should remain fairly low in the next one to two years,’ he says.

‘If you are planning on taking on a long-term tenure for your own occupation, it might be better to take up fixed rate packages, which offer greater comfort to borrowers because of the certainty it provides. Also, most people usually refinance their mortgages, so as long as you refinance your loan every three years to ensure that you get the best rates, it should be worth it.’

BT asked some of the banks about their most popular home loan packages and their features.

Citibank: Sherry Leong, Citibank Singapore business head for home financial services, says its Citibank Home Saver has always been a popular choice with clients. Home Saver is an index-linked home loan that offers borrowers the widest selection of index tenors in the market – from one-month to three years. The indexes linked to its loans include the one-month and 12-month Sibor.

Clients also have the flexibility to switch from one tenor to another on the maturity date, enabling them to decide on fixed or floating rates, depending on their view of interest rate trends, she says.

For instance, clients can take advantage of the low one-month Sibor now and then change to a 12-month Sibor later if they feel that interest rates are likely to rise, thereby fixing the rate on their instalments for that period. In addition, Home Saver comes with an interest-offset feature that helps borrowers pay down their home loans faster. Clients can put deposits into the offset account to earn an adjustment currently at up to 70 per cent of their home loan rate. This adjustment reduces the interest payable on the home loan, thereby helping clients reduce their principal outstanding faster. The offset account is an all-in-one home loan, checking and deposit account with a debit card.

‘Our clients also tend to use this as their main salary and transaction account to maximise their benefits from this feature. This feature will also appeal to customers who may have cash in hand but don’t want to commit all of it to a property in case funds are needed for other investments,’ says Ms Leong.

For owner occupied property, the maximum financing is 90 per cent though Citibank customers usually borrow up to 80 per cent, she said. Investment buyers, depending on their profiles, need to pay between 20 and 30 per cent cash downpayment, she said.

On valuations, Ms Leong says the bank noted that new launches command a slight premium above older properties and this is particularly telling when the property is leasehold.

HSBC: At HSBC, the leading home loan which is available till Sept 30 is its relationship-based package with an attractive interest rate of Sibor plus one per cent throughout the loan tenor. It is on offer to all existing HSBC customers as well as new customers who start banking with them. There is no lock-in period for the package.

This package comes with deals and discounts in recognition of customers’ relationship with the bank, said Sebastian Arcuri, HSBC’s head of personal financial services. ‘We are the only bank in the market to adopt a relationship-based approach that rewards customers for maintaining their relationship with the bank,’ he says.

Their Sibor-pegged loyalty and relationship-based Sibor packages are the most popular, with 90 per cent of home loan customers choosing these packages. Its Sibor- pegged loyalty package rewards customers for keeping their home loan with HSBC, by offering them a year-on- year decrease in the interest rate spread charged in the first three years.

Maybank: While the current economic climate seems to favour floating rate packages, Maybank Singapore says that its three-year fixed rate package is still preferred by its clients as it offers them peace of mind.

For its three-year fixed rate promotional package, the bank offers a fixed rate from as low as 1.6 per cent, after which the rates will be pegged to the Singapore residential financing rate (SRFR), which is currently 3.75 per cent. This applies to both completed and uncompleted properties, and HDB and private residential properties. There is no minimum loan quantum. Maybank offers free one-time repricing to its prevailing home loan packages, normally not found in fixed-rate loan packages in the market.

‘As property purchase is a long-term commitment, we would advise customers to take a long-term view and go for regular instalment payment comprising principal and interest payment. This is also in view of the relatively low interest rate environment currently,’ says Maybank’s head of consumer banking Helen Neo.

OCBC: Packages offered by banks come in two forms: fixed rate and floating rate. For fixed rate packages, the interest rates are fixed for the first few years of the loan. The interest rates generally tend to be higher than those of variable rate packages, says OCBC’s head of consumer secured lending Gregory Chan. The benefit is the protection it can offer against future interest rate hikes.

Floating rate packages are pegged to the bank’s respective reference rate – typically influenced by the prevailing market conditions – and banks can change the rates at their sole discretion. ‘Such packages generally lag behind interbank rate movements and are relatively less volatile compared to market pegged packages such as Sibor or Swap Offer Rate (SOR) pegged packages,’ says Mr Chan.

‘For investors who do not intend to keep the home loan for an extended period, they may prefer floating rate home loans as compared to fixed rate home loans, which come with pre-payment penalties for early settlement and partial pre-payments,’ says Mr Chan. ‘Hence, the final decision lies with the preference and interest rate outlook of home buyers.’

Currently, the floating rate packages such as the SOR- pegged home loans are preferred over the fixed rate packages at OCBC given the low interbank rates currently, and the depressed outlook for the rates in the medium term. The bank offers up to 90 per cent for financing of property purchases – though at higher rates compared with financing 80 per cent of a home.

Stanchart: The bank has a variety of Sibor-linked, fixed rate and floating rate packages, including MortgageOne Sibor and MortgageOne Optimizer that provide an offset feature where customers can use the interest earned on their deposits to reduce the interest payable on their home loans.

In the last two months, more than 50 per cent of their customers took up the fixed rate packages, including the 1.5 per cent one-year fixed rate package introduced in conjunction with the bank’s 150th anniversary, says Dennis Khoo, general manager, retail banking, Standard Chartered Bank, Singapore.

‘We also see strong interest in the three-month Sibor- based packages as customers prefer interest rate transparency and enjoy the flexibility of making repayment anytime without any lock-in period,’ he says.

He advises home owners to look at mortgage insurance as well. ‘A mortgage is the single largest financial commitment for many Singaporeans and it is important that we accord the same value, if not more, in protecting our homes, as much as in purchasing and building them,’ says Mr Khoo. ‘Customers should consider signing up for a mortgage reducing term assurance (MRTA) plan as it provides protection and gives them peace of mind when planning for a home purchase and the future.’

The bank offers both single-premium and regular premium MRTA plans. MortgageCover, a single-premium MRTA plan, offers a convenient and affordable solution as customers can choose to finance the single premium together with their mortgage loan, without the need to maintain a separate insurance plan or payment plan.

The insurance plan provides customers coverage for the entire loan amount from the onset and will help to alleviate the financial and emotional burden of the home owner and his family in the event of an unforeseen event. Customers also have the option of a regular-premium MRTA plan, Mortgage Protect, if they prefer flexibility in payment to match their cash flow.

UOB: SOR packages are popular at UOB currently, says the head of its loans division, Chia Siew Cheng. Its promotional one-month SOR with one-year constant monthly instalment plan, for instance, allows customers to fix their monthly instalment for a year, regardless of interest rate movements.

Customers can continue to fix their monthly instalment for a one-year period for subsequent years as the constant monthly instalment will be re-computed based on the remaining tenor and interest rates. ‘If interest rates move up, customers can be assured that their monthly cash flow will not be disrupted. If interest rates decline, customers can pay off more of the principal amount,’ says Ms Chia.

Another popular package is UOB HomePlus, which allows customers to earn the same interest rates on their deposits in a UOB i-Account of up to 75 per cent of the amount the bank loans to the customer. This gives its customers the option to use the deposit interest earned to offset the interest they have to pay for their loans.

UOB currently has a promotional HomePlus package, which offers rates with deposit interest matching of up to 33 per cent of the amount on loan to a client. ‘Depending on the deposit amount maintained in the UOB i-Account, the implied interest rate payable for a customer’s loan can be as low as one per cent per annum in the first year and up to 3 per cent per annum in the third year,’ says Ms Chia. UOB finances up to 90 per cent of the purchase price or valuation price of the property – whichever is lower – for owner occupation purposes.

Source : Business Times – 24 Sep 2009

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