Mention DBS bank to any Singaporean and they’ll automatically think of the convenience withdrawing cash, the long queues at ATMs, and their acquisition of POSB. It’s common knowledge that DBS is at the forefront of our local banking scene. But how do DBS home loans measure up?
At present, DBS offers only two types of home loans worth noting: fixed-deposit linked home loans, and fixed rate packages.
|Breakdown||Average for 1st 5 years|
Thereafter: FHR8 + 1.75% pa
Thereafter: FHR8 + 1.45% pa
Year 2 : 1.65% pa
Year 5: FHR8 + 1.65% pa
Year 2: 1.85% pa
Year 3: 1.85% pa
Thereafter: FHR8 + 1.65% pa
Fixed deposit home loans
Currently, DBS’s fixed deposit home loans are pegged to the fixed deposit interest rate they’re giving for amounts within $1,000 and $9,999 deposited for 8 months. Which is a good change in comparison to their previous FHR18 package because banks would naturally offer higher rates for you to deposit your money with them longer. It’s current FHR8 rates is 0.20% as opposed to their previous FHR18 rate of 0.6% and FHR9 rate which was 0.25%
Their thereafter rates are not a huge jump from rates in the first few years too. If you’re thinking of getting a fixed rate for your new flat because you’re worried about the instability of the rates, DBS’s FD-linked rates for HDBs are actually relatively stable, since their spread is kept constant throughout. The only thing you’ll need to worry about is DBS’s FHR8 rates increasing. However, due to the nature of fixed-d rates, chances of this happening is rather…low. Since an increase in the FHR rates would mean the DBS would’ve to pay a higher interest out to their fixed deposit account holders too.
That said, you should know that this is the third time the bank has changed it’s fixed deposit packages. When DBS first pioneered fixed-deposit home loan packages, their original FHR rate was 0.4%, which was the average of their 12-month and 24-month fixed-deposit rates. The FD-linked packages were later changed to follow the FHR18 rates, FHR9 rates and subsequently, FHR8. Although changes in the package will not affect customers who’ve already signed a FD-linked home loan with DBS, hopefully, the bank would’ve already made up their mind to settle on the FHR8 for their loan packages and not keep changing them… Unless they’re willing to reduce their spread rates to balance out the difference.
At an average of 1.72% and 1.85%, DBS’s fixed packages pale in comparison to their fixed deposit linked packages. But then again, it’s not uncommon for fixed packages to be priced higher than their fixed deposit linked counterparts since they are fixed packages (the banks will have to price it higher to counter potential interest hikes in future, and it pays for assurance).
But if you’ve noticed, you’re not only paying a higher interest rate for the first few years of fixed interest, when rates eventually revert back to being fixed-deposit rates, they’re also priced higher.
Judging by the little differences (or the lack thereof in the case of HDB purchases) between thereafter rates and rates in the few years in the FD-linked packages, you’re essentially paying up to 24 points more for the added “assurance” of not having a rate that MIGHT fluctuate. Which doesn’t make as much sense as just going straight for the FD-linked home packages from the start and securing a low spread. This is illustrated in the examples below:
So, say you’ve just bought a resale 5-room at Clementi for $600k
Your loan amount is $480,000 (assuming you’re able to get the full 80% of your purchase price), with a loan tenure of 25 years.
According to DBS’s monthly repayment calculator, if you got their fixed deposit home loan for HDBs, you’ll be paying (an estimated) $1,943 every month for the first year and thereafter.
If you got their 3-year (lock-in) fixed rate package, you would effectively be paying $2,000/month for the first 3 years. And $2,000/month from the 4th year onwards, if FHR8 stays unchanged.
So you should go with fixed-deposit linked packages.
If you were buying a cosy condo at Choa Chu Kang for $1,000,000
Your loan amount is $800,00 (assuming you’re able to get the full 80% of your purchase price), with a loan tenure of 25 years.
You’ll be paying (an estimated) $3,257 every month for the first year on their Fixed deposit FHR8 package. And $3,257 for the years thereafter, assuming the FHR8 rates do not change.
If you got their 3-year (lock-in) fixed rate package you would effectively be paying $3,333/month for the first 3 years. And $3,333/month from the 4th year onwards, again, assuming the FHR8 rates do not change.
In this case, the fixed-deposit linked package still offers you a better rate.
The only time when DBS fixed home loan would make sense is if you were buying a property in hopes of flipping profits. Because you’d have a choice of selecting the number of years your lock-in period entails. Essentially, with DBS’s fixed rate packages, the amount of years you’re guaranteed a fixed rate is the same amount yrs you’d get in your lock-in period. And if you were to sell your property and prepay your loan before the lock-in period ends, a fee of 1.5% your outstanding loan amount will be incurred.
Of course, besides comparing interest rates, there are many more factors that goes into finalizing a home loan package that works best for you. Aside from looking at the lock-in period, you’d also want to keep a lookout for other factors such as interest review dates ,breakage fees, legal and valuation costs of refinancing/repricing etc in the contract. If you’re lost about which home loan is best, feel free to give our mortgage specialists a call. Our advice is free since commissions are taken from banks.
What are your thoughts on DBS home loan offerings? Let us know!
The post DBS Home Loan - Which of Their Home Loan Packages Should You Choose? appeared first on the MoneySmart blog.
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