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DBS vs OCBC vs UOB Home Loan: Which Home Loan is Best?

1-homeLoan_fightClub_masthead
1-homeLoan_fightClub_masthead

When the time comes to buy a home, most Singaporeans go straight for the HDB loan as if on autopilot. It’s only when we’re ineligible for it that we realise that we can take up a DBS, OCBC or UOB home loan for potentially lower interest rates. Wah, rebel sia!

Singapore might fancy itself the financial hub of Southeast Asia… but the truth is, most Singaporeans’ exposure to banks are limited to the big 3 local banks. The competition between them is fierce, but does any one of them have an edge over the rest?

Contents

      1. Overview of Home Loan Bank Rates 

      2. DBS Home Loan vs OCBC Home Loan vs UOB Home Loan Packages

      3. DBS Home Loan Rates

      4. OCBC Home Loan Rates

      5. UOB Home Loan Rates

      6. Conclusion: Which bank offers the best home loan now?

1. Home Loan Bank Rates: Summary

Home Loans // An Overview BTO/BUC vs. Completed Projects FIXED RATES offer predictable, locked rates that last for 2 – 3 years. They are however, more expensive. FLOATING RATES rise and fall with the market, which can be unsettling for some. Interest rates are lower because of this. Completed Projects get both loan options — Fixed and Floating. BTO/ BUC get only floating rates. Banks offer different loan packages depending on the status of your home.

Let’s start from the basics. When we’re talking bank home loans, there are two different types of packages you would encounter: fixed and floating. Whether you’re eligible for a floating or fixed rate home loan packages can be dependent on the type of property you’re looking to purchase. 

In general, completed projects are privy to both fixed and floating home loan rates. However, Buildings Under Construction (BUC) are only eligible for floating rates. However, this can also vary from bank to bank.

That aside, wondering what the difference between “floating” and “fixed” is? Floating interest rate packages are pegged to moving a benchmark. In the past, the floating rate home loan packages used to be benchmarked by Singapore Interbank Offered Rates (SIBOR). That has since been phased out for Singapore Overnight Rate Average (SORA).

Floating rates are often cheaper, but more volatile. Fixed rate home loans’ interest rates don’t move for the first couple of years (say, 2 years for a “2Y” lock-in period).

When trying to assess a floating rate home loan, you need to understand two main components of the package:

First, what is the benchmark that the interest rate is based on? You should understand what exactly the acronym refers to, how transparent is it and whether it’s likely to be volatile.

Second, look at how the interest rate is structured. Is the formula the same each year, or does the interest creep up every year? You’re likely to be repaying your home loan for a good number of years, so make sure that the rate past the first few years is something you can live with as well.

Parts of the Floating Interest Rate Floating Interest Rate examples 2 Things to ask yourself Understanding the Floating Rate System If you’re taking up a Floating Rate, whether or not by choice , be informed about these aspects so you know what you’re getting into. Do you know what exactly the benchmark is? How volatile is it? Is it a transparent public rate, or is it set at the bank’s discretion? Does the bank increase the spread (e.g. from +0.98% to +1%) after a certain number of years? … Both aspects will affect your loan repayments. Benchmark                   (e.g. SORA) Spread (the “1%” added to the benchmark) 1M SORA      + 0.98% 3M SORA                                                    + 1%                             +1.3% FHR6

2. DBS Home Loan vs OCBC Home Loan vs UOB Home Loan Packages

Let’s take a quick look at the home loan packages offered by DBS, OCBC and UOB at the moment. The home loan packages across the 3 local banks have seen some pretty drastic changes in the past year. With the US Federal Reserve’s interest rate hike in June and September 2022, bank home loan interest rates have also increased. On top of that, the banks have also streamlined their home loan packages. 

For instance, in July, DBS bank has scraped its popular 5-year fixed rate home loan package which it used to offer at 2.05% p.a.. Well, those days are behind us. Let’s have a look at what home loan packages the banks are currently offering and how they stack up against one another.

We’ll split them into fixed and floating home loan rates for easier comparison. It’s only fair to compare apples to apples. 

Fixed Rate

Floating Rate (SORA)

DBS Home Loan

Unavailable

2-year lock-in

3M SORA + 1% p.a.

OCBC Home Loan

Unavailable

Year 1 – Year 2

1M SORA + 0.98% p.a.

UOB Home Loan

Unavailable

Year 1 – Year 2

3M SORA + 0.80% p.a.

The DBS fixed rate home loan package used to be the most competitive. On the floating rate home loan end, UOB’s package offers the lowest interest.

Let’s take a closer look at the home loan packages offered by each bank and see how one differs from the other.

3. DBS Home Loan Rates  

Given the long queues at DBS ATMs in today’s cashless world, it’s hardly surprising that DBS home loans are a top choice for many Singaporeans.

Are DBS’s home loan packages really worth the loyalty Singaporeans seem to have towards it? Let’s find out by looking at DBS’s fixed and floating rate home loan packages.

DBS home loans: Fixed Interest Rates

Note: DBS removed its fixed home loan rates from its website as at 23 September 2022, Friday.

DBS has 2 fixed rate home loan packages, one that offers a 2-year fixed rate and another that offers a 3-year fixed rate.

DBS Home Loan: 2-year fixed rate

Year 1 – Year 2

2.75% p.a.

Year 3 and thereafter

3M SORA + 1.50% p.a.

 

DBS Home Loan: 3-year fixed rate

Year 1 – Year 3

2.75% p.a.

Year 4 – thereafter

3M SORA + 1.50% p.a.

In the past, DBS aggressively chased the “HDB market” and enticed HDB resale flat buyers to switch from their HDB loan to DBS. They had a special 5-year fixed rate package for resale HDB flats at 2.2% p.a. — which was 0.4% lower than the HDB loan! However, those days are behind us. DBS’s fixed rate package is currently 2.75% p.a. which is more than HDB’s 2.6% p.a..

So, unless you don’t qualify for a HDB loan because you’re rolling in dough, you’d rather opt for a HDB loan. Plus, you won’t have to worry about changing interest rates after a certain number of years.

If the DBS fixed rate home loan package is your best bet, bear in mind that you never know what will happen in Year 3 and Year 4 when the package reverts to a floating rate. So, best be prepared to refinance that DBS home loan.

Now, are the floating rates any better? 

DBS Home Loans: Floating Interest Rates

DBS’s floating rate home loan packages are dependent on either the 3M SORA or FHR6. While the former is a published rate by MAS, the latter is determined by the bank.

DBS Home Loan: 2-year lock-in 3M SORA + 1% p.a.

Year 1 – Year 2

3M SORA + 1% p.a.

Year 3 – thereafter

3M SORA + 1% p.a.

Commitment period

2 years

*The 3M SORA is 1.5967% currently.

If you were to take a HDB floating rate home loan with a 2-year lock in period pegged to 3M SORA, the current interest rate 2.5967% p.a. – making DBS’s floating home loan interest rate lower than its previous fixed deposit home loan rate of 2.75% p.a.

Alternatively, the other floating rate package from DBS is one that is pegged to the bank’s Fixed Deposits Home Rate 6 months (FHR6). But what does that even mean?

FHR6 is essentially an interest rate determined by the 6-month average of DBS Fixed Deposit accounts‘ interest rate, and DBS bank’s own internal board interest rates. There’s also FHR8 which stands for Fixed Deposits Home Rate 8 months, FHR24 for Fixed Deposit Home Rate 24 months, and FHR for just Fixed Deposit Home Rate.

These too have increased from 8 July 2022 onwards. If you thought you had scored a deal during Covid when interest rates were low, we hate to break it to you that your happiness will be short-lived. Here’s how your FHR6-based interest rate is tabulated for the home loan package with a 2-year lock-in an alternative with no lock-in:

DBS Home Loan: 2-year lock-in FHR6 + 1.3% p.a.

Year 1 – Year 2

FHR6 + 1.3% p.a.

Year 3 – thereafter

FHR6 + 1.3% p.a.

Commitment period

2 years

The current FHR6 rate is 1.4% which means the 2-year FHR6 home loan lock-in will incur an interest rate of 1.4% + 1.3% = 2.7% p.a.

DBS Home Loan: No lock-in FHR6 + 1.75% p.a.

Year 1 – Year 5

FHR6 + 1.75% p.a.

Year 6 – thereafter

FHR6 + 1.75% p.a.

On the other hand, with a no lock-in FHR6 home loan package, you’ll be paying 3.15%. You pay more for the freedom.

However, you have to bear in mind that with fluctuating 3M SORA and FHR6 rates, you should have enough cash flow for when in the interest rate increases.

Let’s dive into UOB’s home loan packages next.

4. UOB Home Loan Rates

What makes UOB home loans different from the other two popular banks is that apart from the usual fixed and floating interest rate home loan packages, UOB offers a third which is a combination of both fixed and floating rates. Before we get into the combined fixed and floating rate home loan package, let’s take a look at the two standard floating rate packages.

UOB Home Loans: Fixed Interest Rates

Note: UOB removed its fixed home loan rates from its website as at 23 September 2022, Friday.

Like DBS, UOB offers two fixed rate home loan packages with a lock-in period of 2 or 3 years. However, UOB’s 2-year fixed rate home loan is 2.98% p.a. and its 3-year fixed rate home loan is 3.08% p.a.. While both banks offer similar fixed rate home loan packages, DBS’s fixed rate home loan package offers a lower interest rate at 2.75% p.a..

UOB Home Loan: 2-year fixed rate

Year 1 – Year 2

2.98% p.a.

Year 3 and thereafter

3M SORA + 1.50% p.a.

 

UOB Home Loan: 3-year fixed rate

Year 1 – Year 3

3.08% p.a.

Year 4 and thereafter

3M SORA + 1.50% p.a.

However, at the end of the lock-in period of 2 or 3 years, both banks revert to the same floating rate of 3M SORA +1.50% p.a. for the remaining years. If you’re in the market for a fixed rate home loan package from a bank, DBS still holds the fort with the lowest interest rate across the board.

With that being said, bear in mind that HDB’s interest rates are perpetually 2.6% p.a.. The banks’ fixed rate home loan packages are honestly not much of a deal. Are UOB’s floating interest rate home loan packages any more hopeful? Let’s dive in.

UOB Home Loans: Floating Interest Rates

UOB’s floating rate home loan packages are pegged to the 3M SORA and vary depending on how much you’re borrowing from the bank. The more you borrow, the lower the interest rates.

UOB Home Loan quantum between $100,000 to $300,000:

UOB Home Loan: 2-year lock-in 3M SORA + 1% p.a.

Year 1 – Year 2

3M SORA + 1% p.a.

Year 3 – thereafter

3M SORA + 1% p.a.

Commitment period

2 years

UOB Home Loan quantum above $350,000:

UOB Home Loan: 2-year lock-in 3M SORA + 0.7% p.a.

Year 1 – Year 2

3M SORA + 0.7% p.a.

Year 3

3M SORA + 0.8% p.a.

Commitment period

2 years

*3M SORA is currently 1.5967%

If you do the math, UOB’s floating rate home loan packages will come up to be lower than its previous fixed rate home loan packages.

This makes UOB’s floating rate home loan packages are pretty attractive – it’s also lower than DBS’s floating rates.

In case the interest rate becomes unfavourable from after the lock-in period, at least you have the option to refinance your UOB home loan and get a better deal elsewhere.

UOB Home Loan Rate: Combination of Fixed & Floating

UOB’s combined fixed and floating rate home loan package sounds like an offer that might allow you to have your cake and eat it too. Now, let’s do the math:

UOB Home Loan: 2-year lock-in combination of fixed & floating

Year 1 – Year 2

2.98% p.a. for 50% loan
+
3M SORA + 1.08% p.a. for 50% loan

Thereafter

3M SORA +1.5% p.a. for 50% loan
+
3M SORA +1.4% p.a. for 50% loan

Commitment period

2 years

*3M SORA is currently 1.5967%

If you take a combined fixed and floating interest rate:

Fixed Rate portion: 2.98% p.a.
Floating Rate portion: 2.6767% p.a.

Average Interest Rate: (2.98% + 2.6767%)/2 = 2.828%

To answer the big question, is it really better that the other home loan packages at least in the first 2 years? No. The lowest interest rate you will get with UOB’s home loan packages is its floating rate home loan package.

Interest Rate

Total Interest Payable (2 years)

HDB Loan

2.6%

UOB Fixed Home Loan

Unavailable

UOB Floating Home Loan

2.2967%

UOB Combo Fixed + Floating Home Loan

2.828%

Lastly, let’s move along to OCBC.

5. OCBC Home Loan Rates 

The main difference between OCBC home loan packages and that of DBS and UOB is the fact that OCBC’s floating rates are pegged to 1M SORA. How does 1M SORA differ from the more popular 3M SORA benchmark?

As its name suggest, 1M SORA is the 1 month compounded rate. This means that the turnover period for 1M SORA is faster. If the interest rates are on the decline, 1M SORA can work in your favour.

OCBC Home Loan: 2-year lock-in 1M SORA + 0.98%

Year 1 – Year 2

1M SORA + 0.98% p.a.

Year 3

1M SORA + 1% p.a.

Thereafter

1M SORA + 1% p.a.

*1M SORA is 2.0443 as at 23 Sep 2022. 3M SORA is currently 1.5967%

At 3.02% p.a., OCBC’s floating rate home loan package is definitely not the best amongst the three banks in question.

Note: OCBC’s fixed rate home loans are no longer available on the OCBC website as at 24 September 2022.

OCBC Home Loan: 2-year fixed rate

Year 1 – Year 2

2.98% p.a.

Year 3

1M SORA + 1.20% p.a.

Thereafter

1M SORA + 1.60% p.a.

Like UOB, OCBC’s fixed rate home loan package offered an interest rate of 2.98% p.a.. Subsequently, it’ll revert to a floating rate pegged to 1M SORA. Again, there’s no telling whether the 1M SORA will increase or decrease. Least, there’s the option of refinancing at the end of your lock-in period.

homeLoan_fightClub_What-Offer
homeLoan_fightClub_What-Offer

6. Conclusion: Which bank offers the best home loan now?

If you’re shopping for a bank home loan now, I hate to break it to you that the timing couldn’t be worse. Bank home loan interest rates across the board have hiked and if the gloom and doom of a potential impending recession is anything to go by, you can expect further hikes in bank home loan interest rates across the board.

So, if you’re buying an HDB BTO, you can of course go with the HDB loan until your new home is built. The HDB loan interest rate of 2.6% is competitive to the current fixed rate home loan packages offered by banks and its stable. However, as far as banks’ fixed rate home loan packages go, DBS’s rates are the most promising. DBS also has the lowest borrowing minimum of $100,000.

On the hand, UOB’S floating home rate home loan package offers the lowest interest rate compared to that of DBS and OCBC. If you do well with uncertainty and have excess cash flow to manage unexpected increases in interest rates, I would suggest going with UOB. On that note,

P.S. A word of caution regarding floating rate home loans

A floating rate home loan is only for those with strong constitutions.

Because these rates can give you a heart attack anytime, it’s super duper important to be (a) very savvy about what you’re getting into and (b) know how to refinance.

Ultimate, you might just have to go for the bank that offers you the most flexibility. For example, one that is more generous with free conversions. This is when you’re allowed to switch to another one of their home loan packages, e.g. if the current package interest rate goes up too much for your tastes. It’s a way for them to retain you as a customer.

If you do not have the constitution of an ox, you might like to opt for a fixed rate home loan instead. These packages are a little more expensive, but they do give you (temporary) peace of mind.

And the Winner is… You can do the research and see which loan serves your needs the best. Use the MoneySmart Home Loan Wizard to find the best loan for you and yours. The Banks! But…

Remember that DBS, UOB and OCBC are not the only banks in Singapore offering home loans! Read on to find out which loan the best deal for your needs:

HDB Loan vs Bank Loan – Which home loan is better for you?

5 Things About HDB Loans You Must Know

HDB Loan Eligibility, Interest Rates & Downpayment – A Beginner’s Guide

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