DBS targets HDB flat buyers with new home loan

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#1
The Straits Times
www.straitstimes.com
Published on Apr 01, 2013
DBS targets HDB flat buyers with new home loan


By Magdalen Ng

DBS Bank has launched a new home loan targeted at the HDB home buyer, with interest rates that are more attractive than that of the concessionary loan offered by the Housing Board.

The POSB HDB Loan will have its interest rate capped at the Central Provident Fund's (CPF) Ordinary Account rate, which is 2.5 per cent, for 10 years. The loan also has no pre-payment charges.

For the first 10 years, the interest rate will be the three- month Singapore Interbank Offered Rate (Sibor) plus 1.38 per cent. Thereafter, it will be the three-month Sibor plus 1.48 per cent. In the recent months, the three-month Sibor has been hovering at the 0.35 per cent mark.

At current interest rates, the monthly repayment for a 30-year loan of $320,000 under the POSB HDB Loan will be more than $100 less than that of the HDB concessionary loan.

The HDB concessionary loan is pegged at 0.1 percentage point above the CPF's Ordinary Account rate, which works out to 2.6 per cent currently.

Last year, two-thirds of the 59,000 HDB home buyers took the HDB loan.

DBS head of deposits and secured lending Lui Su Kian said that the POSB HDB Loan was designed after the bank realised that customers would rather pay a fixed, but higher rate.

She said: "There is a certain level of inertia once a home buyer settles on the loan. It is important for HDB home buyers to consider loan options outside of the HDB concessionary loan during their purchase process."

This loan is available only to HDB owners who are looking to refinance, buyers of resale flats, or those whose Build-To-Order (BTO) flats are close to completion.

Ms Lui explained that because there is a three- to five-year gap between the purchase and the completion of a new BTO flat, the bank may be vulnerable to interest rate risks, given that the interest rate cap is guaranteed for 10 years.

For those refinancing their loans, DBS is also offering a $1,800 cash rebate for loans of at least $100,000 to defray legal fees.

One downside of choosing a private bank loan is that HDB home buyers will have to fork out an initial 5 per cent cash payment, which is not necessary compared with an HDB loan, where it can be paid using CPF monies.

Ms Lui also noted that while there have been some cases of repossession, these are rare.

She encouraged bank customers to discuss options with the bank should their financial situation change. "We are here for the long term, and we want to help our customers. If our customers come to us, we can work out a six-month or 12-month plan to help them through difficult times," she said.

Newly married civil servant Anne Chia, 30, said that the new offering does sound like a good deal, but she will probably have to wait till her flat in Sengkang is ready in 2015 before making a decision.

"Being able to enjoy cheaper repayments for 10 years is quite enticing. The money saved can be used on other expenses," she said.

songyuan@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
The extra interest u pay for HDB concessionary is for 'insurance' in case u go bankrupt or cannot pay mortgage installments. HDB won't repossess your flat. DBS confirm will.
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#3
The cap of 2.5% for 10 years basically means that DBS has back to back hedging interest rate swap strategy to limit rise of rates above 2.5% within the next 10 years.

Commercially this is important given that it is a long term indication of the outlook for Singapore interest rates. Note that Singapore doesnt not have a monetary policy given it adopts an exchange rate policies.

For DBS to be able to enter into such swap agreements on the mkt, it basically means that the market is confident that global interest rates outlook remains subdue for the 10 year horizon.

My thoughts.

GG

(01-04-2013, 07:50 AM)Musicwhiz Wrote: The Straits Times
www.straitstimes.com
Published on Apr 01, 2013
DBS targets HDB flat buyers with new home loan


By Magdalen Ng

DBS Bank has launched a new home loan targeted at the HDB home buyer, with interest rates that are more attractive than that of the concessionary loan offered by the Housing Board.

The POSB HDB Loan will have its interest rate capped at the Central Provident Fund's (CPF) Ordinary Account rate, which is 2.5 per cent, for 10 years. The loan also has no pre-payment charges.

For the first 10 years, the interest rate will be the three- month Singapore Interbank Offered Rate (Sibor) plus 1.38 per cent. Thereafter, it will be the three-month Sibor plus 1.48 per cent. In the recent months, the three-month Sibor has been hovering at the 0.35 per cent mark.

At current interest rates, the monthly repayment for a 30-year loan of $320,000 under the POSB HDB Loan will be more than $100 less than that of the HDB concessionary loan.

The HDB concessionary loan is pegged at 0.1 percentage point above the CPF's Ordinary Account rate, which works out to 2.6 per cent currently.

Last year, two-thirds of the 59,000 HDB home buyers took the HDB loan.

DBS head of deposits and secured lending Lui Su Kian said that the POSB HDB Loan was designed after the bank realised that customers would rather pay a fixed, but higher rate.

She said: "There is a certain level of inertia once a home buyer settles on the loan. It is important for HDB home buyers to consider loan options outside of the HDB concessionary loan during their purchase process."

This loan is available only to HDB owners who are looking to refinance, buyers of resale flats, or those whose Build-To-Order (BTO) flats are close to completion.

Ms Lui explained that because there is a three- to five-year gap between the purchase and the completion of a new BTO flat, the bank may be vulnerable to interest rate risks, given that the interest rate cap is guaranteed for 10 years.

For those refinancing their loans, DBS is also offering a $1,800 cash rebate for loans of at least $100,000 to defray legal fees.

One downside of choosing a private bank loan is that HDB home buyers will have to fork out an initial 5 per cent cash payment, which is not necessary compared with an HDB loan, where it can be paid using CPF monies.

Ms Lui also noted that while there have been some cases of repossession, these are rare.

She encouraged bank customers to discuss options with the bank should their financial situation change. "We are here for the long term, and we want to help our customers. If our customers come to us, we can work out a six-month or 12-month plan to help them through difficult times," she said.

Newly married civil servant Anne Chia, 30, said that the new offering does sound like a good deal, but she will probably have to wait till her flat in Sengkang is ready in 2015 before making a decision.

"Being able to enjoy cheaper repayments for 10 years is quite enticing. The money saved can be used on other expenses," she said.

songyuan@sph.com.sg
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#4
(01-04-2013, 07:50 AM)Musicwhiz Wrote: The POSB HDB Loan will have its interest rate capped at the Central Provident Fund's (CPF) Ordinary Account rate, which is 2.5 per cent, for 10 years.

Is it pegged to 2.5% or pegged to CPF Ordinary Account rate? Do remember that CPF OA rate also pegged back to bank's deposit rates. Wink
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#5
Chiong POSB this week...haha
or should wait for other banks???
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#6
There is no free lunch, the rate still 0.3-0.6% higher than current market rate, which is a premium for the 10 years protection.
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#7
(01-04-2013, 11:13 AM)yeokiwi Wrote: Chiong POSB this week...haha
or should wait for other banks???

Five year fixed rate @ 1.68% p.a. currently available from either DBS or Citibank. No other banks currently offer five year fixed rate packages on the market. If you have reasonable size debt and want to have 1) fixed, predictable repayment amount over the next 5 years to manage cash flow and 2) the ability/optionality to pay off at the end tenure, you can consider this.
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#8
(01-04-2013, 11:40 AM)thefarside Wrote:
(01-04-2013, 11:13 AM)yeokiwi Wrote: Chiong POSB this week...haha
or should wait for other banks???

Five year fixed rate @ 1.68% p.a. currently available from either DBS or Citibank. No other banks currently offer five year fixed rate packages on the market. If you have reasonable size debt and want to have 1) fixed, predictable repayment amount over the next 5 years to manage cash flow and 2) the ability/optionality to pay off at the end tenure, you can consider this.


The POSB HDB Loan will have its interest rate capped at the Central Provident Fund's (CPF) Ordinary Account rate, which is 2.5 per cent, for 10 years.


For the POSB HDB loan, the upside of the interest rate is capped for 10 years to CPFOA rate which is a pretty attractive feature.
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#9
(01-04-2013, 08:56 AM)HitandRun Wrote: Is it pegged to 2.5% or pegged to CPF Ordinary Account rate? Do remember that CPF OA rate also pegged back to bank's deposit rates. Wink

There is no memory in the market of a period of time when CPF OA used to be higher than 2.5% p.a. It has been 13 long years... so people probably look at the history, current status of the financial world and believe that this is likely to continue.

http://mycpf.cpf.gov.sg/NR/rdonlyres/5C7...stRate.pdf

I suppose the loan comes with a 10-year lock in. Wonder what are the clauses for early repayment etc. But generally HDB loan quantums are not large, so if income grows its not a big deal.
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#10
Hi all,
any1 knows how the 1.8k rebates work?
I was just deduct $200+ for the valuation fee from my bank account.
Will the legal fee be paid in cash as well?
Do they rebate us in cash or through deduction of the outstanding housing loan.
VBs help help! Sad
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