It seems to be all doom and gloom on the global economic front but there is one silver lining for Singaporeans – rock-bottom interest rates that are making mortgages far more affordable.

That means there has probably never been a better time for homeowners to refinance their housing loans.

The Singapore inter-bank offered rate (Sibor) and the swap offer rate (SOR), two common benchmark interest rates used to set mortgage rates, are at record lows.

Sibor is the rate at which local banks lend to one another. On Friday, the three-month Sibor was 0.331. Sor has even turned negative. The three-month Sor was -0.051 on Friday.

Those numbers can add up to some serious savings if you refinance or switch to a new home loan, either with your existing bank or another institution.

Many savvy Singaporeans have clearly picked up on this, given that some loans experts are experiencing a 20 per cent to 30 per cent increase in the number of refinancing queries.

Mr Paul Arrowsmith, HSBC’s head of retail banking and wealth management, has seen home loan refinancing volumes increase about three-fold in the past year.

He said: ‘This is a good time to refinance, to take advantage of the low interest rates.’

Fixed or pegged rates?

Customers usually take fixed-rate loan packages – where the rates are fixed for the first two to three years – when they need protection against rate hikes.

The United States Federal Reserve has pledged to keep interest rates low until mid-2013 so rates here are also likely to remain flat. Packages pegged to the Sibor or Sor may be more cost-effective.

Mr Goh Eck Hong, a housing loan adviser at myhousingloan.com.sg, said: ‘People who took up fixed-rate packages should give some thought to refinancing.

‘Since local lending rates move in tandem with the US’, it is reasonably safe to assume that the local mortgage lending rate is going to stay where it is for some time to come.’

But there is no guarantee, so some customers might want to opt for the fixed-rate option, said Citibank Singapore’s business director for secured finance, Mr Peng Chun Hsien.

‘An attractive fixed-rate package, which will fix the interest rates for a specific duration, can offer peace of mind. There will be certainty in their monthly repayments for the next two to three years.’

Real estate investor and businessman Sameer Aswani, 35, prefers fixed-rate packages because he is more conservative.

He recently refinanced a property at the Marina Bay Residences.

He said: ‘I was paying 1.5 per cent interest yearly. Now the new revised rate would be at just 1 per cent with Maybank, fixed for one year.

‘Although the SOR floating three-month rates would be lower, I am more conservative and prefer to lock in my rates on a yearly basis. I am saving about $20,000 per year from just this one unit at the Marina Bay Residences so when the lock-in period ends for my other properties, I will surely have them repriced at a lower interest rate.’

Attractive packages

With many investors thinking like Mr Aswani, banks are offering competitive rates to get a slice of the refinancing pie.

Citibank is offering a one-month Sibor plus 0.7 per cent loan package. With the one-month Sibor at 0.218 per cent, this works out to effective interest rates starting from as low as 0.918 per cent throughout the loan tenure.

Their customers can also switch between one-, three-, six- and 12-month Sibor tenors, or from a floating rate to a fixed rate free of charge.

OCBC Bank’s deal has a three-year lock-in, and on top of the three-month Sibor, has a spread of 0.55 per cent for the first year, 0.6 per cent in the second, 0.65 per cent in the third, and 1.25 per cent thereafter.

DBS Bank’s latest offer is pegged to the one-month Sibor or three-month Sibor, with a spread of 0.85 per cent for the first three years. For the three-month Sibor package, the interest rate is capped at 1.49 per cent for the first three years.

HSBC has a loyalty package, which is Sibor plus 0.9 per cent for the first year, 0.85 per cent for the second and 0.8 thereafter. There is a cash incentive of 0.4 per cent of the loan amount, capped at $10,000.

However, Ms Phang Lah Hwa, OCBC Bank’s head of consumer secured lending, said: ‘With the myriad of refinancing packages available in the market, it is always advisable to evaluate your choices before making your decision.’

Is this a good time to refinance?

If you have borrowed $1 million over the next 20 years with a current interest rate of 3.75 per cent and refinance it to 1.18 per cent interest in the first year, the savings amount to about $1,000 a month.

Mr Derrick Ang, director of mortgage sales at consultancy portal SingaporeHousingLoan.sg, said that in general it is prudent for home owners to review their loans every three years or so, regardless of interest rates.

He added: ‘If there are significant cost or interest savings, I would recommend it.’

OCBC’s Ms Phang added: ‘With current market interest rates at low levels, home loan refinancing seems an attractive option for many.’

But there are various costs that come with refinancing, so home owners should make sure the savings outweigh them.

Cost-benefit analysis

As a rule of thumb, if you plan to sell your property in the short term, it may not be wise to refinance, taking into account the costs incurred and the limited time that home owners get to enjoy the interest savings.

Other costs incurred from refinancing

•Lock-in period of the existing loan

A typical lock-in period is two to three years so if you withdraw your loan within this time, there might be a penalty of 1 per cent to 1.5 per cent of the outstanding loan.

For a loan amount of $600,000, you would save about $6,000 to $9,000 if you choose a package with no penalties attached over one that imposes a penalty.

•Conversion fee

There is a conversion fee of $500 to $1,000 which will be incurred even if you are no longer within the lock-in period.

•Clawbacks

Refinancing requires conveyancing paperwork. However, the new bank will usually subsidise this cost, about 0.3 per cent to 0.4 per cent of the loan amount, capped at $2,500 for private properties and $2,000 for HDB flats.

Is refinancing for me?

The choice comes down to whether there will be a significant amount of savings after subtracting the cost of refinancing.

DBS Bank’s managing director and head of deposits and secured lending, Ms Lui Su Kian, said: ‘Buyers should remain prudent and take into consideration how interest rates will impact their repayment and not focus solely on the initial years’ interest rates.’

UOB’s head of loans division, Ms Chia Siew Cheng, agreed: ‘Buying a home is a long-term financial commitment.

‘Regardless of the prevailing interest rate environment, home buyers should always assess what they can afford to ensure they are able to service a housing loan over a longer period of time.’

Source: Straits Times, 4th Sept 2011

The building and construction sector notched up $55.9 billion in loans, a marginal 0.8 per cent rise from loans in the month before. — ST PHOTO: ALPHONSUS CHERN

SINGAPORE’S total bank lending rose 2.8 per cent last month to hit a record high, with business and consumer loans both increasing on the back of strong economic growth.

The total value of Singapore-dollar bank loans outstanding as of the end of last month was a record $343.4 billion, compared with $334.1 billion in February, according to statistics released yesterday by the Monetary Authority of Singapore.

‘Together with the unemployment rate coming down, the loans are another sign of the strength of the economy,’ said Action Economics economist David Cohen. ‘Singapore is benefiting from the strong regional economic performance. By all indications, that’s continued into the first quarter of this year.’

Singapore’s jobless rate fell to a three-year low of 1.9 per cent last month. In addition, recent flash estimates showed the economy grew a better-than-expected 8.5 per cent in the first quarter compared with growth in the same period last year. The economic growth was driven by a strong showing by the manufacturing sector.

Last month’s $343.4 billion in total bank loans also represented a 19.9 per cent jump from the $286.3 billion figure from a year earlier.

‘With year-on-year credit growth at 20 per cent, we are almost getting back to the best times in 2008,’ said Mr Cohen. ‘By most measures, we’re back in that territory.’

The last economic boom was in 2008, before the global financial crisis ravaged economies worldwide.

Last month, business lending grew 4.2 per cent from the previous month to $186.9 billion, stronger than the 2.3 per cent growth in February, as all the sub-categories took out more loans.

The building and construction sector notched up $55.9 billion in loans, a marginal 0.8 per cent rise from loans in the month before.

Lending to non-bank financial institutions rose 2.4 per cent to $41.1 billion, while lending to firms in general commerce rose 5.8 per cent to $35.3 billion.

Loans to manufacturers grew 16 per cent to $13.4 billion, an unsurprising result given the strong showing of that sector in the first quarter.

Firms in agriculture, mining and quarrying; transport, storage and communication and business services also took out more loans. There was also growth in loans to individuals for business purposes.

Total consumer loans grew as well, by 1.1 per cent to $156.5 billion. This was stronger than the 0.8 per cent growth in February.

The rise in consumer loans was driven by a 1.2 per cent jump in housing and bridging loans to $116.7 billion, from $115.2 billion in February. This came despite slower property price rises and lower sales volumes in the first quarter, after the Government introduced a tough round of cooling measures in January.

‘The demand for property loans continues to be strong,’ said Mr Cohen.

But some other components of consumer loans fell. Car loans taken out by professional and private individuals inched down by 0.2 per cent to $11.5 billion, while credit card loans fell 1 per cent to $6.7 billion and loans taken out for share financing fell 3.6 per cent to $1.3 billion.

Loans by professional and private individuals for other purposes fell 1.8 per cent to $20.2 billion.

Source: Straits Times, 30th April 2011

THE growth of housing loans has sunk to its lowest level in 12 months.

But analysts say a bigger dip may be on the way as they believe the full impact of January’s property cooling measures is yet to be reflected in the latest numbers.

The total value of outstanding mortgages as at the end of February rose 0.95 per cent to an estimated $115.3 billion, from $114.2 billion as at the end of January.

This was the lowest month-on-month growth rate since February last year. The highest growth rate in recent times was 2.62 per cent in June last year.

It is also quite a bit slower than January’s 1.61 per cent monthly growth.

CIMB analyst Kenneth Ng said most of the effects of the January market cooling measures on mortgage numbers are likely to be seen only next year.

HSBC Singapore head of personal financial services Greg Zeeman said: ‘The effect of the cooling measures may be evident only later as the data captures home loans booked two to three months ago.’

These monthly loan numbers could also be hit by seasonal factors in Chinese New Year. In February last year, month-on-month growth was 0.93 per cent.

Total bank lending rose a stronger 1.6 per cent to $334.2 billion in February from $328.8 billion in January, according to Monetary Authority of Singapore (MAS) figures released yesterday.

Analysts believe one factor in the slowing rate of home loans’ growth is an easing in the number of resale transactions as a result of the latest round of property cooling measures unveiled on Jan 13.

Only months after an earlier round of measures in August, the Government introduced fresh measures including a raising of seller’s stamp duty on properties to as much as 16 per cent of the sale price if the home is offloaded within a year.

The measures appear to have cooled the previously red-hot market.

Sales of new private homes in February fell 9 per cent from January to 1,101 units, according to the Urban Redevelopment Authority. The data showed that when executive condos – a public and private housing hybrid – were included, February sales came in at 1,228, a 21 per cent fall from January.

Singapore’s three local banks, with a combined 60 per cent share of the home loans market, all said at recent full-year results briefings that the number of new home loan applications has fallen.

Other big mortgage players here like Standard Chartered Bank (Stanchart) are also seeing the housing market soften.

‘Many buyers have adopted a ‘wait and see’ attitude, especially since the new rules, in anticipation of declining property prices,’ said Mr Alvin Lee, Stanchart Singapore’s head of mortgages.

Analysts say the latest housing loans growth figure is still in positive territory, mainly thanks to continued strong draw-downs on loans granted by banks prior to the latest cooling measures.

In other words, the number of new mortgages may have declined but there is a ‘lag effect’ before the paying down of existing loans outpaces the disbursements of new ones. When that happens, the total figure will become weaker.

‘The fact that home loans are still rising reflects the strength of the housing market in the last two years,’ said Kim Eng analyst James Koh.

Market watchers say the rock-bottom mortgage rates offered by many banks are helping to support the market.

United Overseas Bank, for example, has just launched a new promotional package pegged against its board rate with first-year rates at 0.68 per cent and second-year rates at 1.38 per cent. It has a two-year lock-in period penalising any premature exit from the package.

The 0.68 per cent figure is said to be the lowest in the industry.

WHAT is the outlook for interest rates? How will the latest changes in property financing affect you? Fret not, this article will help guide you in the right direction.

From Aug 30, 2010, regardless of whether you’re a Singaporean, permanent resident or foreigner, if you have an existing housing loan on a property – whether the property is in Singapore or overseas – the maximum financing you can get for your property purchase has been revised downwards to 70 per cent from 80 per cent previously.

And also from Aug 30, 2010, if you have an existing housing loan, and if you want to purchase another property, the minimum cash downpayment has been revised to 10 per cent from 5 per cent previously.

Thus, if you have an existing housing loan and are thinking of buying a property, it is time to re-work your numbers. And you might need to put off the decision to buy a property for the time being if you do not have the required minimum 30 per cent downpayment for the property, as the maximum financing has been reduced to 70 per cent.

However, if you have an existing property that is fully paid, and have no outstanding housing loan, and if you buy a property, you can still get up to 80 per cent financing. The above measures on the cash downpayment and 70 per cent financing limit apply to all property purchases with date of option to purchase dated Aug 30 or later.

How does it affect upgraders and people in the process of selling their property?

The government’s main intention of introducing this new measure is to deter speculation in property. However, it can affect upgraders and people in the process of selling their existing property.

For instance, if you have an existing property which has an outstanding housing loan, but want to buy a new condominium project to be completed in a few years’ time, you can only get maximum 70 per cent financing.

Those with plans to move are affected as well. If you plan to move to a new home and you purchase the new home before you sell your existing home, and if there is an outstanding loan on your existing home, you can only get a maximum of 70 per cent financing for your new home.

For those who have sold their property but the transaction is not completed yet, they might be affected as well.

In order to qualify for 80 per cent financing, homebuyers must prove the sale of their existing home to get the 80 per cent loan. For HDB flats, this requires an approval letter from HDB to the seller within two weeks from the date of the first sales appointment, which typically is about one to two months after the date of option to purchase.

For private properties, a signed sales and purchase agreement is required as proof, and a certificate from Iras showing that the stamp duty has been paid by the buyer of the existing home.

Types of housing loan packages available

With the recent entry of new players into the market, such as ANZ Bank and CIMB Bank, there are currently altogether 16 financial institutions that are active in providing housing loans in Singapore.

Each financial institution offers five to 10 different home loan packages. Thus, at any point in time, there are easily over 120 different housing loan packages available for you to choose from.

Housing loan packages with interest rates pegged to Sibor and SOR were only introduced since 2007.

Over the last three years, as interest rates remain low, and with more consumers aware of the availability of such packages, there seems to be a trend of more people choosing a housing loan package pegged to Sibor or SOR instead of floating rate packages, with interest rates pegged to bank board rates.

The reason for this is Sibor and SOR are transparent and are average market interest rates and are not subject to unilateral changes by individual banks, but each bank has its own discretion in determining the board rates.

Which is the best housing loan package?

Because of competition, banks change their housing loan packages very often. Furthermore, other than interest rates, banks vary their other terms and conditions, such as the penalty period, which varies from zero penalty period to three years’ penalty period; penalty fees, which might vary from one per cent to 1.5 per cent; flexibility in making partial repayment within the penalty period; number of years of free fire insurance provided; amount of legal subsidy provided; etc.

A common misconception is that consumers might think there is such a thing as a best housing loan package.

The fact is, different home loan packages are suitable for people with different needs and priorities. Thus, there is no one-size-fits-all solution. You need to choose a housing loan package that is most suitable for you.

In this aspect, instead of trying to check with different banks on the different home loan packages available, which can be very confusing to consumers, a better choice might be to talk to an independent mortgage consultancy, who will, based on your needs and priorities, help you shortlist a few of the housing loan packages that are most suitable for you.

This service is provided free to you as a consumer, as the mortgage brokers are separately paid a fee by the banks for the service they provide.

Outlook for interest rates

Sibor (Singapore Interbank Offered Rate), the average interest rate banks borrow/lend money to one another, is used as a guideline by banks in setting interest rates on housing loans.

Currently, Sibor is at its lowest level. The three-month Sibor (as at Sept 3) was 0.543 per cent while the SOR (Swap Offer Rate) was at 0.308 per cent. SOR is basically Sibor + US$ swap cost into S$ rates, it involves swapping US$ into S$. Thus SOR is also affected by the volatility of the exchange rate of US$ versus S$.

In turn, Sibor is affected by mainly two factors. Namely, the US Fed interest rates and the liquidity of the Singapore banking sector.

Given that the US economy remains weak, it is likely that the US will continue to keep interest rates low for the next six to 12 months. And given the ample liquidity in Singapore’s banking sector, it is likely that Sibor, and thus housing loan interest rates, will remain low in the next six to 12 months as well.

Outlook for housing loans market

This year saw the entry of two new players to the housing loan market, namely CIMB and ANZ Bank, which makes the already competitive housing loan industry even more competitive.

This is indeed good news to consumers as competition typically results in better and more competitive home loan offers from banks.

The writer is an accountant by training with 17 years of bank lending experience. In 2003, he set up www.HousingLoanSG.com, an independent mortgage consultancy portal

Source: Business Times, 23 Sep 2010