Downsizing, refinancing and loan deferments help households in need
FOR seven years, receptionist L. Boey, 63, had been struggling to make the monthly $1,450 loan repayment to the Housing Board (HDB) for her four-room Choa Chu Kang flat.
Earlier this year, she had a lifeline thrown to her. The HDB found her a studio apartment in Bishan which was big enough for her and her 90-year-old mother, and affordable enough for her to buy using her Central Provident Fund (CPF) savings. She sold her flat in May this year, cleared her debt and moved in.
Financially relieved flat buyers like her have helped to halve the number of those with loan arrears (owing three months' instalments or more) from the peak of 55,700 cases in December 2003.
'I guess I didn't have a choice, but I also felt I was getting old and didn't need such a big apartment,' said Miss Boey.
She was among 2,000 home owners whom HDB helped to 'right-size' their flats between August 2008 and June this year, as a long-term solution to their debt problems.
Another measure the HDB instituted to help households falling behind on payment: allowing them to take an extra loan from the HDB to help them downgrade, even though they had already enjoyed two concessionary loans.
Between January 2008 and June this year, the HDB approved about 2,700 such loans.
These measures, along with others introduced in recent years, and the recovering economy have cut down the number of households who are in hock over HDB loan payments.
There are now about 26,000 HDB households who owe the HDB payments, making up 6.6 per cent of 393,000 accounts with an HDB loan as at June this year. This is down from 33,670 cases forming 7.9 per cent in September 2008.
The HDB team which helped to tackle HDB arrears cases will receive an award for its efforts at the Ministry of National Development's National Day Observance Ceremony on Friday.
An HDB spokesman told The Straits Times it has helped close to 20,000 cases since January 2008.
Short-term measures include reducing loan payments for up to six months, deferring loan instalments for up to six months, and instalment plans to clear arrears.
If the home owner still has difficulty paying the instalments, long-term solutions, such as flat downsizing, would be suggested.
In Miss Boey's case, she had sold off her first Choa Chu Kang flat for a profit and bought another four-room Choa Chu Kang flat for $335,000 on the open market in 1996.
She had a job then as a purchaser, and was granted an HDB loan of $224,000 at a concessionary rate. But in 2003, she lost her job. The money from her earlier sale was also depleted. Even after she found another job in 2008, and rented out a room, she was unable to make the payments.
Her HDB counsellor, who had been working on her case since 2006, suggested that she sell her flat and downgrade. In May this year, she sold her flat for $310,000 and bought the Bishan studio apartment for $83,000 using her CPF savings.
Miss Boey is all praise for the HDB and her MP Zaqy Mohamad. 'If the HDB didn't help me, I guess I would still have to sell my flat, but I may not have been able to find another place within my budget.'
The HDB spokesman said compulsory acquisitions are 'very rare' - slightly more than 1,480 since January 2008 - and usually happen only after a household does not take proactive steps to pay up.
Some households, the HDB said, would include working family members as joint owners to help pay for the flat, or try to enhance household income by sub-letting a room.
Mr Dennis Ng, founder of mortgage consultancy web portal housingloansg.com, said loan repayment problems arise when people do not budget for crises.
Some people, he said, use up to 50 per cent of their monthly income to service their housing loan, when the maximum should be 35 per cent.
'If you use half your income to pay for your house, you might be in trouble in bad times, when you face job loss or a pay cut...people must budget first if they don't want problems paying in the future,' he said.
Source: Straits Times, 4 Aug 2010
Showing posts with label Housing Loans. Show all posts
Showing posts with label Housing Loans. Show all posts
Wednesday, August 4, 2010
Thursday, July 22, 2010
Reining in unethical moneylending
THE unusual urgency with which a housing bill was expedited through Parliament this week was well warranted and welcome - even (or perhaps especially) if it sounds the death knell for a small but insidious industry.
In going for the roof over the borrower's head, Singapore's moneylenders have been no less pernicious than latter-day Shylocks - indeed, every bit as artful and exploitative as the notorious Shakespearean character who coolly sought, as loan collateral, a pound of flesh. With the law amended to close an unfortunate loophole, Singapore's moneylenders - or legalised loan sharks, as it were - can no longer avail themselves of the sales proceeds when desperate HDB flat owners resort to cashing out their homes for quick funds.
For the lenders, this is a sudden turn of events leaving them lamenting their fate, with nary a trace of guilt nor any sense of wrongdoing. And this is an industry officially represented by an association - the Moneylender's (sic) Association of Singapore - that states, among its five objectives, a desire not only 'to project moneylending as an important and integral part of the business of financing individuals and businesses' but also 'to advocate ethical practice in the moneylending industry'.
No doubt, moneylending (legal and illegal) plays a key role in consumer financing, and indeed in small business financing as well. The average person sometimes finds it hard to get a bank loan to pay off urgent bills or debts, especially if he or she is unemployed or a low-income earner. But, while the moneylending association has a self-declared aim of advocating ethical practices, its president felt free to explain, in a newspaper report in January, why his members were targeting HDB sellers in need of quick cash. Indeed, ads by moneylenders were essentially saying: 'Only HDB sellers need apply'.
David Poh, the association's president, was reported to have said: 'If they take a personal loan which is based on their income, they may lose their job at any time, so it's not so secure for us.' Liquidating a HDB flat, on the other hand, virtually guarantees repayment, as the moneylenders - who would have lodged a caveat on the flat - get the first bite of the sales proceeds. The number of HDB resale applications with caveats lodged by moneylenders in just the first six months of 2010 has already exceeded the 2009 total of 546. The lenders might have insisted there was nothing unethical about this - indeed, it was entirely legal, until this week - but there was also collusion with housing agents who, for a fee, would refer flat sellers to lenders.
New rules in May ended the lucrative careers of lenders moonlighting as housing agents and vice versa, and a welcome new bill to regulate housing agents is on the cards. It remains to be seen how many of the several hundred moneylenders in town will actually close shop. If those weeded out are the firms that cannot thrive ethically, it would be no loss at all. And if the culling makes room for ethical, institutional microfinance to take root here and displace loan sharks, all the better.
Source: Business Times, 22 Jul 2010
In going for the roof over the borrower's head, Singapore's moneylenders have been no less pernicious than latter-day Shylocks - indeed, every bit as artful and exploitative as the notorious Shakespearean character who coolly sought, as loan collateral, a pound of flesh. With the law amended to close an unfortunate loophole, Singapore's moneylenders - or legalised loan sharks, as it were - can no longer avail themselves of the sales proceeds when desperate HDB flat owners resort to cashing out their homes for quick funds.
For the lenders, this is a sudden turn of events leaving them lamenting their fate, with nary a trace of guilt nor any sense of wrongdoing. And this is an industry officially represented by an association - the Moneylender's (sic) Association of Singapore - that states, among its five objectives, a desire not only 'to project moneylending as an important and integral part of the business of financing individuals and businesses' but also 'to advocate ethical practice in the moneylending industry'.
No doubt, moneylending (legal and illegal) plays a key role in consumer financing, and indeed in small business financing as well. The average person sometimes finds it hard to get a bank loan to pay off urgent bills or debts, especially if he or she is unemployed or a low-income earner. But, while the moneylending association has a self-declared aim of advocating ethical practices, its president felt free to explain, in a newspaper report in January, why his members were targeting HDB sellers in need of quick cash. Indeed, ads by moneylenders were essentially saying: 'Only HDB sellers need apply'.
David Poh, the association's president, was reported to have said: 'If they take a personal loan which is based on their income, they may lose their job at any time, so it's not so secure for us.' Liquidating a HDB flat, on the other hand, virtually guarantees repayment, as the moneylenders - who would have lodged a caveat on the flat - get the first bite of the sales proceeds. The number of HDB resale applications with caveats lodged by moneylenders in just the first six months of 2010 has already exceeded the 2009 total of 546. The lenders might have insisted there was nothing unethical about this - indeed, it was entirely legal, until this week - but there was also collusion with housing agents who, for a fee, would refer flat sellers to lenders.
New rules in May ended the lucrative careers of lenders moonlighting as housing agents and vice versa, and a welcome new bill to regulate housing agents is on the cards. It remains to be seen how many of the several hundred moneylenders in town will actually close shop. If those weeded out are the firms that cannot thrive ethically, it would be no loss at all. And if the culling makes room for ethical, institutional microfinance to take root here and displace loan sharks, all the better.
Source: Business Times, 22 Jul 2010
Wednesday, July 21, 2010
Bill may put moneylenders out of business
LICENSED moneylenders, hard hit by a new Bill that was passed in Parliament on Monday, say they are now left with no choice but to close down.
The new law disallows Housing Board home owners from using the proceeds of selling their homes as collateral for loans, or for the payment of debts, except under approved circumstances.
Simply put, this means moneylenders are now no longer able to lodge caveats against flats to ensure they get first bite of the proceeds from the property's sale if the borrower cannot pay up.
The Straits Times understands that at least 10 moneylenders who focus on loans for home sellers will be putting up the shutters in the coming weeks.
Moneylenders' Association of Singapore president David Poh said at least 30 members in his association are extremely discouraged by the changes.
In May, new rules prohibiting licensed moneylenders from working as property agents, and vice-versa, were announced.
One affected moneylender, who declined to be named, said she used to lodge caveats for the four cases she handles on average monthly.
'Now the law has closed all our options, we have no choice but to wind up,' said the 37-year-old.
Another moneylender, who wanted to be known only as Mr Tan, 44, said he will now focus on his property business. He started a moneylending arm late last year to complement his realty work.
'Now I just want to collect the loans I have given out, and close down the moneylending firm,' he said, adding that he used to lodge about two caveats monthly. 'Without caveats as security, who wants to risk lending out large amounts?'
The growing practice by some moneylenders of exploiting cash-strapped home owners desperate for loans was first flagged in Parliament in April.
Industry players estimate that of the 260 licensed moneylenders in the market, at least 30 per cent regularly lodged caveats on their borrowers' homes. There were 556 registered resale applications with caveats lodged by moneylenders in just the first half of this year, a spike from 546 for the whole of last year and just 12 in 2008.
Mr Poh's committee held a meeting yesterday to discuss the impact of the new rules. 'Those affected are rethinking how to continue their business,' he said, adding that most moneylenders will raise their interest rates by at least 10 percentage points per annum, now that they do not have the security of caveats.
The new rules could also put loansharks back in business. 'The demand for loans is still there. But if the people can't get loans, they will turn to the illegal lenders,' said Mr Poh.
Source: Straits Times, 21 Jul 2010
The new law disallows Housing Board home owners from using the proceeds of selling their homes as collateral for loans, or for the payment of debts, except under approved circumstances.
Simply put, this means moneylenders are now no longer able to lodge caveats against flats to ensure they get first bite of the proceeds from the property's sale if the borrower cannot pay up.
The Straits Times understands that at least 10 moneylenders who focus on loans for home sellers will be putting up the shutters in the coming weeks.
Moneylenders' Association of Singapore president David Poh said at least 30 members in his association are extremely discouraged by the changes.
In May, new rules prohibiting licensed moneylenders from working as property agents, and vice-versa, were announced.
One affected moneylender, who declined to be named, said she used to lodge caveats for the four cases she handles on average monthly.
'Now the law has closed all our options, we have no choice but to wind up,' said the 37-year-old.
Another moneylender, who wanted to be known only as Mr Tan, 44, said he will now focus on his property business. He started a moneylending arm late last year to complement his realty work.
'Now I just want to collect the loans I have given out, and close down the moneylending firm,' he said, adding that he used to lodge about two caveats monthly. 'Without caveats as security, who wants to risk lending out large amounts?'
The growing practice by some moneylenders of exploiting cash-strapped home owners desperate for loans was first flagged in Parliament in April.
Industry players estimate that of the 260 licensed moneylenders in the market, at least 30 per cent regularly lodged caveats on their borrowers' homes. There were 556 registered resale applications with caveats lodged by moneylenders in just the first half of this year, a spike from 546 for the whole of last year and just 12 in 2008.
Mr Poh's committee held a meeting yesterday to discuss the impact of the new rules. 'Those affected are rethinking how to continue their business,' he said, adding that most moneylenders will raise their interest rates by at least 10 percentage points per annum, now that they do not have the security of caveats.
The new rules could also put loansharks back in business. 'The demand for loans is still there. But if the people can't get loans, they will turn to the illegal lenders,' said Mr Poh.
Source: Straits Times, 21 Jul 2010
Tuesday, July 20, 2010
Credit loss risks on residential property loans limited: S&P
THE credit loss risks of Singapore banks would be limited even if an asset bubble were to form, Standard & Poor's Ratings Services said yesterday.
Singapore banks' heavy exposure to home loans and the strong climb in property prices in the past year have raised many questions, including the credit loss risks that banks face, it noted in a report. However, 'a high savings rate and low household debt support borrower repayment ability when collateral values fall', said Standard & Poor's credit analyst Ivan Tan.
Negative equity (when the loan amount exceeds valuation of the home) by itself, is not a sufficient condition for default, he added.
Standard & Poor's said that its view was based on the reasonable level of housing affordability, sound borrower repayment ability, low loan-to-value ratios, the government's measures to cool the market, and mortgage rates turning upward. Mortgages represent the single largest industry exposure for Singapore banks, at about 25 per cent of loan portfolios.
The risk of financial losses to banks would increase if affordability declines, which could occur if property prices continue climbing or if household incomes slip, the rating agency said.
'We believe an unabated increase in property prices is unlikely, given the government's past willingness to implement cooling measures,' Mr Tan said.
On the other hand, household incomes can fall sharply for a few reasons: job loss in a recession is the most common factor. Nevertheless, the rapid economic recovery has led to an improvement in the unemployment rate to 2.2 per cent as of March 2010, almost back to pre-crisis levels.
In February 2010, the government lowered the ceiling for home loans to 80 per cent of valuation - one of the steps that it took in trying to rein in the market.
'We believe Singapore banks seldom extended loans of more than 80 per cent of valuation even before the loan ceiling was lowered,' said the report.
'Banks are beginning to price in higher risk premiums by raising home loan rates . . . The higher home loan rates will counterbalance the returns from property investments. This, in turn, helps reduce the likelihood of a speculative bubble and limit the risk of credit loss for banks.'
Last week, Standard & Poor's affirmed its rating on the three Singapore banks, citing the lenders' strong financial profiles and prudent management strategies.
S&P kept its long-term rating for DBS at AA-/Stable, United Overseas Bank (UOB) at A+/Stable, and OCBC Bank as A+/Stable.
The banks' short-term ratings stand at DBS with A-1+, UOB with A-1, and OCBC with A-1.
Source: Business Times, 20 Jul 2010
Singapore banks' heavy exposure to home loans and the strong climb in property prices in the past year have raised many questions, including the credit loss risks that banks face, it noted in a report. However, 'a high savings rate and low household debt support borrower repayment ability when collateral values fall', said Standard & Poor's credit analyst Ivan Tan.
Negative equity (when the loan amount exceeds valuation of the home) by itself, is not a sufficient condition for default, he added.
Standard & Poor's said that its view was based on the reasonable level of housing affordability, sound borrower repayment ability, low loan-to-value ratios, the government's measures to cool the market, and mortgage rates turning upward. Mortgages represent the single largest industry exposure for Singapore banks, at about 25 per cent of loan portfolios.
The risk of financial losses to banks would increase if affordability declines, which could occur if property prices continue climbing or if household incomes slip, the rating agency said.
'We believe an unabated increase in property prices is unlikely, given the government's past willingness to implement cooling measures,' Mr Tan said.
On the other hand, household incomes can fall sharply for a few reasons: job loss in a recession is the most common factor. Nevertheless, the rapid economic recovery has led to an improvement in the unemployment rate to 2.2 per cent as of March 2010, almost back to pre-crisis levels.
In February 2010, the government lowered the ceiling for home loans to 80 per cent of valuation - one of the steps that it took in trying to rein in the market.
'We believe Singapore banks seldom extended loans of more than 80 per cent of valuation even before the loan ceiling was lowered,' said the report.
'Banks are beginning to price in higher risk premiums by raising home loan rates . . . The higher home loan rates will counterbalance the returns from property investments. This, in turn, helps reduce the likelihood of a speculative bubble and limit the risk of credit loss for banks.'
Last week, Standard & Poor's affirmed its rating on the three Singapore banks, citing the lenders' strong financial profiles and prudent management strategies.
S&P kept its long-term rating for DBS at AA-/Stable, United Overseas Bank (UOB) at A+/Stable, and OCBC Bank as A+/Stable.
The banks' short-term ratings stand at DBS with A-1+, UOB with A-1, and OCBC with A-1.
Source: Business Times, 20 Jul 2010
Banks’ loss risks from home loans ‘limited’
Ratings agency Standard and Poor’s (S&P) believes the credit loss risks of Singapore banks from home loans is limited even if an asset bubble is to form.
In a report, S&P said its view is based on the reasonable level of housing affordability, sound borrower repayment ability and low loan-to-value ratios here.
Also it added that the Government’s measures to cool the market, and mortgage rates turning upward, all played a factor in its assessment.
Mortgages represent the single largest industry exposure for Singapore banks, at about 25 per cent of loan portfolios.
S&P noted that a high savings rate here and low household debt support borrower repayment ability when collateral values fall.
“Singapore households have strong balance sheets, underpinned by a high savings rate, low debt, and low unemployment,” the report said.
The ratings agency added that an unabated increase in property prices is unlikely, given the government’s past willingness to implement cooling measures. Amongst which is the move to lower the ceiling for home loans to 80 per cent of valuation.
“We believe the government will continue to monitor the property market and will implement further cooling measures if necessary,” S&P said.
Still, S&P believes Singapore banks seldom extended loans of more than 80 per cent of valuation even before the loan ceiling was lowered.
Source: Today, 20 Jul 2010
In a report, S&P said its view is based on the reasonable level of housing affordability, sound borrower repayment ability and low loan-to-value ratios here.
Also it added that the Government’s measures to cool the market, and mortgage rates turning upward, all played a factor in its assessment.
Mortgages represent the single largest industry exposure for Singapore banks, at about 25 per cent of loan portfolios.
S&P noted that a high savings rate here and low household debt support borrower repayment ability when collateral values fall.
“Singapore households have strong balance sheets, underpinned by a high savings rate, low debt, and low unemployment,” the report said.
The ratings agency added that an unabated increase in property prices is unlikely, given the government’s past willingness to implement cooling measures. Amongst which is the move to lower the ceiling for home loans to 80 per cent of valuation.
“We believe the government will continue to monitor the property market and will implement further cooling measures if necessary,” S&P said.
Still, S&P believes Singapore banks seldom extended loans of more than 80 per cent of valuation even before the loan ceiling was lowered.
Source: Today, 20 Jul 2010
Sunday, July 18, 2010
Protect the roof over your head
It's important to insure home loans in case breadwinner dies early
The house we own is easily a family's biggest of big-ticket items, but only three out of 10 home loan customers here buy mortgage insurance.
While we believe we have insurance for nearly all of our needs, from children's education to hospitalisation, some of us do not realise that our home loans need to be insured too.
Mortgage insurance offers decreasing coverage over the duration of your policy to align itself with your outstanding mortgage loan. Cover can also be extended to cover permanent disability, critical illness and unemployment.
Without a suitable mortgage cover or the means to pay up the mortgage if the breadwinner dies prematurely, the bereaved family stands to lose the roof over their heads should the bank repossesses the house.
Mr Dennis Ng, founder of mortgage consultancy portal Housing LoanSG.com, pointed out that although mortgage insurance is compulsory for an HDB flat owner who uses his Central Provident Fund Board savings, it is not a bank requirement for private home owners.
The good news is that DBS Bank and HSBC have started bundling mortgage insurance into some of their home loan packages.
DBS incorporates Aviva's MyProtector Mortgage in some of its schemes, thereby protecting its customers in the event of death, total and permanent disability and critical illness.
Although the insurance does not come free, it saves home owners the hassle of looking for their own mortgage insurance.
Experts believe mortgage insurance is an important part of an overall financial plan.
'This is because our home is most likely our biggest purchase and financial commitment in our lifetime. It is important to ensure that, in the event of unforeseen circumstances, our family members will not be burdened with the cost of outstanding home repayments, or worse, face the possibility of having to sell their home,' said insurance firm Aviva Singapore's chief executive Simon Newman.
This is something the Lee family realised when breadwinner Andrew Lee (not his real name) died from cancer in 2007, leaving an outstanding housing loan of nearly $300,000.
Fortunately, Mr Lee had bought a Manulife mortgage decreasing term plan in 1998 which mirrored his housing loan of $475,000 over a 29-year term. It covered death and total and permanent disability, with the reducing home loan spread out over 29 years. The annual premium was $988.
At the point of Mr Lee's death, the insurance proceeds from his mortgage policy were about $397,000. His family received an initial $150,000 payout from Manulife in 2007. The rest was paid last year when the grant of probate was completed.
The family can pay off the housing loan in a lump sum or continue the mortgage instalments. In this case, there is a surplus of insurance proceeds over the outstanding loan which the family can use for their needs.
If there had been no policy, the family could have lost their home if they were unable to meet the loan repayments.
The policy Mr Lee bought is widely available from most insurers and contains a feature of reducing insurance cover over a period of time.
OCBC Bank's vice-president of wealth management, Ms Anne Tay, said such a feature tries to mirror your outstanding mortgage loan.
'You may start with a $500,000 mortgage on your home but as you make your monthly mortgage payments, your outstanding loan will reduce over the loan period. Accordingly, your mortgage liability will reduce too,' says Ms Tay.
And by providing insurance cover on a reducing term basis, the premium will be relatively cheaper compared to a typical level term-life insurance policy.
Despite the importance of mortgage insurance, DBS Bank's Mr Rick Vargo, managing director of bancassurance, said that only 25 per cent to 30 per cent of the bank's home loan customers have such cover. This is consistent with the overall estimate provided by Mr Ng.
Mortgage insurance is not to be confused with fire insurance which the banks do require home loan customers to take up, and this may be provided free by the banks in the first year.
Tips on mortgage insurance
Home owners should understand their needs first when shopping around for a suitable mortgage cover. Here are some considerations.
1 The amount of cover
Aviva suggests that consumers should consider if they already have existing insurance plans that can cover the outstanding mortgage loan liabilities before buying mortgage insurance.
Some people may decide to buy mortgage insurance to cover a portion of the loan amount as they may have other insurance or other means to meet repayments if needed, said Mr Ng.
'But if you do not have any other funding source, it is best to cover 100 per cent of the loan amount instead,' he added.
Another consideration is whether you want to be covered for just death or to include total and permanent disability, terminal illness and critical illness as well.
2 Buy on a joint life basis
If you own a property jointly with another person, it is prudent to get mortgage insurance on a joint life basis so that it pays out the sum assured if either owner dies. Getting a separate insurance cover for each owner would result in a much higher premium, said Mr Ng.
3 Buy early
Ms Tay observed that there is a tendency for most people to procrastinate and buy mortgage insurance only when they are older. But the older you are, the higher the premium you have to pay.
For example, a 20-year $500,000 mortgage reducing term assurance plan will cost a male property owner aged 50 an annual premium of $2,305. The same policy will cost a 40-year-old male just $814 in annual premiums. The difference of $1,491 is the cost of a 10-year procrastination, she added.
4 Interest rate assumption
The sum assured and the time period of a mortgage reducing term assurance plan are usually matched to the mortgage loan amount and tenure. As the coverage is on a reducing basis, how fast or slowly the loan reduces over time is based on the assumed loan interest rate, which is decided at the inception of cover.
Mr Patrick Lim, associate director at financial advisory firm PromiseLand Independent, noted that some insurers may limit interest rates to a range of say, 3 per cent to 7 per cent, as in the case of Prudential Assurance's PRUmortgage.
On the other hand, insurer TM Asia Life offers a wider range from 0 per cent to 9.75 per cent in even increments of 0.25 per cent.
'It is important for consumers not to be restricted in their choice of a suitable interest rate,' said Mr Lim.
Mr Ng suggests that policyholders assume 4 per cent so that the sum assured will be reduced at a slower pace than a lower interest rate. If the interest rate is assumed too low, there is a risk that the insurance proceeds might not be enough to pay off the outstanding loan.
5 Guaranteed premiums
It is worth checking if the annual premiums are guaranteed upon renewal, said Mr Lim. He noted that in the case of AIA's mortgage reducing term assurance plan, the product summary states that the premiums are not guaranteed.
But this is not the norm as the premiums for the basic mortgage plan are usually priced to be non-reviewable and guaranteed.
6 Check the supplementary benefits
One area of concern is the cap on benefits such as total and permanent disability.
Mr Lim pointed out that permanent disability is capped at $2 million at AXA Life but $3 million at AIA.
Another consideration is when the benefits expire. For most insurers, the total and permanent disability benefit expires on the policyholder's 65th birthday.
Aviva's MyProtector Mortgage extends the benefit expiration to just before the 70th birthday. At Overseas Assurance Corp (OAC), it is the 66th birthday, said Mr Lim.
Also, check the definition of what constitutes total and permanent disability and whether the payout comes in a lump sum or as instalments spread out over a few years. Lump sums are better.
Both Mr Lim and Prudential Assurance's director of product management, Mr Daniel Lum, recommend that consumers go for a mortgage cover that offers to waive the premiums if the insured is diagnosed with critical illness.
Other home-related insurance covers
Besides mortgage insurance, home owners should consider fire insurance that covers the building structures, and home contents insurance. The latter also covers personal belongings that are taken outside the home like hi-fi systems, said the General Insurance Association of Singapore.
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Don't burden family members
'Our home is most likely our biggest purchase and financial commitment in our lifetime. It is important to ensure that, in the event of unforeseen circumstances, our family members will not be burdened with the cost of outstanding home repayments, or worse, face the possibility of having to sell their home.'
MR SIMON NEWMAN, chief executive of insurance firm Aviva Singapore
Source: Sunday Times, 18 Jul 2010
The house we own is easily a family's biggest of big-ticket items, but only three out of 10 home loan customers here buy mortgage insurance.
While we believe we have insurance for nearly all of our needs, from children's education to hospitalisation, some of us do not realise that our home loans need to be insured too.
Mortgage insurance offers decreasing coverage over the duration of your policy to align itself with your outstanding mortgage loan. Cover can also be extended to cover permanent disability, critical illness and unemployment.
Without a suitable mortgage cover or the means to pay up the mortgage if the breadwinner dies prematurely, the bereaved family stands to lose the roof over their heads should the bank repossesses the house.
Mr Dennis Ng, founder of mortgage consultancy portal Housing LoanSG.com, pointed out that although mortgage insurance is compulsory for an HDB flat owner who uses his Central Provident Fund Board savings, it is not a bank requirement for private home owners.
The good news is that DBS Bank and HSBC have started bundling mortgage insurance into some of their home loan packages.
DBS incorporates Aviva's MyProtector Mortgage in some of its schemes, thereby protecting its customers in the event of death, total and permanent disability and critical illness.
Although the insurance does not come free, it saves home owners the hassle of looking for their own mortgage insurance.
Experts believe mortgage insurance is an important part of an overall financial plan.
'This is because our home is most likely our biggest purchase and financial commitment in our lifetime. It is important to ensure that, in the event of unforeseen circumstances, our family members will not be burdened with the cost of outstanding home repayments, or worse, face the possibility of having to sell their home,' said insurance firm Aviva Singapore's chief executive Simon Newman.
This is something the Lee family realised when breadwinner Andrew Lee (not his real name) died from cancer in 2007, leaving an outstanding housing loan of nearly $300,000.
Fortunately, Mr Lee had bought a Manulife mortgage decreasing term plan in 1998 which mirrored his housing loan of $475,000 over a 29-year term. It covered death and total and permanent disability, with the reducing home loan spread out over 29 years. The annual premium was $988.
At the point of Mr Lee's death, the insurance proceeds from his mortgage policy were about $397,000. His family received an initial $150,000 payout from Manulife in 2007. The rest was paid last year when the grant of probate was completed.
The family can pay off the housing loan in a lump sum or continue the mortgage instalments. In this case, there is a surplus of insurance proceeds over the outstanding loan which the family can use for their needs.
If there had been no policy, the family could have lost their home if they were unable to meet the loan repayments.
The policy Mr Lee bought is widely available from most insurers and contains a feature of reducing insurance cover over a period of time.
OCBC Bank's vice-president of wealth management, Ms Anne Tay, said such a feature tries to mirror your outstanding mortgage loan.
'You may start with a $500,000 mortgage on your home but as you make your monthly mortgage payments, your outstanding loan will reduce over the loan period. Accordingly, your mortgage liability will reduce too,' says Ms Tay.
And by providing insurance cover on a reducing term basis, the premium will be relatively cheaper compared to a typical level term-life insurance policy.
Despite the importance of mortgage insurance, DBS Bank's Mr Rick Vargo, managing director of bancassurance, said that only 25 per cent to 30 per cent of the bank's home loan customers have such cover. This is consistent with the overall estimate provided by Mr Ng.
Mortgage insurance is not to be confused with fire insurance which the banks do require home loan customers to take up, and this may be provided free by the banks in the first year.
Tips on mortgage insurance
Home owners should understand their needs first when shopping around for a suitable mortgage cover. Here are some considerations.
1 The amount of cover
Aviva suggests that consumers should consider if they already have existing insurance plans that can cover the outstanding mortgage loan liabilities before buying mortgage insurance.
Some people may decide to buy mortgage insurance to cover a portion of the loan amount as they may have other insurance or other means to meet repayments if needed, said Mr Ng.
'But if you do not have any other funding source, it is best to cover 100 per cent of the loan amount instead,' he added.
Another consideration is whether you want to be covered for just death or to include total and permanent disability, terminal illness and critical illness as well.
2 Buy on a joint life basis
If you own a property jointly with another person, it is prudent to get mortgage insurance on a joint life basis so that it pays out the sum assured if either owner dies. Getting a separate insurance cover for each owner would result in a much higher premium, said Mr Ng.
3 Buy early
Ms Tay observed that there is a tendency for most people to procrastinate and buy mortgage insurance only when they are older. But the older you are, the higher the premium you have to pay.
For example, a 20-year $500,000 mortgage reducing term assurance plan will cost a male property owner aged 50 an annual premium of $2,305. The same policy will cost a 40-year-old male just $814 in annual premiums. The difference of $1,491 is the cost of a 10-year procrastination, she added.
4 Interest rate assumption
The sum assured and the time period of a mortgage reducing term assurance plan are usually matched to the mortgage loan amount and tenure. As the coverage is on a reducing basis, how fast or slowly the loan reduces over time is based on the assumed loan interest rate, which is decided at the inception of cover.
Mr Patrick Lim, associate director at financial advisory firm PromiseLand Independent, noted that some insurers may limit interest rates to a range of say, 3 per cent to 7 per cent, as in the case of Prudential Assurance's PRUmortgage.
On the other hand, insurer TM Asia Life offers a wider range from 0 per cent to 9.75 per cent in even increments of 0.25 per cent.
'It is important for consumers not to be restricted in their choice of a suitable interest rate,' said Mr Lim.
Mr Ng suggests that policyholders assume 4 per cent so that the sum assured will be reduced at a slower pace than a lower interest rate. If the interest rate is assumed too low, there is a risk that the insurance proceeds might not be enough to pay off the outstanding loan.
5 Guaranteed premiums
It is worth checking if the annual premiums are guaranteed upon renewal, said Mr Lim. He noted that in the case of AIA's mortgage reducing term assurance plan, the product summary states that the premiums are not guaranteed.
But this is not the norm as the premiums for the basic mortgage plan are usually priced to be non-reviewable and guaranteed.
6 Check the supplementary benefits
One area of concern is the cap on benefits such as total and permanent disability.
Mr Lim pointed out that permanent disability is capped at $2 million at AXA Life but $3 million at AIA.
Another consideration is when the benefits expire. For most insurers, the total and permanent disability benefit expires on the policyholder's 65th birthday.
Aviva's MyProtector Mortgage extends the benefit expiration to just before the 70th birthday. At Overseas Assurance Corp (OAC), it is the 66th birthday, said Mr Lim.
Also, check the definition of what constitutes total and permanent disability and whether the payout comes in a lump sum or as instalments spread out over a few years. Lump sums are better.
Both Mr Lim and Prudential Assurance's director of product management, Mr Daniel Lum, recommend that consumers go for a mortgage cover that offers to waive the premiums if the insured is diagnosed with critical illness.
Other home-related insurance covers
Besides mortgage insurance, home owners should consider fire insurance that covers the building structures, and home contents insurance. The latter also covers personal belongings that are taken outside the home like hi-fi systems, said the General Insurance Association of Singapore.
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Don't burden family members
'Our home is most likely our biggest purchase and financial commitment in our lifetime. It is important to ensure that, in the event of unforeseen circumstances, our family members will not be burdened with the cost of outstanding home repayments, or worse, face the possibility of having to sell their home.'
MR SIMON NEWMAN, chief executive of insurance firm Aviva Singapore
Source: Sunday Times, 18 Jul 2010
What you need to know before buying your home
Buying a home is one of the biggest purchases you will make in your lifetime, so it's important to do your homework before you apply for that loan.
# Prepare in advance
You must pay at least 1 per cent of the purchase price in exchange for an option to purchase. After that, you have 14 days to decide whether to proceed with the deal and pay the balance of 9 per cent for a completed property or 4 per cent for one under construction.
At this point, consult a mortgage specialist about financing. Mortgage documentation takes about 10 to 12 weeks to complete, so apply early.
Note that most banks charge a cancellation fee of up to 1.5 per cent on the loan amount if you pull out later.
Banks determine the maximum loan amount by applying a debt servicing ratio of between 30 and 35 per cent of your monthly income.
Therefore your total monthly repayment should not exceed this ratio when compared to your monthly income. Other commitments, such as a car loan, will be taken into consideration as part of your monthly commitments.
# Select your loan tenure
Generally, the maximum loan tenure is 35 years, but it depends on the borrower's age. In the case of joint applicants, the maximum tenure will be based on the age of the youngest borrower as long as the loan tenure plus the age of the youngest borrower does not exceed 70 years on loan maturity.
For example, if a borrower wanted to select the maximum loan tenure of 35 years, he must not be more than 35 years old.
Here are some useful tips:
# Choose the right package according to your needs
Most banks offer three types of home loan packages: fixed-rate, variable-rate and market-pegged packages.
It is important to understand your needs and intentions before you decide which package suits you.
A fixed-rate package is suitable for those who want peace of mind as during the fixed-rate period, there will be no rate volatility.
But it is not recommended if you want to make a partial prepayment or full settlement during this period as there will be penalties.
A variable-rate package is one where the rate is pegged against the bank's reference or board rate. This allows the borrower to make prepayments.
If you have a good understanding of market-pegged rates and you do not mind rate movements, go for the market-pegged package.
The rate offered by banks in Singapore is generally pegged to the Singapore Inter Bank Offer Rate (Sibor).
It also allows you to make loan prepayment without penalty for no lock-in packages on specific rollover dates.
# Get mortgage insurance for protection
Mortgage insurance - or Mortgage Reducing Term Assurance - covers the home loan balance in the event that the borrower dies or is totally and permanently disabled.
Although not compulsory, it is recommended. If an unfortunate event strikes, the loan repayments will be covered by the insurance.
Have difficulty in your repayments? Talk to your bankers. Late charges or non-repayment penalties are but a deterrent for non-payment. More importantly, promptly seek help in managing an overdue debt.
Banks try to help customers work through such difficult times. It might include allowing customers to pay only the interest portion of the loan for a short period, stretching the loan period so as to reduce the monthly repayment amount.
Help might also come in the form of allowing borrowers to include a second loan applicant to help service the initial loan.
It is not in the bank's interest to foreclose on home loans. We advise customers who have loans to pay off and are close to running into the risk of not being able to make payments, to speak to their bank officers before their situation gets worse.
The writer is OCBC Bank's head of secured lending.
Source: Sunday Times, 18 Jul 2010
# Prepare in advance
You must pay at least 1 per cent of the purchase price in exchange for an option to purchase. After that, you have 14 days to decide whether to proceed with the deal and pay the balance of 9 per cent for a completed property or 4 per cent for one under construction.
At this point, consult a mortgage specialist about financing. Mortgage documentation takes about 10 to 12 weeks to complete, so apply early.
Note that most banks charge a cancellation fee of up to 1.5 per cent on the loan amount if you pull out later.
Banks determine the maximum loan amount by applying a debt servicing ratio of between 30 and 35 per cent of your monthly income.
Therefore your total monthly repayment should not exceed this ratio when compared to your monthly income. Other commitments, such as a car loan, will be taken into consideration as part of your monthly commitments.
# Select your loan tenure
Generally, the maximum loan tenure is 35 years, but it depends on the borrower's age. In the case of joint applicants, the maximum tenure will be based on the age of the youngest borrower as long as the loan tenure plus the age of the youngest borrower does not exceed 70 years on loan maturity.
For example, if a borrower wanted to select the maximum loan tenure of 35 years, he must not be more than 35 years old.
Here are some useful tips:
# Choose the right package according to your needs
Most banks offer three types of home loan packages: fixed-rate, variable-rate and market-pegged packages.
It is important to understand your needs and intentions before you decide which package suits you.
A fixed-rate package is suitable for those who want peace of mind as during the fixed-rate period, there will be no rate volatility.
But it is not recommended if you want to make a partial prepayment or full settlement during this period as there will be penalties.
A variable-rate package is one where the rate is pegged against the bank's reference or board rate. This allows the borrower to make prepayments.
If you have a good understanding of market-pegged rates and you do not mind rate movements, go for the market-pegged package.
The rate offered by banks in Singapore is generally pegged to the Singapore Inter Bank Offer Rate (Sibor).
It also allows you to make loan prepayment without penalty for no lock-in packages on specific rollover dates.
# Get mortgage insurance for protection
Mortgage insurance - or Mortgage Reducing Term Assurance - covers the home loan balance in the event that the borrower dies or is totally and permanently disabled.
Although not compulsory, it is recommended. If an unfortunate event strikes, the loan repayments will be covered by the insurance.
Have difficulty in your repayments? Talk to your bankers. Late charges or non-repayment penalties are but a deterrent for non-payment. More importantly, promptly seek help in managing an overdue debt.
Banks try to help customers work through such difficult times. It might include allowing customers to pay only the interest portion of the loan for a short period, stretching the loan period so as to reduce the monthly repayment amount.
Help might also come in the form of allowing borrowers to include a second loan applicant to help service the initial loan.
It is not in the bank's interest to foreclose on home loans. We advise customers who have loans to pay off and are close to running into the risk of not being able to make payments, to speak to their bank officers before their situation gets worse.
The writer is OCBC Bank's head of secured lending.
Source: Sunday Times, 18 Jul 2010
Tuesday, July 6, 2010
Islamic loans hit five-year low on declining property prices
Downgrade of credit rankings by ratings agencies makes borrowing costlier
(DUBAI) Syariah-compliant loans slumped to a five- year low in Europe, the Middle East and Africa in the first half on credit-ratings downgrades and falling property prices.
Islamic syndicated loans declined 40 per cent to US$2.2 billion, compared with a 5 per cent drop in total lending to US$304 billion, according to data compiled by Bloomberg. Real estate prices have dropped 50 per cent in the United Arab Emirates from their peak in August 2008, according to estimates from Colliers International.
'Banks have plenty of liquidity but they have been very selective when it comes to where they would like to deploy it,' Faisal Hijazi, business development manager of rating services and Islamic finance in Dubai at Moody's Investors Service, said in a July 1 interview in Kuala Lumpur. 'Real estate and investment companies seem to be the most seriously challenged when it comes to refinancing.'
Middle East property developers have been forced to renegotiate loans and bonds after they struggled to meet their obligations, prompting ratings companies to downgrade credit rankings and making borrowing more expensive. The last time banks made fewer Islamic loans was in 2005, when the total was US$75 million.
The UAE's state-owned Dubai World, Saudi Arabia-based Saad Group and Investment Dar Co in Kuwait announced plans in the past year to restructure debt. Dubai Holding Commercial Operations Group, a real estate and hospitality company, had its rating cut to B2 on June 30 by Moody's, five levels below investment grade.
Islamic finance transactions are based on the exchange of assets rather than interest to comply with the syariah principles.
Created in the 1970s, the industry's assets may quadruple to US$2.8 trillion by 2015 from about US$700 billion in 2005, according to the Kuala Lumpur-based Islamic Financial Services Board, a standards-setting body.
Dubai Department of Finance's sukuk, or Islamic bonds, have dropped since the debt was sold in October. The 6.396 per cent note maturing in November 2014 yielded 7.82 per cent, 145 basis points more than 6.37 per cent at the time of issue, according to Bloomberg bond trader composite prices. The rate reached a record high of 10.29 per cent on Feb 15. The securities' spread over similar- maturity US Treasuries narrowed 187 to 624 in the same period.
The HSBC/Nasdaq Dubai US Dollar Sukuk Index, made up of sukuk from Indonesia to Saudi Arabia, gained 0.8 per cent in the three months ended June 30. The average yield on corporate and government sukuk dropped seven basis points, or 0.07 percentage point, to 6.29 per cent last quarter, according to the HSBC/Nasdaq Dollar Sukuk Index.
The yield on Malaysia's 3.928 per cent Islamic notes due June 2015 fell one basis point last week to 3.57 per cent, according to prices from Royal Bank of Scotland Group.
Dubai companies may have to restructure loans due over the next 12 to 18 months, Moody's said in a report on June 14. Arab companies in the Persian Gulf region have US$28 billion of debt maturing in 2012, Moody's said.
The loan of Qatari Diar Real Estate Development Co, a unit of the Gulf state's sovereign wealth fund, was one of four Islamic loans in Europe, Middle East and Africa so far this year, the data show. It borrowed US$300 million in April from banks led by HSBC Holdings plc, Europe's biggest lender by market value, Bloomberg data show.
In Asia, the Malaysian government's plan to spend RM230 billion (S$99.3 billion) on development projects from 2011 to 2015 may boost demand for financing, according to rating company RAM Holdings Bhd. Bank loans in Malaysia more than doubled to US$4.1 billion in the first half, the highest in two years, after the country climbed out of its first recession in a decade last year.
Malaysia's economy is forecast by Prime Minister Najib Razak to expand as much as 6 per cent this year after shrinking 1.7 per cent in 2009.
Maybank Islamic Bhd, a unit of Malaysia's largest lender Malayan Banking Bhd, expects to increase Islamic loans by 20 per cent to 30 per cent for the financial year ending June 2011, chief executive officer Ibrahim Hassan said in a message to Bloomberg on July 1.
Dubai World, whose unit Nakheel is building palm-shaped islands off Dubai's coast, reached an agreement with its main creditor group in May to restructure US$23.5 billion of liabilities.
Saad Trading, Contracting and Financial Services Co, a unit of Saad Group owned by billionaire Maan al-Sanea and his family, defaulted on a US$650 million sukuk in November. Investment Dar, the Kuwait- based owner of half of Aston Martin Lagonda Ltd, was unable to meet obligations on its outstanding US$30 million debt in April last year, according to data compiled by Bloomberg.
The company and its creditors agreed to most commercial aspects of restructuring liabilities, the creditors committee said on June 14. It had 1.03 billion dinars (S$4.9 billion) of debt outstanding at the end of September 2008.
'The quality of the creditors has deteriorated,' Mr Hijazi of Moody's said during an Islamic capital market forum in Kuala Lumpur. 'So the uncertainty is still pretty much there.' - Bloomberg
Source: Business Times, 6 Jul 2010
(DUBAI) Syariah-compliant loans slumped to a five- year low in Europe, the Middle East and Africa in the first half on credit-ratings downgrades and falling property prices.
Islamic syndicated loans declined 40 per cent to US$2.2 billion, compared with a 5 per cent drop in total lending to US$304 billion, according to data compiled by Bloomberg. Real estate prices have dropped 50 per cent in the United Arab Emirates from their peak in August 2008, according to estimates from Colliers International.
'Banks have plenty of liquidity but they have been very selective when it comes to where they would like to deploy it,' Faisal Hijazi, business development manager of rating services and Islamic finance in Dubai at Moody's Investors Service, said in a July 1 interview in Kuala Lumpur. 'Real estate and investment companies seem to be the most seriously challenged when it comes to refinancing.'
Middle East property developers have been forced to renegotiate loans and bonds after they struggled to meet their obligations, prompting ratings companies to downgrade credit rankings and making borrowing more expensive. The last time banks made fewer Islamic loans was in 2005, when the total was US$75 million.
The UAE's state-owned Dubai World, Saudi Arabia-based Saad Group and Investment Dar Co in Kuwait announced plans in the past year to restructure debt. Dubai Holding Commercial Operations Group, a real estate and hospitality company, had its rating cut to B2 on June 30 by Moody's, five levels below investment grade.
Islamic finance transactions are based on the exchange of assets rather than interest to comply with the syariah principles.
Created in the 1970s, the industry's assets may quadruple to US$2.8 trillion by 2015 from about US$700 billion in 2005, according to the Kuala Lumpur-based Islamic Financial Services Board, a standards-setting body.
Dubai Department of Finance's sukuk, or Islamic bonds, have dropped since the debt was sold in October. The 6.396 per cent note maturing in November 2014 yielded 7.82 per cent, 145 basis points more than 6.37 per cent at the time of issue, according to Bloomberg bond trader composite prices. The rate reached a record high of 10.29 per cent on Feb 15. The securities' spread over similar- maturity US Treasuries narrowed 187 to 624 in the same period.
The HSBC/Nasdaq Dubai US Dollar Sukuk Index, made up of sukuk from Indonesia to Saudi Arabia, gained 0.8 per cent in the three months ended June 30. The average yield on corporate and government sukuk dropped seven basis points, or 0.07 percentage point, to 6.29 per cent last quarter, according to the HSBC/Nasdaq Dollar Sukuk Index.
The yield on Malaysia's 3.928 per cent Islamic notes due June 2015 fell one basis point last week to 3.57 per cent, according to prices from Royal Bank of Scotland Group.
Dubai companies may have to restructure loans due over the next 12 to 18 months, Moody's said in a report on June 14. Arab companies in the Persian Gulf region have US$28 billion of debt maturing in 2012, Moody's said.
The loan of Qatari Diar Real Estate Development Co, a unit of the Gulf state's sovereign wealth fund, was one of four Islamic loans in Europe, Middle East and Africa so far this year, the data show. It borrowed US$300 million in April from banks led by HSBC Holdings plc, Europe's biggest lender by market value, Bloomberg data show.
In Asia, the Malaysian government's plan to spend RM230 billion (S$99.3 billion) on development projects from 2011 to 2015 may boost demand for financing, according to rating company RAM Holdings Bhd. Bank loans in Malaysia more than doubled to US$4.1 billion in the first half, the highest in two years, after the country climbed out of its first recession in a decade last year.
Malaysia's economy is forecast by Prime Minister Najib Razak to expand as much as 6 per cent this year after shrinking 1.7 per cent in 2009.
Maybank Islamic Bhd, a unit of Malaysia's largest lender Malayan Banking Bhd, expects to increase Islamic loans by 20 per cent to 30 per cent for the financial year ending June 2011, chief executive officer Ibrahim Hassan said in a message to Bloomberg on July 1.
Dubai World, whose unit Nakheel is building palm-shaped islands off Dubai's coast, reached an agreement with its main creditor group in May to restructure US$23.5 billion of liabilities.
Saad Trading, Contracting and Financial Services Co, a unit of Saad Group owned by billionaire Maan al-Sanea and his family, defaulted on a US$650 million sukuk in November. Investment Dar, the Kuwait- based owner of half of Aston Martin Lagonda Ltd, was unable to meet obligations on its outstanding US$30 million debt in April last year, according to data compiled by Bloomberg.
The company and its creditors agreed to most commercial aspects of restructuring liabilities, the creditors committee said on June 14. It had 1.03 billion dinars (S$4.9 billion) of debt outstanding at the end of September 2008.
'The quality of the creditors has deteriorated,' Mr Hijazi of Moody's said during an Islamic capital market forum in Kuala Lumpur. 'So the uncertainty is still pretty much there.' - Bloomberg
Source: Business Times, 6 Jul 2010
Friday, May 21, 2010
All time low rates ‘may overheat property sector’
Interbank lending rates have fallen to all-time lows here and market watchers have raised concerns that cheap lending may lead to over-heating in the property sector.
Responding to media queries at a Ministry of Trade and Industry briefing yesterday, Monetary Authority of Singapore (MAS) deputy managing director Ong Chong Tee said the fall in Sibor rates partly reflects market expectations of a stronger Singapore dollar, following a move by the MAS to a policy of currency appreciation from a neutral policy last month.
The Singapore Inter-Bank Offered Rate (Sibor) refers to the rate at which banks in Asia lend money to each other and is a key component used by banks in setting their home loan rates. The three-month Sibor dropped to 0.52 per cent at end-April and is expected to remain low, said DBS in its latest research report.
DBS economist Irvin Seah said the low interest rate environment may encourage speculation in the asset market especially for the property sector, unless “administrative controls are put in place to keep the lid on asset inflation”.
Cheap home loans, as well as commodity and fuel prices, are among the factors that could affect inflation.
The Singapore Government had earlier introduced measures to cool the property market but risks remain and more such cooling measures may likely be introduced, Mr Seah said.
The Sibor rate is expected to fall to near-zero levels at about 0.40 per cent by the third quarter – a drop of about 12 to 14 basis points, said DBS head of economic and currency research David Carbon.
But some watchers do not see the rates coming down any lower.
Forecast regional economist Vishnu Varathan pointed out that the Sibor will usually follow the US Federal funds rate, which are already at the bottom-levels. The US Federal funds rate refers to the rate that banks charge each other on overnight loans.
With deposit rates at a low, Fundsupermart.com general manager Wong Sui Jau sees bank savings account interest rates falling to 0.1 per cent or even lower. This may be an opportunity for consumers to consider alternative ways to park their monies, as Mr Wong said they could consider investing in short-duration bond funds and money-market funds.
These funds are low-risk and yet provide a yield that is slightly higher than fixed deposits and bank savings accounts, he said. “Ultimately, investors have to accept that the higher the potential return they wish to get, the higher the risk they must take,” he added.
Source: Today, 21 May 2010
Responding to media queries at a Ministry of Trade and Industry briefing yesterday, Monetary Authority of Singapore (MAS) deputy managing director Ong Chong Tee said the fall in Sibor rates partly reflects market expectations of a stronger Singapore dollar, following a move by the MAS to a policy of currency appreciation from a neutral policy last month.
The Singapore Inter-Bank Offered Rate (Sibor) refers to the rate at which banks in Asia lend money to each other and is a key component used by banks in setting their home loan rates. The three-month Sibor dropped to 0.52 per cent at end-April and is expected to remain low, said DBS in its latest research report.
DBS economist Irvin Seah said the low interest rate environment may encourage speculation in the asset market especially for the property sector, unless “administrative controls are put in place to keep the lid on asset inflation”.
Cheap home loans, as well as commodity and fuel prices, are among the factors that could affect inflation.
The Singapore Government had earlier introduced measures to cool the property market but risks remain and more such cooling measures may likely be introduced, Mr Seah said.
The Sibor rate is expected to fall to near-zero levels at about 0.40 per cent by the third quarter – a drop of about 12 to 14 basis points, said DBS head of economic and currency research David Carbon.
But some watchers do not see the rates coming down any lower.
Forecast regional economist Vishnu Varathan pointed out that the Sibor will usually follow the US Federal funds rate, which are already at the bottom-levels. The US Federal funds rate refers to the rate that banks charge each other on overnight loans.
With deposit rates at a low, Fundsupermart.com general manager Wong Sui Jau sees bank savings account interest rates falling to 0.1 per cent or even lower. This may be an opportunity for consumers to consider alternative ways to park their monies, as Mr Wong said they could consider investing in short-duration bond funds and money-market funds.
These funds are low-risk and yet provide a yield that is slightly higher than fixed deposits and bank savings accounts, he said. “Ultimately, investors have to accept that the higher the potential return they wish to get, the higher the risk they must take,” he added.
Source: Today, 21 May 2010
Thursday, May 13, 2010
Could interest rates hit zero?
Not quite, say economists, but rates may fall further this year
INTEREST rates are falling but could they end up close to zero?
That was the startling situation posited in an analyst report last week - good news for mortgage holders but painful for those looking for some return on their bank deposits.
Thankfully, economists polled by The Straits Times say that the spectre of zero interest rates - seen most recently in Japan - is unlikely to occur in Singapore. But they warn rates will probably fall further this year to skirt the absolute baseline, before rising a little by year end.
The trend here is in stark contrast to the rest of Asia and Australia, where central banks are lifting rates, sometimes aggressively, to fight inflation.
Rates started falling here after the Monetary Authority of Singapore (MAS) decided last month to let the Singapore dollar rise against a basket of currencies.
The MAS had been intervening in the currency market up to that point to hold rates at the same level, and at the same time keep the Singdollar within its trading band.
Mr David Carbon, managing director for economic and currency research at DBS, has estimated that the MAS intervened to the tune of US$63 billion (S$86.9 billion), but it has now allowed the currency to appreciate and interest rates to adjust back to their actual levels.
The money market response to all this has been dramatic.
After hovering at 0.65 per cent for the past 14 months, the benchmark three-month Singapore Interbank Offer Rate (Sibor) fell 13 basis points to a new low of 0.52 per cent two weeks ago, before edging up slightly to 0.53 per cent. Sibor is the rate at which banks lend to each other and serves as a handy benchmark for all kinds of rates here, particularly mortgages.
Banks reacted to the falling Sibor by offering savings rates of a measly 0.1 to 0.2 per cent. Fixed deposits are marginally better at 0.4 to 0.6 per cent for a period of one to two years.
So a deposit of $10,000 for two years could earn you an annual interest of about $60: a few pizzas and a beer.
With such pitiful returns, investors have been looking elsewhere to put their cash. But mortgage holders are cheering as the falling Sibor means loans pinned to it have fallen as well, although some banks have raised the fixed amount that is added on to the base rate.
Others stuck in long-term mortgages are also looking to refinance for better rates, say financial planners.
'Sibor can't go to zero but it can take another step or two in that direction and seems likely to do so,' says Mr Carbon, who forecasts Sibor to bottom out at 0.43 per cent by the end of next month, and to start rising slowly to 0.61 per cent by the end of the year.
Economic issues unfolding across the globe, particularly in the United States, and the way Singapore responds mean low rates will continue for a while.
Unlike most other countries, Singapore's high dependence on exports and imports means the MAS controls monetary policy through its exchange rates. During high inflation, a stronger currency helps to make imports cheaper and so eases pressure from imported inflation.
Singapore's policy also means it tracks the interest rate policy of its major trading partners, including the US where rates are at rock bottom - between zero and 0.25 per cent.
So rates here 'are likely to remain depressed as long as US rates are low', wrote economists at Standard Chartered in a report on April 29. They expect Sibor to drop further to 0.5 per cent by the end of the second quarter and stay there for the rest of the year.
The huge Europe bailout package and continued scepticism over that region's ability to grow amid a burgeoning deficit has some analysts believing rate hikes in Asia may have to be delayed. But it may not derail a rise in the Federal Reserve's rates as economic indicators continue to point to an improving situation in the US.
That is prompting economists to tip Sibor to recover near the end of the year.
Barclays Capital economist Leong Wai Ho believes it will rise a little to 0.6 per cent by then, while OCBC economist Selena Ling sees rates rising to 0.8 per cent.
Financial advisers suggest savers could invest in mutual funds and unit trusts that are relatively low risk and have given higher returns of 2 to 3 per cent.
More sophisticated investors might try short-term bond funds, said Fundsupermart general manager Wong Sui Jau. While bonds can be seen as risky, he noted that only once in the past eight years - 2008 - did bond funds produce negative returns: 'Generally they are not volatile and are relatively low risk.'
Investors willing to take even more risk could try funds investing in Asia and emerging markets bonds.
'Currency appreciation in those countries is likely to be on a par with the Singdollar appreciation and would give a decent amount of yield,' Mr Wong said.
Source: Straits Times, 13 May 2010
INTEREST rates are falling but could they end up close to zero?
That was the startling situation posited in an analyst report last week - good news for mortgage holders but painful for those looking for some return on their bank deposits.
Thankfully, economists polled by The Straits Times say that the spectre of zero interest rates - seen most recently in Japan - is unlikely to occur in Singapore. But they warn rates will probably fall further this year to skirt the absolute baseline, before rising a little by year end.
The trend here is in stark contrast to the rest of Asia and Australia, where central banks are lifting rates, sometimes aggressively, to fight inflation.
Rates started falling here after the Monetary Authority of Singapore (MAS) decided last month to let the Singapore dollar rise against a basket of currencies.
The MAS had been intervening in the currency market up to that point to hold rates at the same level, and at the same time keep the Singdollar within its trading band.
Mr David Carbon, managing director for economic and currency research at DBS, has estimated that the MAS intervened to the tune of US$63 billion (S$86.9 billion), but it has now allowed the currency to appreciate and interest rates to adjust back to their actual levels.
The money market response to all this has been dramatic.
After hovering at 0.65 per cent for the past 14 months, the benchmark three-month Singapore Interbank Offer Rate (Sibor) fell 13 basis points to a new low of 0.52 per cent two weeks ago, before edging up slightly to 0.53 per cent. Sibor is the rate at which banks lend to each other and serves as a handy benchmark for all kinds of rates here, particularly mortgages.
Banks reacted to the falling Sibor by offering savings rates of a measly 0.1 to 0.2 per cent. Fixed deposits are marginally better at 0.4 to 0.6 per cent for a period of one to two years.
So a deposit of $10,000 for two years could earn you an annual interest of about $60: a few pizzas and a beer.
With such pitiful returns, investors have been looking elsewhere to put their cash. But mortgage holders are cheering as the falling Sibor means loans pinned to it have fallen as well, although some banks have raised the fixed amount that is added on to the base rate.
Others stuck in long-term mortgages are also looking to refinance for better rates, say financial planners.
'Sibor can't go to zero but it can take another step or two in that direction and seems likely to do so,' says Mr Carbon, who forecasts Sibor to bottom out at 0.43 per cent by the end of next month, and to start rising slowly to 0.61 per cent by the end of the year.
Economic issues unfolding across the globe, particularly in the United States, and the way Singapore responds mean low rates will continue for a while.
Unlike most other countries, Singapore's high dependence on exports and imports means the MAS controls monetary policy through its exchange rates. During high inflation, a stronger currency helps to make imports cheaper and so eases pressure from imported inflation.
Singapore's policy also means it tracks the interest rate policy of its major trading partners, including the US where rates are at rock bottom - between zero and 0.25 per cent.
So rates here 'are likely to remain depressed as long as US rates are low', wrote economists at Standard Chartered in a report on April 29. They expect Sibor to drop further to 0.5 per cent by the end of the second quarter and stay there for the rest of the year.
The huge Europe bailout package and continued scepticism over that region's ability to grow amid a burgeoning deficit has some analysts believing rate hikes in Asia may have to be delayed. But it may not derail a rise in the Federal Reserve's rates as economic indicators continue to point to an improving situation in the US.
That is prompting economists to tip Sibor to recover near the end of the year.
Barclays Capital economist Leong Wai Ho believes it will rise a little to 0.6 per cent by then, while OCBC economist Selena Ling sees rates rising to 0.8 per cent.
Financial advisers suggest savers could invest in mutual funds and unit trusts that are relatively low risk and have given higher returns of 2 to 3 per cent.
More sophisticated investors might try short-term bond funds, said Fundsupermart general manager Wong Sui Jau. While bonds can be seen as risky, he noted that only once in the past eight years - 2008 - did bond funds produce negative returns: 'Generally they are not volatile and are relatively low risk.'
Investors willing to take even more risk could try funds investing in Asia and emerging markets bonds.
'Currency appreciation in those countries is likely to be on a par with the Singdollar appreciation and would give a decent amount of yield,' Mr Wong said.
Source: Straits Times, 13 May 2010
Sunday, May 9, 2010
Loan amount and interest rates
Besides licensed moneylenders, borrowers turn to banks, trade unions and illegal loan sharks. Here is how much they generally charge.
BANKS
Effective interest rates for personal loan: 12 per cent to 25 per cent per annum depending on income and loan tenure
Interest rates for housing loan: from 1.6 per cent per annum depending on loan tenure and type of loan
Minimum income: $20,000 per annum
Maximum amount that can be borrowed: up to four times the borrower's monthly income
UNIONS
Interest rates for personal loans: 4.25 per cent to 6 per cent per annum
Minimum income: no minimum income but must be member of union
Maximum amount that can be borrowed: two to eight times borrower's monthly salary or up to the value of the pledged collateral
LEGAL MONEYLENDERS
Interest rates for personal loans: 3.33 per cent per week to 20 per cent per month
Interest rate for housing loans: 4 per cent to 20 per cent per month, depending on the loan amount, repayment period and borrower's income
Minimum income: $1,000 a month
Maximum amount that can be borrowed: up to four times the borrower's monthly income
ILLEGAL MONEYLENDERS or LOAN SHARKS
Interest rates: Usually a flat 20 per cent per month, regardless of the type of loan
Minimum income: None. You need a guarantor who will pay up if you default.
Maximum amount that can be borrowed: Depends on how much you are trusted. Amounts start as small as $500 and can go up to thousands of dollars.
Source: Sunday Times, 9 May 2010
BANKS
Effective interest rates for personal loan: 12 per cent to 25 per cent per annum depending on income and loan tenure
Interest rates for housing loan: from 1.6 per cent per annum depending on loan tenure and type of loan
Minimum income: $20,000 per annum
Maximum amount that can be borrowed: up to four times the borrower's monthly income
UNIONS
Interest rates for personal loans: 4.25 per cent to 6 per cent per annum
Minimum income: no minimum income but must be member of union
Maximum amount that can be borrowed: two to eight times borrower's monthly salary or up to the value of the pledged collateral
LEGAL MONEYLENDERS
Interest rates for personal loans: 3.33 per cent per week to 20 per cent per month
Interest rate for housing loans: 4 per cent to 20 per cent per month, depending on the loan amount, repayment period and borrower's income
Minimum income: $1,000 a month
Maximum amount that can be borrowed: up to four times the borrower's monthly income
ILLEGAL MONEYLENDERS or LOAN SHARKS
Interest rates: Usually a flat 20 per cent per month, regardless of the type of loan
Minimum income: None. You need a guarantor who will pay up if you default.
Maximum amount that can be borrowed: Depends on how much you are trusted. Amounts start as small as $500 and can go up to thousands of dollars.
Source: Sunday Times, 9 May 2010
Friday, May 7, 2010
Over 1,800 HDB owners downgrade to smaller flats with second concessionary loan
More than 1,800 people have taken advantage of the Housing and Development Board’s (HDB) second concessionary loan to downgrade to a smaller flat since the rules were relaxed two months ago.
The HDB has received more than 4,000 applications for second concessionary loan.
So far, about 1,800 applicants were successful.
About a quarter of applications were rejected, while the rest are still being processed.
Previously, only households that are upgrading to a bigger flat type are eligible to apply for a second concessionary loan from HDB.
Source: Channel News Asia,7 May 2010
The HDB has received more than 4,000 applications for second concessionary loan.
So far, about 1,800 applicants were successful.
About a quarter of applications were rejected, while the rest are still being processed.
Previously, only households that are upgrading to a bigger flat type are eligible to apply for a second concessionary loan from HDB.
Source: Channel News Asia,7 May 2010
Tuesday, May 4, 2010
POSB’s 60 minute promise
POSB’s HDB home loans can now be secured within an hour, the bank said yesterday, in a move to improve efficiency and convenience for its customers.
With the 60-minute Promise, customers who apply for HDB home loans can complete and return the required documents via email or fax between 9am and 3pm from Monday to Friday.
When the application is received and deemed satisfactory, the customer will receive an SMS notifying him that his Letter of Offer is being prepared in 60 minutes, upon which another SMS will be sent to the customer informing him of the letter’s approval and that he can sign it at any POSB branch.
POSB will guarantee 0.1 per cent off the first year’s interest rate if the Letter of Offer is not ready within 60 minutes.
The 60-minute Promise is valid for whole purchases and refinancing of HDB flats.
This latest initiative is intended to grow the POSB franchise with a more customer-centric approach, which includes cutting down long queues at branches, said parent company DBS Group.
DBS chief executive officer Piyush Gupta unveiled such plans in late April, saying he saw potential in harnessing the huge POSB customer base and leveraging on it for the group’s bigger growth plans.
Source: Today, 4 May 2010
With the 60-minute Promise, customers who apply for HDB home loans can complete and return the required documents via email or fax between 9am and 3pm from Monday to Friday.
When the application is received and deemed satisfactory, the customer will receive an SMS notifying him that his Letter of Offer is being prepared in 60 minutes, upon which another SMS will be sent to the customer informing him of the letter’s approval and that he can sign it at any POSB branch.
POSB will guarantee 0.1 per cent off the first year’s interest rate if the Letter of Offer is not ready within 60 minutes.
The 60-minute Promise is valid for whole purchases and refinancing of HDB flats.
This latest initiative is intended to grow the POSB franchise with a more customer-centric approach, which includes cutting down long queues at branches, said parent company DBS Group.
DBS chief executive officer Piyush Gupta unveiled such plans in late April, saying he saw potential in harnessing the huge POSB customer base and leveraging on it for the group’s bigger growth plans.
Source: Today, 4 May 2010
POSB discount pledge for home loans
0.1 percentage point off first-year interest rate if HDB loan approval not within 60 mins
IN A first for the banking industry here, POSB is dangling a small discount off the first-year interest rate if it fails to grant approvals for HDB home loans within 60 minutes of completing an initial appraisal.
In its latest effort to rejuvenate the so-called people's bank, POSB yesterday launched a '60-minute promise'.
Customers applying for a home loan simply have to complete and return the necessary documents via e-mail or fax between 9am and 3pm from Monday to Friday.
These include income documents such as the latest income tax notice of assessment. They are also required to submit a mortgage loan application form, the option-to-purchase form (for new purchases), and the loan statement of account (for loans refinancing from HDB).
Once the application is received and deemed satisfactory (this will take a few hours), the customer will get an SMS informing him the 60-minute period has started and another SMS when the letter of offer is ready.
The customer can then proceed to the POSB branch of his choice to sign the letter of offer.
POSB promises customers 0.1 percentage point off the first-year interest rate if the letter of offer is not ready in 60 minutes.
Assuming there are no problems with the application, a POSB customer who submits the documents in the morning should be able to sign the letter of offer the same day.
Mr Koh Kar Siong, managing director and head of POSB, said this is all part of the bank's ongoing initiatives to improve its efficiency and provide greater convenience to customers.
'Providing our customers with a quick turnaround time, giving them the approved letter of offer within 60 minutes is our service promise of enhancing their banking experience with us,' he said.
Some other banks can issue the letter of offer within a day too, though the difference is that POSB is underscoring its commitment by dangling an interest rate discount if they cannot deliver within a certain timeframe.
Citi, for example, offers customers in-principle online approval for a mortgage loan within 60 seconds of an application.
Upon obtaining the in-principle approval, if the customer can submit the necessary documents early in the day and fulfil the required criteria, a letter of offer can be prepared the same day.
OCBC Bank is another example. More than 80 per cent of its HDB home loan customers have received an approval and letter of offer within 30 minutes, if the applications were straightforward and the documents were in order.
Mr Leong Sze Hian, president of the Society of Financial Service Professionals, cautioned home buyers to first consider their circumstances and if they can afford to service the mortgage, before snatching a quick deal.
The initiative appears to be in line with DBS Group Holdings chief executive Piyush Gupta's strategy to beef up the POSB franchise.
He has signalled an intention to 're-create the full service relationship where the POSB client sees us not only as a place to put their savings in but also to get their mortgage, unsecured financing and simple investment products'.
Source: Straits Times, 4 May 2010
IN A first for the banking industry here, POSB is dangling a small discount off the first-year interest rate if it fails to grant approvals for HDB home loans within 60 minutes of completing an initial appraisal.
In its latest effort to rejuvenate the so-called people's bank, POSB yesterday launched a '60-minute promise'.
Customers applying for a home loan simply have to complete and return the necessary documents via e-mail or fax between 9am and 3pm from Monday to Friday.
These include income documents such as the latest income tax notice of assessment. They are also required to submit a mortgage loan application form, the option-to-purchase form (for new purchases), and the loan statement of account (for loans refinancing from HDB).
Once the application is received and deemed satisfactory (this will take a few hours), the customer will get an SMS informing him the 60-minute period has started and another SMS when the letter of offer is ready.
The customer can then proceed to the POSB branch of his choice to sign the letter of offer.
POSB promises customers 0.1 percentage point off the first-year interest rate if the letter of offer is not ready in 60 minutes.
Assuming there are no problems with the application, a POSB customer who submits the documents in the morning should be able to sign the letter of offer the same day.
Mr Koh Kar Siong, managing director and head of POSB, said this is all part of the bank's ongoing initiatives to improve its efficiency and provide greater convenience to customers.
'Providing our customers with a quick turnaround time, giving them the approved letter of offer within 60 minutes is our service promise of enhancing their banking experience with us,' he said.
Some other banks can issue the letter of offer within a day too, though the difference is that POSB is underscoring its commitment by dangling an interest rate discount if they cannot deliver within a certain timeframe.
Citi, for example, offers customers in-principle online approval for a mortgage loan within 60 seconds of an application.
Upon obtaining the in-principle approval, if the customer can submit the necessary documents early in the day and fulfil the required criteria, a letter of offer can be prepared the same day.
OCBC Bank is another example. More than 80 per cent of its HDB home loan customers have received an approval and letter of offer within 30 minutes, if the applications were straightforward and the documents were in order.
Mr Leong Sze Hian, president of the Society of Financial Service Professionals, cautioned home buyers to first consider their circumstances and if they can afford to service the mortgage, before snatching a quick deal.
The initiative appears to be in line with DBS Group Holdings chief executive Piyush Gupta's strategy to beef up the POSB franchise.
He has signalled an intention to 're-create the full service relationship where the POSB client sees us not only as a place to put their savings in but also to get their mortgage, unsecured financing and simple investment products'.
Source: Straits Times, 4 May 2010
Sunday, May 2, 2010
Consider these
1 Loan tenor
A longer loan repayment period generally means smaller monthly repayments, while a shorter tenor may lead to lower interest paid, although repayments will be higher.
It is worth considering the optimal loan tenor as it affects monthly repayments and interest paid.
Instead of going to either extreme, consider matching the loan tenor to your intended retirement age.
If you are 42, for example, you can take up a 20-year loan that will be paid off by the time you retire at 62.
Financial Alliance associate director Tea Eng Peng says that if you choose a longer loan tenor, you should take up mortgage insurance with a critical illness cover. This will hedge the risk that you are unable to make your monthly repayments due to premature death or disability.
2 Affordability
Before taking the loan, calculate your debt service ratio. It is the percentage of your monthly income needed to service long-term liabilities.
A healthy debt servicing ratio - debt divided by income - should be 35 per cent or less.
'A good rule to follow is to buy what you need and can afford, not what you want and desire and then have to burn the candle at both ends to cough up the monthly mortgage repayment,' said Mr Apelles Poh, a financial planner with Professional Investment Advisory Services.
3 Fixed or variable packages
Fixed packages are suitable for consumers who want to know how much their instalments are for a set period.
With fixed packages, the monthly instalments are not open to fluctuations.
'Fixing the rates for the next few years, the advantage is that you can have peace of mind and you can predict or budget easily,' says Mr Dennis Ng, spokesman for www.HousingLoanSG.com - a mortgage consultancy portal.
'The disadvantage is that banks typically charge higher interest rates for fixed-rate packages, and you might end up paying higher interest if interest rates remain stable or low.'
Mr Ng says variable packages typically come with shorter lock-in periods.
For variable packages, the loan is usually linked to one of two major benchmark rates: Singapore Interbank Offered Rate (Sibor) or the Swap Offer Rate (SOR).
Experts say that as soon as the United States starts to raise interest rates, which could be as early as the end of this year, local interest rates will follow suit.
4 Early payment options
Not all loans allow customers to settle early,
so check the fine print before signing up. An early settlement fee is usually imposed if a loan is paid off early.
'A cancellation of the loan with the lock-in period often entails a penalty of, say 1 per cent of outstanding loan, and a claw-back of legal subsidy, valuation fees and fire insurance premiums,' Mr Poh says.
Source: Sunday Times, 2 May 2010
A longer loan repayment period generally means smaller monthly repayments, while a shorter tenor may lead to lower interest paid, although repayments will be higher.
It is worth considering the optimal loan tenor as it affects monthly repayments and interest paid.
Instead of going to either extreme, consider matching the loan tenor to your intended retirement age.
If you are 42, for example, you can take up a 20-year loan that will be paid off by the time you retire at 62.
Financial Alliance associate director Tea Eng Peng says that if you choose a longer loan tenor, you should take up mortgage insurance with a critical illness cover. This will hedge the risk that you are unable to make your monthly repayments due to premature death or disability.
2 Affordability
Before taking the loan, calculate your debt service ratio. It is the percentage of your monthly income needed to service long-term liabilities.
A healthy debt servicing ratio - debt divided by income - should be 35 per cent or less.
'A good rule to follow is to buy what you need and can afford, not what you want and desire and then have to burn the candle at both ends to cough up the monthly mortgage repayment,' said Mr Apelles Poh, a financial planner with Professional Investment Advisory Services.
3 Fixed or variable packages
Fixed packages are suitable for consumers who want to know how much their instalments are for a set period.
With fixed packages, the monthly instalments are not open to fluctuations.
'Fixing the rates for the next few years, the advantage is that you can have peace of mind and you can predict or budget easily,' says Mr Dennis Ng, spokesman for www.HousingLoanSG.com - a mortgage consultancy portal.
'The disadvantage is that banks typically charge higher interest rates for fixed-rate packages, and you might end up paying higher interest if interest rates remain stable or low.'
Mr Ng says variable packages typically come with shorter lock-in periods.
For variable packages, the loan is usually linked to one of two major benchmark rates: Singapore Interbank Offered Rate (Sibor) or the Swap Offer Rate (SOR).
Experts say that as soon as the United States starts to raise interest rates, which could be as early as the end of this year, local interest rates will follow suit.
4 Early payment options
Not all loans allow customers to settle early,
so check the fine print before signing up. An early settlement fee is usually imposed if a loan is paid off early.
'A cancellation of the loan with the lock-in period often entails a penalty of, say 1 per cent of outstanding loan, and a claw-back of legal subsidy, valuation fees and fire insurance premiums,' Mr Poh says.
Source: Sunday Times, 2 May 2010
Dream Home Loans
The Sunday Times checks out the best offerings from some banks
If you thought low mortgage rates would stay unchanged this year, think again.
Over the last month or so, some banks have upped the spreads they charge above Sibor - the rate at which banks lend to one another - making Sibor-pegged home loans more expensive.
The three-month Singapore Interbank Offered Rate, or Sibor, was at 0.54 per cent last week, below the previous all-time low of 0.56 per cent in June 2003.
At DBS Bank, a home-buyer taking a loan of 80 per cent of his property's value around March would have paid a rate of Sibor plus 0.5 percentage point for the first year and Sibor plus 0.75 percentage point for the second.
A buyer opting for this Sibor- linked DBS package now will have to pay Sibor plus 1 percentage point for the first two years.
Some fixed-rate packages have also shot up recently.
Standard Chartered Bank's one-year fixed package stood at 1.25 per cent in March, but has risen to 1.95 per cent.
Sibor, which is already low as it tracks prevailing United States rates which are at rock bottom, fell further following gains in the Singapore dollar last month.
In line with the improving global economic outlook, interest rates in some countries have moved higher - with more rate hikes expected globally in the second half of the year.
Some experts tip Sibor to rise later this year and to go even higher from next year.
Standard Chartered economist Alvin Liew predicts the three-month Sibor rate will likely rise to 3 per cent in 2012.
'Mortgage rates are hitting one of the lowest levels in recent years,' says Providend's head of financial planning, Mr Eddy Cheong. 'I think, going forward, there is a high chance that rates will move up if the economy continues to improve.'
When interest rates rise, monthly instalments on home loans that are not fixed will be driven up.
This could have severe implications for buyers who have over- extended themselves with big mortgages, believing interest rates will always stay low.
'Do your numbers properly. Buying a home should be a blessing, not burden,' says Mr Apelles Poh, a financial planner with Professional Investment Advisory Services.
While some home loan rates are now higher, there are still bargains and benefits out there for the cost-conscious home-buyer.
The Sunday Times shopped around to find out what some banks have to offer:
Fixed-rate loans
If you want loans with fixed rates locked in for a term of three or five years, try DBS Bank.
Last week, the bank introduced its five-year fixed package, an unusual tenor in the market.
Rates: Three-year package: The bank's current promotion requires a customer to also sign up for its mortgage insurance plan. Rates are fixed at 1.99 per cent for three years, and Sibor plus 1.25 per cent thereafter.
Standard rates are otherwise 2.2 per cent for three years, and Sibor plus 1.5 per cent thereafter.
Five-year package: For those taking up mortgage protection as well, rates are 2.25 per cent for five years and then Sibor plus 1.25 per cent.
Standard rates are 2.5 per cent for five years, and Sibor plus 1.5 per cent thereafter.
The managing director and head of DBS' consumer banking group, Mr Jeremy Soo, says: 'Our three-year fixed rate remains highly popular with home owners desiring more certainty in their repayment, especially with our three- and five- year fixed rates at a historical low'.
He says the current promotion includes mortgage protection, which is a 'key consideration for many home owners since mortgage is a long-term and significant commitment'.
Sibor-linked loans
If you are exploring Sibor-linked loans, HSBC will be the bank of choice. Its 'no lock-in' Sibor-pegged loyalty home loan is the only package that offers decreasing spreads over the tenor.
Rates: You pay the three-month Sibor plus an additional 0.9 per cent for the first year, three-month Sibor plus 0.8 per cent for the second year and then the three-month Sibor plus 0.7 per cent thereafter.
'The interest spread reduction feature serves to benefit customers regardless of how Sibor rates move,' says Mr Sebastian Arcuri, head of personal financial services at HSBC Singapore.
This bucks the conventional home loan package, which typically sees interest rate spreads rise over the loan tenor, he adds.
Sibor-linked loans with flexibility
Citibank provides the best solutions if you are looking for flexibility through the widest variety of Sibor- linked loans.
Unlike other banks, Citi offers loans pegged to the one-month Sibor. Other loans are pegged to the three-, six- and 12-month Sibor. Lock-in period varies from zero to two years, and spreads are determined based on the size of the loan and customer relationship.
Citi offers the lowest rate on one-year fixed packages at 1.5 per cent. For its two-year fixed package, it charges 1.88 per cent for the first two years.
Rates: For the first year, rates are Sibor plus 0.7 per cent to 1 per cent. For year two, rates are Sibor plus 0.9 per cent to 1 per cent, and thereafter Sibor plus 1 per cent to 1.25 per cent.
'Customers have the flexibility to switch from one tenor to another upon tenor maturity date,' says the business director for secured finance at Citibank Singapore, Ms Vibha Coburn.
As an example, clients can make use of the low one-month Sibor and subsequently, when the month is over, perhaps pick a 12-month Sibor if they feel that interest rates are likely to rise.
SOR-linked loans
For loans tied to the Swap Offer Rate, or SOR, OCBC and United Overseas Bank (UOB) are good picks.
UOB offers a package tied to the one-month SOR, now at 0.35 per cent, that allows customers to pay a fixed monthly instalment for a one-year period.
Rates: For the first three years, rates are one-month SOR plus 1.25 per cent, and thereafter the one- month SOR plus 1.5 per cent.
In the first year, if interest rates increase, 'customers can be assured that their monthly cash flow will not be disrupted. Conversely, if the rates decline, customers can pay off more of the principal amount', says a UOB spokesman.
The one-year constant monthly instalment feature can be re-continued for subsequent years as the fixed monthly instalments will be re-computed based on the remaining tenor and interest.
SOR-linked with lowest rates
OCBC offers the lowest rates on loans pegged to the three-month SOR, which is hovering at around 0.39 per cent, with a two-year lock-in.
Rates: SOR plus 0.75 per cent for the first year, SOR plus 1 per cent for the second year, SOR plus 1.25 per cent for the third year and SOR plus 1.5 per cent thereafter.
Ms Phang Lah Hwa, OCBC's head of consumer secured lending, advises buyers to guard against being swayed by just their sentiments.
Properly assessing your financial ability before making a commitment is important, she says.
'Consider longer-term issues, like affordability in the event that interest rates rise or instalment amounts increase,' adds Ms Phang.
Loans with variable rates
As for loans with variable rates, Maybank emerges the top of the lot, with the most affordable rates, with a two-year lock-in.
Rates: The loans are tied to the bank's board rate, currently at 3.75 per cent.
Rates on the loans are discounted from this 3.75 per cent, starting at 1.18 per cent for the first year. Customers will pay 1.68 per cent in the second year, and then 2.28 per cent in the third year, and 3.25 per cent thereafter.
To mark its 50th anniversary, Maybank is offering a cash gift of $5,000 to customers who pick up the variable-rate loan, says consumer banking head Helen Neo.
Rates for loans inclusive of the gift are slightly different, at 1.68 per cent for the first year, 1.88 per cent for the second year, 2.38 per cent for the third, and 3.25 per cent thereafter.
The two packages offer 'customers discounts off the bank's board rate throughout the period of their loan tenor', Ms Neo adds.
Source: Sunday Times, 2 May 2010
If you thought low mortgage rates would stay unchanged this year, think again.
Over the last month or so, some banks have upped the spreads they charge above Sibor - the rate at which banks lend to one another - making Sibor-pegged home loans more expensive.
The three-month Singapore Interbank Offered Rate, or Sibor, was at 0.54 per cent last week, below the previous all-time low of 0.56 per cent in June 2003.
At DBS Bank, a home-buyer taking a loan of 80 per cent of his property's value around March would have paid a rate of Sibor plus 0.5 percentage point for the first year and Sibor plus 0.75 percentage point for the second.
A buyer opting for this Sibor- linked DBS package now will have to pay Sibor plus 1 percentage point for the first two years.
Some fixed-rate packages have also shot up recently.
Standard Chartered Bank's one-year fixed package stood at 1.25 per cent in March, but has risen to 1.95 per cent.
Sibor, which is already low as it tracks prevailing United States rates which are at rock bottom, fell further following gains in the Singapore dollar last month.
In line with the improving global economic outlook, interest rates in some countries have moved higher - with more rate hikes expected globally in the second half of the year.
Some experts tip Sibor to rise later this year and to go even higher from next year.
Standard Chartered economist Alvin Liew predicts the three-month Sibor rate will likely rise to 3 per cent in 2012.
'Mortgage rates are hitting one of the lowest levels in recent years,' says Providend's head of financial planning, Mr Eddy Cheong. 'I think, going forward, there is a high chance that rates will move up if the economy continues to improve.'
When interest rates rise, monthly instalments on home loans that are not fixed will be driven up.
This could have severe implications for buyers who have over- extended themselves with big mortgages, believing interest rates will always stay low.
'Do your numbers properly. Buying a home should be a blessing, not burden,' says Mr Apelles Poh, a financial planner with Professional Investment Advisory Services.
While some home loan rates are now higher, there are still bargains and benefits out there for the cost-conscious home-buyer.
The Sunday Times shopped around to find out what some banks have to offer:
Fixed-rate loans
If you want loans with fixed rates locked in for a term of three or five years, try DBS Bank.
Last week, the bank introduced its five-year fixed package, an unusual tenor in the market.
Rates: Three-year package: The bank's current promotion requires a customer to also sign up for its mortgage insurance plan. Rates are fixed at 1.99 per cent for three years, and Sibor plus 1.25 per cent thereafter.
Standard rates are otherwise 2.2 per cent for three years, and Sibor plus 1.5 per cent thereafter.
Five-year package: For those taking up mortgage protection as well, rates are 2.25 per cent for five years and then Sibor plus 1.25 per cent.
Standard rates are 2.5 per cent for five years, and Sibor plus 1.5 per cent thereafter.
The managing director and head of DBS' consumer banking group, Mr Jeremy Soo, says: 'Our three-year fixed rate remains highly popular with home owners desiring more certainty in their repayment, especially with our three- and five- year fixed rates at a historical low'.
He says the current promotion includes mortgage protection, which is a 'key consideration for many home owners since mortgage is a long-term and significant commitment'.
Sibor-linked loans
If you are exploring Sibor-linked loans, HSBC will be the bank of choice. Its 'no lock-in' Sibor-pegged loyalty home loan is the only package that offers decreasing spreads over the tenor.
Rates: You pay the three-month Sibor plus an additional 0.9 per cent for the first year, three-month Sibor plus 0.8 per cent for the second year and then the three-month Sibor plus 0.7 per cent thereafter.
'The interest spread reduction feature serves to benefit customers regardless of how Sibor rates move,' says Mr Sebastian Arcuri, head of personal financial services at HSBC Singapore.
This bucks the conventional home loan package, which typically sees interest rate spreads rise over the loan tenor, he adds.
Sibor-linked loans with flexibility
Citibank provides the best solutions if you are looking for flexibility through the widest variety of Sibor- linked loans.
Unlike other banks, Citi offers loans pegged to the one-month Sibor. Other loans are pegged to the three-, six- and 12-month Sibor. Lock-in period varies from zero to two years, and spreads are determined based on the size of the loan and customer relationship.
Citi offers the lowest rate on one-year fixed packages at 1.5 per cent. For its two-year fixed package, it charges 1.88 per cent for the first two years.
Rates: For the first year, rates are Sibor plus 0.7 per cent to 1 per cent. For year two, rates are Sibor plus 0.9 per cent to 1 per cent, and thereafter Sibor plus 1 per cent to 1.25 per cent.
'Customers have the flexibility to switch from one tenor to another upon tenor maturity date,' says the business director for secured finance at Citibank Singapore, Ms Vibha Coburn.
As an example, clients can make use of the low one-month Sibor and subsequently, when the month is over, perhaps pick a 12-month Sibor if they feel that interest rates are likely to rise.
SOR-linked loans
For loans tied to the Swap Offer Rate, or SOR, OCBC and United Overseas Bank (UOB) are good picks.
UOB offers a package tied to the one-month SOR, now at 0.35 per cent, that allows customers to pay a fixed monthly instalment for a one-year period.
Rates: For the first three years, rates are one-month SOR plus 1.25 per cent, and thereafter the one- month SOR plus 1.5 per cent.
In the first year, if interest rates increase, 'customers can be assured that their monthly cash flow will not be disrupted. Conversely, if the rates decline, customers can pay off more of the principal amount', says a UOB spokesman.
The one-year constant monthly instalment feature can be re-continued for subsequent years as the fixed monthly instalments will be re-computed based on the remaining tenor and interest.
SOR-linked with lowest rates
OCBC offers the lowest rates on loans pegged to the three-month SOR, which is hovering at around 0.39 per cent, with a two-year lock-in.
Rates: SOR plus 0.75 per cent for the first year, SOR plus 1 per cent for the second year, SOR plus 1.25 per cent for the third year and SOR plus 1.5 per cent thereafter.
Ms Phang Lah Hwa, OCBC's head of consumer secured lending, advises buyers to guard against being swayed by just their sentiments.
Properly assessing your financial ability before making a commitment is important, she says.
'Consider longer-term issues, like affordability in the event that interest rates rise or instalment amounts increase,' adds Ms Phang.
Loans with variable rates
As for loans with variable rates, Maybank emerges the top of the lot, with the most affordable rates, with a two-year lock-in.
Rates: The loans are tied to the bank's board rate, currently at 3.75 per cent.
Rates on the loans are discounted from this 3.75 per cent, starting at 1.18 per cent for the first year. Customers will pay 1.68 per cent in the second year, and then 2.28 per cent in the third year, and 3.25 per cent thereafter.
To mark its 50th anniversary, Maybank is offering a cash gift of $5,000 to customers who pick up the variable-rate loan, says consumer banking head Helen Neo.
Rates for loans inclusive of the gift are slightly different, at 1.68 per cent for the first year, 1.88 per cent for the second year, 2.38 per cent for the third, and 3.25 per cent thereafter.
The two packages offer 'customers discounts off the bank's board rate throughout the period of their loan tenor', Ms Neo adds.
Source: Sunday Times, 2 May 2010
Saturday, May 1, 2010
Max out your housing loan? Think again
You may end up paying off your mortgage well into your twilight years
BURIED in the latest Housing Board (HDB) Sample Household Survey is a startling fact about the financial status of Singapore's older generation: 10.7 per cent of elderly households living in HDB flats, as well as 32.3 per cent of their 'future elderly' counterparts, are still paying off their mortgages.
Between 3 per cent and 5 per cent of these households have problems just meeting their daily expenses.
This is the first time the five-yearly survey has looked into the outstanding mortgages of the elderly, who are aged 65 and above, and 'future elderly', who are aged from 55 to 64.
While the survey's authors note that the number of struggling flat owners is small, 'continuous monitoring is necessary to ensure that the well-being of imminent cohorts of the elderly is not compromised by overspending on their housing purchase'.
It is not clear if these financial stragglers were weighed down by recent recessions or if they are home owners who took on heftier mortgages than they could afford during previous property bubbles. But they warrant a closer look in the light of an International Monetary Fund (IMF) report last week flagging possible property bubbles in Asia.
Housing prices in Singapore, Hong Kong, South Korea and mainland China have recovered quickly from the 2008 to 2009 financial crisis and in some cases, have climbed past 2008 peaks, said the IMF. Anti-speculation measures slowed the increase of private property prices here to 5.6 per cent in the first quarter, and that of resale HDB flats to 2.8 per cent. But they have not stopped climbing. As the IMF notes, many people in Asia 'may have been buying in the expectation of price appreciation, rather than simply for dwelling purposes'.
This belief that prices will continue to rise is strong in Singapore, where the economic outlook is turning rosy. More significantly, it is also underpinned by several assumptions, chief of which is that a growing population and the Republic's land scarcity will nudge prices up. Some believe that property is more stable than various investment instruments as the Government will always intervene to shore up prices.
These assumptions lead some people to spend more on housing than they can afford. Yet none of the assumptions is totally true; all come with caveats.
In the long term, a small land supply will always push property prices but land size is not an insurmountable barrier. Development densities can always be raised to allow more homes to be built on the same plot of land.
Meanwhile, the idea that a booming population will push prices up seems logical but the reality is rather more complex. As economist Kim Kyung-Hwan, a visiting professor at the Singapore Management University, points out: The impact of population - or even income growth - on housing prices depends also on how fast housing supply can keep up. Housing prices can rise even without population growth if there simply are not enough new homes.
And the converse can happen as well. It is possible for real prices to stay level despite an influx of migrants if enough new homes are built. Supply of new private homes all but shrivelled up in the depths of the 2008 to 2009 downturn, creating what housing consultants called pent-up demand, which pushed prices up when new projects appeared.
Supply and demand issues aside, many buyers pledge their faith in property because they think it is a 'safe' investment. With the sub-prime crisis having taken the shine off financial markets, bricks and mortar now seem to be a better store of value.
But that depends on the timeframe. National University of Singapore Associate Professor Yu Shi Ming says property makes sense as a hedge against inflation only over 10 or 20 years. 'People don't plan to hold their property for so long any more,' he says. Within a shorter timeframe, how 'safe' property really is depends on the attitude of buyers.
Fundsupermart general manager Wong Sui Jau states plainly that many do not associate as much risk with property as they should. Property tends to be purchased with loans, and leverage raises the risk of any investment. Someone putting down $200,000 in cash and borrowing $800,000 to buy a $1 million property could stand to lose his entire capital if its value drops by just 20 per cent.
The believer could wait for the market to recover, but he would still have to make monthly loan repayments. Floating interest rates could raise the monthly bill uncomfortably high, especially if he took a bigger loan than he could afford.
At this point, the issue of government intervention comes in. Believers reason that property investment is safe because the Government will always step in to shore up prices to protect people's savings.
It is no secret that HDB flats are stores of retirement savings for many heartlanders. Older flat owners these days can rent out their flat, downgrade to a smaller one or even sell back a remaining lease to finance retirement expenses. The last two options are dependent on the value of the flat: if it drops, their incomes shrink accordingly.
While it makes sense for the Government to keep speculation and volatility in check, it is a stretch to expect significant intervention to shore up prices when economic fundamentals are weak. This is especially so since one of the Government's chief mandates is to keep prices accessible to cater to new home seekers.
It may be hard to imagine in a booming market that what goes up can come down. And believers, after all, are known to be short on memory and long on optimism.
But now, more than ever, would be a good time to redo sums and readjust expectations to avoid overspending on housing. After all, no one wants to be paying off a mortgage late into his 60s.
Source: Straits Times, 1 May 2010
BURIED in the latest Housing Board (HDB) Sample Household Survey is a startling fact about the financial status of Singapore's older generation: 10.7 per cent of elderly households living in HDB flats, as well as 32.3 per cent of their 'future elderly' counterparts, are still paying off their mortgages.
Between 3 per cent and 5 per cent of these households have problems just meeting their daily expenses.
This is the first time the five-yearly survey has looked into the outstanding mortgages of the elderly, who are aged 65 and above, and 'future elderly', who are aged from 55 to 64.
While the survey's authors note that the number of struggling flat owners is small, 'continuous monitoring is necessary to ensure that the well-being of imminent cohorts of the elderly is not compromised by overspending on their housing purchase'.
It is not clear if these financial stragglers were weighed down by recent recessions or if they are home owners who took on heftier mortgages than they could afford during previous property bubbles. But they warrant a closer look in the light of an International Monetary Fund (IMF) report last week flagging possible property bubbles in Asia.
Housing prices in Singapore, Hong Kong, South Korea and mainland China have recovered quickly from the 2008 to 2009 financial crisis and in some cases, have climbed past 2008 peaks, said the IMF. Anti-speculation measures slowed the increase of private property prices here to 5.6 per cent in the first quarter, and that of resale HDB flats to 2.8 per cent. But they have not stopped climbing. As the IMF notes, many people in Asia 'may have been buying in the expectation of price appreciation, rather than simply for dwelling purposes'.
This belief that prices will continue to rise is strong in Singapore, where the economic outlook is turning rosy. More significantly, it is also underpinned by several assumptions, chief of which is that a growing population and the Republic's land scarcity will nudge prices up. Some believe that property is more stable than various investment instruments as the Government will always intervene to shore up prices.
These assumptions lead some people to spend more on housing than they can afford. Yet none of the assumptions is totally true; all come with caveats.
In the long term, a small land supply will always push property prices but land size is not an insurmountable barrier. Development densities can always be raised to allow more homes to be built on the same plot of land.
Meanwhile, the idea that a booming population will push prices up seems logical but the reality is rather more complex. As economist Kim Kyung-Hwan, a visiting professor at the Singapore Management University, points out: The impact of population - or even income growth - on housing prices depends also on how fast housing supply can keep up. Housing prices can rise even without population growth if there simply are not enough new homes.
And the converse can happen as well. It is possible for real prices to stay level despite an influx of migrants if enough new homes are built. Supply of new private homes all but shrivelled up in the depths of the 2008 to 2009 downturn, creating what housing consultants called pent-up demand, which pushed prices up when new projects appeared.
Supply and demand issues aside, many buyers pledge their faith in property because they think it is a 'safe' investment. With the sub-prime crisis having taken the shine off financial markets, bricks and mortar now seem to be a better store of value.
But that depends on the timeframe. National University of Singapore Associate Professor Yu Shi Ming says property makes sense as a hedge against inflation only over 10 or 20 years. 'People don't plan to hold their property for so long any more,' he says. Within a shorter timeframe, how 'safe' property really is depends on the attitude of buyers.
Fundsupermart general manager Wong Sui Jau states plainly that many do not associate as much risk with property as they should. Property tends to be purchased with loans, and leverage raises the risk of any investment. Someone putting down $200,000 in cash and borrowing $800,000 to buy a $1 million property could stand to lose his entire capital if its value drops by just 20 per cent.
The believer could wait for the market to recover, but he would still have to make monthly loan repayments. Floating interest rates could raise the monthly bill uncomfortably high, especially if he took a bigger loan than he could afford.
At this point, the issue of government intervention comes in. Believers reason that property investment is safe because the Government will always step in to shore up prices to protect people's savings.
It is no secret that HDB flats are stores of retirement savings for many heartlanders. Older flat owners these days can rent out their flat, downgrade to a smaller one or even sell back a remaining lease to finance retirement expenses. The last two options are dependent on the value of the flat: if it drops, their incomes shrink accordingly.
While it makes sense for the Government to keep speculation and volatility in check, it is a stretch to expect significant intervention to shore up prices when economic fundamentals are weak. This is especially so since one of the Government's chief mandates is to keep prices accessible to cater to new home seekers.
It may be hard to imagine in a booming market that what goes up can come down. And believers, after all, are known to be short on memory and long on optimism.
But now, more than ever, would be a good time to redo sums and readjust expectations to avoid overspending on housing. After all, no one wants to be paying off a mortgage late into his 60s.
Source: Straits Times, 1 May 2010
Wednesday, April 28, 2010
Borrowers told to act as Sibor hits all-time low
Individuals and corporates asked to hedge their interest rate exposures now
Singapore's key interest rate has crashed to all-time lows and banks have been quick to capitalise on it.
The key three-month Sibor or Singapore interbank offered rate plunged to 0.546 per cent yesterday, crashing through the previous historical low of 0.56 per cent in June 2003.
DBS, the nation's biggest mortgage player, is launching today a five-year fixed-rate home loan package which charges 2.25 per cent a year.
The bank's popular three-year fixed-rate package remains unchanged at 1.99 per cent a year.
Jeremy Soo, DBS Bank managing director and head, consumer banking group, Singapore, said customers should understand how interest rates will impact their repayment.
'Based on the last 10 years' trend, three-month interbank rate peaked at 3.56 per cent in January 2006, and has shown to be volatile although it has stayed low for the last 1-2 years,' he said.
'This is one of the reasons why our three-year fixed-rate continues to be very popular with our customers, especially since our three and five-year fixed- rates are at a historical low,' said Mr Soo.
DBS is offering two five- year fixed-rate packages. The cheaper package at 2.25 per cent is sold bundled with mortgage insurance called My Protector Mortgage. The standalone package charges 2.5 per cent a year. DBS has offered five-year fixed-rate packages before on requests.
Many bankers said the three-month Sibor is near the bottom and that it is a good time for corporates to hedge their interest rate exposure.
Said Wee Wei Min, OCBC Bank head of treasury advisory: 'As long-term interest rates are close to historical lows, we are advising customers who have floating-rate loans to hedge their exposures. They can choose to hedge part or all of these exposures.'
Although this seems to be an obvious choice, some customers may choose to remain unhedged.
'This is because the short end rates are even lower and they will incur immediate high negative carry (difference between the three or six-months rates and the long end rates) when they lock in long-term fixed rates.'
Ms Wee said there are other hedging solutions like buying interest rate caps - akin to paying premiums to buy insurance to protect themselves from rising interest rates.
'When rates remain low, the customer enjoys low interest rates; and when rates go up, the customer will have protection,' she said.
'It's close to the bottom, it can't go to zero. We're still an emerging market where there's a premium,' said Jimmy Koh, United Overseas Bank economist.
US interest rates are at zero, but that's not possible for markets like Singapore despite their strong fundamentals. Usually, US interest rates are higher than Singapore interest rates by about 300 basis points.
'We've told corporates to hedge their interest rate exposures now,' said Mr Koh. The continued appreciation of the Singapore dollar is attracting inflows, which in turn pressures the local interest rate.
Investors also buy the Singapore dollar as a proxy for the yuan, which is expected to be revalued although no one knows when. But the yuan cannot be freely traded, unlike the local unit.
'If you like the yuan, you use the Sing dollar as proxy,' Mr Koh said.
The question is: how long before interest rates turn? Most say by year- end, as they expect the US to hike its rates then.
Gerard Feng, treasurer at Citibank Singapore, projects that three-month Sibor will rise to 0.8 per cent by year-end.
Selena Ling, OCBC Bank head of treasury and research unit, is looking at three-month Sibor rising gradually to reach one per cent by end-2010, 'on the assumption that liquidity management will likely take on an even more prominent function to drain excess liquidity conditions from further fuelling any potential asset bubbles in the making'.
Source: Business Times, 28 Apr 2010
Singapore's key interest rate has crashed to all-time lows and banks have been quick to capitalise on it.
The key three-month Sibor or Singapore interbank offered rate plunged to 0.546 per cent yesterday, crashing through the previous historical low of 0.56 per cent in June 2003.
DBS, the nation's biggest mortgage player, is launching today a five-year fixed-rate home loan package which charges 2.25 per cent a year.
The bank's popular three-year fixed-rate package remains unchanged at 1.99 per cent a year.
Jeremy Soo, DBS Bank managing director and head, consumer banking group, Singapore, said customers should understand how interest rates will impact their repayment.
'Based on the last 10 years' trend, three-month interbank rate peaked at 3.56 per cent in January 2006, and has shown to be volatile although it has stayed low for the last 1-2 years,' he said.
'This is one of the reasons why our three-year fixed-rate continues to be very popular with our customers, especially since our three and five-year fixed- rates are at a historical low,' said Mr Soo.
DBS is offering two five- year fixed-rate packages. The cheaper package at 2.25 per cent is sold bundled with mortgage insurance called My Protector Mortgage. The standalone package charges 2.5 per cent a year. DBS has offered five-year fixed-rate packages before on requests.
Many bankers said the three-month Sibor is near the bottom and that it is a good time for corporates to hedge their interest rate exposure.
Said Wee Wei Min, OCBC Bank head of treasury advisory: 'As long-term interest rates are close to historical lows, we are advising customers who have floating-rate loans to hedge their exposures. They can choose to hedge part or all of these exposures.'
Although this seems to be an obvious choice, some customers may choose to remain unhedged.
'This is because the short end rates are even lower and they will incur immediate high negative carry (difference between the three or six-months rates and the long end rates) when they lock in long-term fixed rates.'
Ms Wee said there are other hedging solutions like buying interest rate caps - akin to paying premiums to buy insurance to protect themselves from rising interest rates.
'When rates remain low, the customer enjoys low interest rates; and when rates go up, the customer will have protection,' she said.
'It's close to the bottom, it can't go to zero. We're still an emerging market where there's a premium,' said Jimmy Koh, United Overseas Bank economist.
US interest rates are at zero, but that's not possible for markets like Singapore despite their strong fundamentals. Usually, US interest rates are higher than Singapore interest rates by about 300 basis points.
'We've told corporates to hedge their interest rate exposures now,' said Mr Koh. The continued appreciation of the Singapore dollar is attracting inflows, which in turn pressures the local interest rate.
Investors also buy the Singapore dollar as a proxy for the yuan, which is expected to be revalued although no one knows when. But the yuan cannot be freely traded, unlike the local unit.
'If you like the yuan, you use the Sing dollar as proxy,' Mr Koh said.
The question is: how long before interest rates turn? Most say by year- end, as they expect the US to hike its rates then.
Gerard Feng, treasurer at Citibank Singapore, projects that three-month Sibor will rise to 0.8 per cent by year-end.
Selena Ling, OCBC Bank head of treasury and research unit, is looking at three-month Sibor rising gradually to reach one per cent by end-2010, 'on the assumption that liquidity management will likely take on an even more prominent function to drain excess liquidity conditions from further fuelling any potential asset bubbles in the making'.
Source: Business Times, 28 Apr 2010
Thursday, April 22, 2010
Sibor and SOR fall, but home loan rates rise
TWO key interest rates that determine how much your home loan costs are near their all-time lows but borrowers taking out new mortgages may not be better off.
Borrowers usually benefit when these measures drop but this time banks are responding to the riskier economic climate and surging property market by charging more for loans.
The most well-known of these measures – the three-month Singapore Interbank Offered Rate, or Sibor – fell below 0.6 per cent on Tuesday. This brought it near the all-time low of 0.56 per cent struck in June 2003.
Another popular benchmark rate – the Singapore dollar Swap Offer Rate (SOR) – hit 0.307 per cent last Thursday. This was the lowest level in at least a decade, according to Bloomberg data.
The rates, already low as they track prevailing United States rates, which are at rock bottom, fell further last week after the Singdollar rose.
Borrowers can take out mortgages pegged to these measures but those who expect these loans will follow the two rates down will be disappointed. Some banks have upped the spreads that they charge above Sibor and SOR, making loans linked to the rates more expensive.
‘Property prices have gone up to previous highs and the risk of financing a property has gone up, so banks are pricing this risk into their margins,’ said a consumer banker.
At DBS Bank, a home buyer taking a loan of 80 per cent of his property’s value around March would have paid a rate of Sibor plus 0.5 percentage points for the first year and Sibor plus 0.75 percentage points for the second.
A buyer opting for this DBS package now will have to pay Sibor plus 1 percentage point for the first two years.
Standard Chartered Bank has also revised spreads for its three-month Sibor-pegged loan. It is now charging Sibor plus 1.25 percentage points, compared with 1 percentage point in March.
Loans pegged to the SOR have also been hit by the increasing spreads.
For example, the margins for OCBC Bank’s two-year packages linked to the SOR have shot up from March to April, with a rise of 0.25 percentage points for its one- and two-year packages.
The higher spreads will affect a growing number of borrowers as Sibor-linked loans have become increasingly popular since their launch about three years ago.
Mr Dennis Ng, spokesman for www.HousingLoanSG.com – a mortgage consultancy portal – said lenders on the new DBS package will fork out more each month than those on the older deal. Mr Ng calculated that borrowing $500,000 over 20 years at a constant Sibor rate of 0.7 per cent will cost $115 more in monthly instalments during the first year, and $58 a month more in the second.
Sibor is very low now as it tracks the US Federal Reserve Fed funds target rate, which is near zero.
SOR comprises the bank’s prevailing lending costs plus Sibor.
Both Sibor and SOR, both already low, dropped over the last week after the Monetary Authority of Singapore tightened the Singapore dollar. The appreciation of the Singdollar is likely to attract capital inflows, which means banks have plenty of cash to lend.
‘When you have excess liquidity, this will typically drive down short-term interest rates,’ said OCBC economist Selena Ling.
With higher interest rates expected in the later part of this year, home buyers opting for floating rate packages such as Sibor-pegged mortgages could end up paying more – assuming bank loan spreads do not change.
‘I think Sibor will likely creep slightly higher in a fairly gradual and incremental fashion from current levels towards the 0.8 per cent to 1 per cent range in the second half of this year,’ Ms Ling added.
The increasing spreads that banks charge above Sibor and SOR are unlikely to affect the property market for now at least, say real estate experts.
‘The perceived returns and profits from investing in property are still higher and can justify the interest rate,’ said Mr Nicholas Mak, real estate lecturer at Ngee Ann Polytechnic.
DBS said it offers competitively-priced deals with different features. StanChart and OCBC said their rates were reviewed periodically so that they moved in line with the industry, the general interest rate environment and business considerations.
Other banks including UOB, Citi, Maybank, HSBC, and Hong Leong Finance did not comment on whether any changes would be made to their interest rates in the future.
Source: Straits Times, 22 Apr 2010
Borrowers usually benefit when these measures drop but this time banks are responding to the riskier economic climate and surging property market by charging more for loans.
The most well-known of these measures – the three-month Singapore Interbank Offered Rate, or Sibor – fell below 0.6 per cent on Tuesday. This brought it near the all-time low of 0.56 per cent struck in June 2003.
Another popular benchmark rate – the Singapore dollar Swap Offer Rate (SOR) – hit 0.307 per cent last Thursday. This was the lowest level in at least a decade, according to Bloomberg data.
The rates, already low as they track prevailing United States rates, which are at rock bottom, fell further last week after the Singdollar rose.
Borrowers can take out mortgages pegged to these measures but those who expect these loans will follow the two rates down will be disappointed. Some banks have upped the spreads that they charge above Sibor and SOR, making loans linked to the rates more expensive.
‘Property prices have gone up to previous highs and the risk of financing a property has gone up, so banks are pricing this risk into their margins,’ said a consumer banker.
At DBS Bank, a home buyer taking a loan of 80 per cent of his property’s value around March would have paid a rate of Sibor plus 0.5 percentage points for the first year and Sibor plus 0.75 percentage points for the second.
A buyer opting for this DBS package now will have to pay Sibor plus 1 percentage point for the first two years.
Standard Chartered Bank has also revised spreads for its three-month Sibor-pegged loan. It is now charging Sibor plus 1.25 percentage points, compared with 1 percentage point in March.
Loans pegged to the SOR have also been hit by the increasing spreads.
For example, the margins for OCBC Bank’s two-year packages linked to the SOR have shot up from March to April, with a rise of 0.25 percentage points for its one- and two-year packages.
The higher spreads will affect a growing number of borrowers as Sibor-linked loans have become increasingly popular since their launch about three years ago.
Mr Dennis Ng, spokesman for www.HousingLoanSG.com – a mortgage consultancy portal – said lenders on the new DBS package will fork out more each month than those on the older deal. Mr Ng calculated that borrowing $500,000 over 20 years at a constant Sibor rate of 0.7 per cent will cost $115 more in monthly instalments during the first year, and $58 a month more in the second.
Sibor is very low now as it tracks the US Federal Reserve Fed funds target rate, which is near zero.
SOR comprises the bank’s prevailing lending costs plus Sibor.
Both Sibor and SOR, both already low, dropped over the last week after the Monetary Authority of Singapore tightened the Singapore dollar. The appreciation of the Singdollar is likely to attract capital inflows, which means banks have plenty of cash to lend.
‘When you have excess liquidity, this will typically drive down short-term interest rates,’ said OCBC economist Selena Ling.
With higher interest rates expected in the later part of this year, home buyers opting for floating rate packages such as Sibor-pegged mortgages could end up paying more – assuming bank loan spreads do not change.
‘I think Sibor will likely creep slightly higher in a fairly gradual and incremental fashion from current levels towards the 0.8 per cent to 1 per cent range in the second half of this year,’ Ms Ling added.
The increasing spreads that banks charge above Sibor and SOR are unlikely to affect the property market for now at least, say real estate experts.
‘The perceived returns and profits from investing in property are still higher and can justify the interest rate,’ said Mr Nicholas Mak, real estate lecturer at Ngee Ann Polytechnic.
DBS said it offers competitively-priced deals with different features. StanChart and OCBC said their rates were reviewed periodically so that they moved in line with the industry, the general interest rate environment and business considerations.
Other banks including UOB, Citi, Maybank, HSBC, and Hong Leong Finance did not comment on whether any changes would be made to their interest rates in the future.
Source: Straits Times, 22 Apr 2010
Thursday, April 15, 2010
Special HLF loan rates for CityDev’s Sentosa project
HONG Leong Finance (HLF) is offering buyers of The Residences at W Singapore Sentosa Cove an exclusive financing package, with rates from 0.98 per cent a year.
The 228-unit luxury project is being developed by City Developments Ltd (CDL), another Hong Leong Group unit.
HLF said that its home loan offerings feature some of the best interest rates in town.
‘With an active property market, customers are no doubt looking for good home loan packages,’ said HLF president Ian Macdonald. ‘Our priority is to cater to their needs with competitive offers and quality service.’
Buyers at The Residences at W Singapore Sentosa Cove will enjoy a home loan interest rate of 0.98 per cent in the first year, 1.58 per cent in the second year, 2.58 per cent in the third year and 3.28 per cent subsequently.
Customers will also be entitled to a one-year a la carte membership offering dining privileges at F&B outlets under the Millennium & Copthorne International group – CDL’s hotel unit.
HLF said that competitive rates and efficient services have helped it increase its share of the home loans market. Under its packages, buyers of HDB, private and good-class bungalow properties can choose from variable rates of as low as 1.23 per cent, 1.48 per cent and 1.13 per cent a year respectively, the finance company said.
CDL said on April 5 that it had sold 19 units of The Residences at W Singapore Sentosa Cove at $2,500-3,000 per sq ft. CDL has marketed the project in Singapore and Hong Kong and plans to hold roadshows in Shanghai and Jakarta.
Source: Business Times, 15 Apr 2010
The 228-unit luxury project is being developed by City Developments Ltd (CDL), another Hong Leong Group unit.
HLF said that its home loan offerings feature some of the best interest rates in town.
‘With an active property market, customers are no doubt looking for good home loan packages,’ said HLF president Ian Macdonald. ‘Our priority is to cater to their needs with competitive offers and quality service.’
Buyers at The Residences at W Singapore Sentosa Cove will enjoy a home loan interest rate of 0.98 per cent in the first year, 1.58 per cent in the second year, 2.58 per cent in the third year and 3.28 per cent subsequently.
Customers will also be entitled to a one-year a la carte membership offering dining privileges at F&B outlets under the Millennium & Copthorne International group – CDL’s hotel unit.
HLF said that competitive rates and efficient services have helped it increase its share of the home loans market. Under its packages, buyers of HDB, private and good-class bungalow properties can choose from variable rates of as low as 1.23 per cent, 1.48 per cent and 1.13 per cent a year respectively, the finance company said.
CDL said on April 5 that it had sold 19 units of The Residences at W Singapore Sentosa Cove at $2,500-3,000 per sq ft. CDL has marketed the project in Singapore and Hong Kong and plans to hold roadshows in Shanghai and Jakarta.
Source: Business Times, 15 Apr 2010
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