Singapore banks revise home loan mortgage rates in line with rising U.S. interest rates, send letters to homeowners, Money News

In order to fight inflation and moderate consumer spending, the US Federal Reserve has increased its interest rate by 75 basis points – its biggest rate hike since 1994. That would set the Fed’s benchmark federal funds rate – or in layman’s terms, the rate that banks lend to each other – between 1.5% and 1.75%.

This increase will affect Singapore banks and our mortgage rates.

Yes, we can hear you swear and curse swear words that your grandmother would feel embarrassed about. You can blame the Russian-Ukrainian conflict, crazy import gasoline and chicken prices, the crash of Bitcoin, the algorithmic stablecoin Terra Luna and the collapse of NFTs or even the K-pop group BTS taking a “pause/pause”, but the man of the hour (year? Since he took office?), is it really this guy:

Powell became Fed Chairman after President Donald Trump took office in 2017.

Did you know what Powell did when he first took office? Yes, he raised US interest rates (because the US economy looked “strong” then).

Powell was so keen on “raising interest rates” when he started, that Trump even regretted appointing him.

“I’m just saying this: I’m very unhappy with the Fed because Obama had zero interest rates,” Trump told the the wall street journal in 2018. “Every time we do something good, it raises interest rates.”

When US President Joe Biden took office in 2021, many Democrats voiced their opposition to Powell’s reappointment. Unfortunately for them (and for mortgage owners everywhere), Powell was renamed in May 2022, and so here we are again.

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While the new 0.75 percentage point hike was announced on June 15, 2022, the Federal Reserve raised interest rates by 0.25 percentage points in March and 0.5 percentage points in May.

It should therefore come as no surprise that US interest rates continue to rise. The question is – by how much will it still increase for the rest of the year?

Closer to home, banks in Singapore have already started updating their mortgage rates and sending letters to homeowners. If you are a mortgage owner and haven’t received one yet, don’t worry, your neighborhood bank will send you one soon.

Several readers have sent us theirs. Here are a few:

Fixed rate HDB home loan from a local bank

This owner received a mortgage rate update for his Jurong West HDB apartment on June 8, 2022. That’s nearly a week before Powell announced the 75 basis point hike in the US interest rate.

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It appears that this owner’s home loan is pegged to the DBS Fixed Deposit Rate (FHR). The bank’s FHR is related to the average value of its 12 months and 24 months Singapore Dollar Fixed Deposit Rate (for deposit amounts between $1,000 and $9,999).

As the bank revises its 12-month and 24-month Singapore dollar fixed deposit rates to 1.150% and 1.300% respectively, the owner’s FHR will also be revised from 1.025% to 1.225% per annum (a 20% increase) .

According to the owner, when he committed to refinance his HDB apartment in 2015, the FHR was 0.4% per annum. This means that the FHR has increased by nearly 206% over the past seven years, an average increase of 30% per year. year.

The letter goes on to say that the homeowner’s loan account has already reached the capped rate. This means that in his contract with DBS there is a cap on the maximum interest rate he can pay. In some contracts, this could be the 2.5% going rate for CPF OA. If so, it’s still better than if he had taken out the HDB mortgage.

This also means that if there was no interest rate cap on his contract, he could effectively pay a higher interest rate (e.g. 2.70% per annum) than if he had remained on his HDB home loan.

Fixed rate condominium home loan from a local bank

Here is another letter, also from DBS, from another landlord living in a private condominium.

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This particular homeowner has taken out a set of DBS fixed deposit rate 8 (FHR8) indexed fixed home loans.

At the time of writing, the eight-month average SGD fixed deposit rate (for deposits of $1,000 to $9,999) is 0.85%. This percentage was increased by 0.6% (an increase of 42%).

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Although there is a rate increase, the condo owner is not (yet) affected as their loan account is currently still at a fixed rate. He refinanced his timeshare loan in 2020, taking a three-year fixed rate package, so the FHR won’t affect his mortgage until next year.

Variable rate condominium mortgage with a local bank

Finally, a third owner shared this letter from OCBC. Dated June 13, 2022, this is a notice that the interest rate on his current home loan will be revised from 2.8791% to 3.58786% per annum (an increase of 25%).

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According to this owner, this 25-year loan is based on the SIBOR three months, which is at 1.33786% at the time of writing. Last year, its interest rate averaged around 2.54% per annum.

Note that for variable rate formulas, banks no longer use the 6-month or 12-month SIBOR. In fact, by December 31, 2024, SIBOR will be entirely discontinued and will switch to SORA or Singapore Overnight Rate Average.

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While SIBOR is the inter-bank lending rate ranked among the 20 Singapore banks within the Association of Singapore Banks (ABS), SORA is a volume-weighted average rate of all inter-bank borrowing transactions transacted between 8 a.m. and 6:15 p.m. daily.

As SIBOR is a floating interest rate benchmark, this particular owner is fully exposed to volatility, especially if US interest rates continue to rise.

The danger of not having a fixed rate component in its loan means that if the US interest rate rises further, it will impact interbank lending rates between banks and ultimately its interest rate. mortgage interest.

The condo owner said his monthly mortgage will increase an additional 5.5% between July and August 2022. It would be wise for him to at least refinance the new SORA package with a fixed rate plan instead.

This article was first published in 99.co.

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