New home loan products from DBS.. Sibor-based, of course

Group has launched three new home loan packages to attract home buyers looking to benefit from current low interest rates.

One of these products is pegged to three-month Singapore Interbank Offered Rate (Sibor) plus a spread. The home loan rate will be capped at 1.49% for the first three years to provide borrowers with some degree of stability and protection against future Sibor increases.

The second package is pegged to the one-month Sibor plus a spread, and the benchmark rate will be refreshed every three months. DBS says it is the first bank in Singapore to come up with such an arrangement, and it hopes home buyers can benefit from a lower Sibor rate at less volatility.

Yesterday, the three-month Sibor was 0.34917% while the one-month Sibor was 0.21806%

Home buyers who take up a mortgage insurance called My Protector Mortgage get to enjoy lower spreads on the floating-rate home loans.

For instance, for the three-month Sibor package, the spread is 0.85% for someone who signed up for the mortgage insurance, versus 1% for someone who did not. Nevertheless, both will be covered by the three-year 1.49% interest rate cap.

The mortgage insurance is underwritten by Aviva and will pay for the outstanding mortgage commitment in the event of death or terminal illness of the insured borrower.

DBS is also offering three-year fixed rate home loan. Home buyers who take up the mortgage insurance on top of this will pay a rate of 1.38%, which the bank says is the lowest in the market. The fixed rate is 1.48% without the mortgage insurance.

After the first three years, the rate for this product is pegged to the three-month Sibor plus 1.25%.

Home loan rates have come under scrutiny recently as interest rates in Singapore fall. Sibors have been low, largely a result of loose monetary policy in the US. The three-month Sibor, for instance, has dipped considerably from 0.43751% at the start of the year.

Swap Offer Rates (SORs) have even turned negative, prompting some banks to stop offering home loans pegged to them. The three-month SOR was -0.05104% yesterday.

Falling interest rates have triggered concerns about banks’ net interest margins, although analysts are keeping a closer eye on how a potential slowdown in the economy could impact banks; businesses.

Source: The Business Times

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