Home Loans

DBS Home Loan vs OCBC Home Loan vs UOB Home Loan – Which Local Bank Is Best?

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Clara Lim

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When the time comes to buy a home, most Singaporeans go straight for the HDB loan as if on autopilot. It’s only when we’re ineligible for it that we realise that we can take up a DBS home loan, OCBC home loan or UOB home loan for lower interest rates. Wah, rebel sia.

Singapore might fancy itself the financial hub of Southeast Asia… but the truth is, most Singaporeans’ exposure to banks are limited to the big 3 local banks. The competition between them is fierce, but does any one of them have an edge over the rest?

 

Home Loans // An OverviewBTO/BUC vs.Completed ProjectsFIXED RATESoffer predictable, locked rates that last for 2 – 3 years.They are however,more expensive.FLOATING RATESrise and fall with themarket, which can be unsettling for some.Interest rates are lowerbecause of this.CompletedProjectsget both loan options —Fixed and Floating.BTO/ BUCget only floating rates.Banks offer different loan packages depending on the status of your home.

DBS home loan vs OCBC home loan vs UOB home loan packages

Let’s take a quick look at the cheapest home loan packages offered by DBS, OCBC and UOB at the moment (valid as of 21 Mar 2019). These are split into built and unbuilt properties as banks offer different rates and packages for them.

Property status Under construction Completed/refinance
Loan type Floating Floating Fixed
Best DBS home loan FHR 8 + 1.4% (i.e. 2.35%) FHR 8 + 1.4% (i.e. 2.35%) 2.68%
Best OCBC home loan 3M SIBOR + 0.35% (i.e. 2.29%) 1M SIBOR + 0.35% (i.e. 2.17%), increases by 0.05% or 0.1% every year 2.68%
Best UOB home loan MR + 1.3% (i.e. 2.15%) 1M SIBOR + 0.4% (i.e. 2.22%) 2.58%

Wondering what the difference between “floating” and “fixed” is? Floating interest rate packages are pegged to moving benchmarks (e.g. “FHR 8” or “MRP” or “SIBOR”) and tend to be cheaper but more volatile. Fixed rate home loans’ interest rates don’t move for the first couple of years, but they’re generally more expensive.

When trying to assess a floating rate home loan, you need to understand two main components of the package.

First, what is the benchmark that the interest rate is based on? You should understand what exactly the acronym refers to, how transparent is it and whether it’s likely to be volatile.

Second, look at how the interest rate is structured. Is the formula the same each year (like DBS or UOB home loans) or does the interest creep up every year (like the OCBC home loans)? You’re likely to be repaying your home loan for a good number of years, so make sure that the rate past the first few years is something you can live with as well.

 

Parts of the Floating Interest RateFloating Interest Rate examples2 Things to ask yourselfUnderstanding theFloating Rate SystemIf you’re taking up a Floating Rate,whether or not by choice, beinformed about these aspects soyou know what you’re getting into.Do you know what exactly the benchmark is? How volatile is it? Is it a transparent public rate, oris it set at the bank’s discretion?Does the bank increase the spread (e.g. from +0.25% to +0.7%) after a certain number of years?… Both aspects will affect your loan repayments.Benchmark(e.g. SIBOR, Internal Board Rate)Spread(the “0.25%” added to the benchmark)3 monthSIBOR +0.2%FHR 8+1.4%MRP+0.68%

DBS home loans Singapore – lowest interest rates 2019

Property type Loan type Interest rate Lock-in
BTO / BUC Floating FHR 8 + 1.4% (i.e. 2.35%) None
Completed (private) Floating FHR 8 + 1.4% (i.e. 2.35%) 2 years
Completed (private) Fixed 2.68% 2 years
Completed (HDB resale) Fixed 2.5% 5 years

Given the long queues at DBS ATMs in today’s cashless world, it’s hardly surprising that DBS home loans are a top choice for many Singaporeans.

DBS floating rate home loans have interest rates that are linked to their own fixed deposit rates. In the past, we thought that FD-linked interest rates could be safer than board rates. Where got bank anyhow increase fixed deposit rates for no reason, right?

WRONG. There are no guarantees in banking. In August 2018, FHR 8 was 0.2%, but it has nearly quintupled to 0.95% since!

The one consolation is that the formula for interest rates is the same every year. Of course, that’s only going to be of use if DBS can maintain its fixed deposit rates.

Those financing built private properties can opt for DBS’s fixed rate home loan package where the interest rate is 2.68% for 2 years. But this is higher than what the floating rate package is offering, and you’ll probably want to refinance at the end of Year 2.

DBS is also aggressively chasing the “HDB market”, trying to entice HDB resale flat buyers to switch from their HDB loan to DBS. They have a special 5-year fixed rate package for resale HDB flats at 2.5% p.a. (0.1% lower than the HDB loan), for loans of at least $200,000.

 

OCBC home loans Singapore – lowest interest rates 2019

Property type Loan type Interest rate Lock-in
BUC (private) Floating 3M SIBOR + 0.35% (i.e. 2.29%) for 3 years, increases in Year 4 None
HDB BTO Floating MBR + 0.45% (i.e. 2%) for 3 years, increases in Year 4 2 years
Completed Floating 1M SIBOR + 0.35% (i.e. 2.17%), increases by 0.05% or 0.1% every year 2 years
Completed Fixed 2.68% 2 years

Like DBS, OCBC is also trying to woo the HDB crowd by offering a special package for BTOs. The rate is linked to MBR and is MBR + 0.45% (now 2%) for the first 2 years’ lock-in, and MBR + 0.75% subsequently. That’s significantly lower than the 2.6% HDB loan, but we don’t know what will happen to the rate in the long term.

If you opt for one of OCBC’s floating home loans, you’ll have a choice between two benchmark rates: Either SIBOR or MBR.

SIBOR (Singapore Interbank Offered Rate) is an industry-wide and transparent rate, but it tends to be quite volatile, especially when there’s global economic instability. You’ll need to buffer for that month-to-month fluctuation when planning your cash flow.

MBR, on the other hand, is what’s known as a “board rate”. These are set by the bank are not transparent to the consumer. If you do take a loan pegged to the board rate, you need to be prepared to jump ship if an increase happens. On the other hand, MRP has been quite stable in the past year.

Notice that some of OCBC’s home loan interest rates creep upwards after the first year or two. This is most apparent in the case of the SIBOR-linked completed property package, where the interest rate grows from 2.17% to 2.42% in 4 years (and that’s assuming SIBOR doesn’t increase!).

 

UOB home loan Singapore – lowest interest rates 2019

Property type Loan type Interest rate Lock-in
BUC (private) Floating MR + 1.3% (i.e. 2.15%) None
HDB BTO Floating MR + 1.53% (i.e. 2.38%) for first 3 years, increases in Year 4 2 years
Completed Floating 1M SIBOR + 0.4% (i.e. 2.22%) 1 year
Completed Fixed 2.58% 2 years

If you’re planning to finance an uncompleted private property, UOB’s BUC home loan package has the lowest interest of the 3 local banks right now. But since it’s pegged to MR (board rate), you’d better hope and pray fervently that the rate stays stable throughout your loan tenure.

For completed properties, UOB also has the cheapest fixed rate home loan package out of the 3 (2.58% compared to 2.68%).

After the 2-year lock-in period, it goes back to MR + 1.73%. If MR doesn’t increase from now till then, it’s not a bad deal as the interest rate will still remain at 2.58%. In case the interest rate becomes unfavourable from Year 3 onwards, you have the option to refinance your home loan and get a better deal elsewhere.

homeLoan_fightClub_What-Offer

Conclusion: Which bank offers the best home loan now?

Unless you’re a die-hard fan of DBS and have a tattoo of POSB mascot Smiley the Squirrel on your back, chances are you wouldn’t mind going with any of the 3 local banks. So which do you choose?

Property type DBS home loan OCBC home loan UOB home loan
Under construction (HDB BTO) FHR 8 + 1.4% (i.e. 2.35%) MBR + 0.45% (i.e. 2%) MR + 1.53% (i.e. 2.38%)
Under construction (private) FHR 8 + 1.4% (i.e. 2.35%) 3M SIBOR + 0.35% (i.e. 2.29%) MR + 1.3% (i.e. 2.15%)
Completed (HDB resale) – fixed 2.5% 2.68% 2.58%
Completed (private) – fixed 2.68% 2.68% 2.58%
Completed (all types) – floating FHR 8 + 1.4% (i.e. 2.35%) 1M SIBOR + 0.35% (i.e. 2.17%), increases every year 1M SIBOR + 0.4% (i.e. 2.22%)

Best home loan for BTO: OCBC’s special BTO package which offers interest rates as low as 2% for the first few years. But it’s a floating rate pegged to a board rate, which means the bank can push it up at any time they like.

Best home loan for private property under construction: UOB home loan at MR + 1.3% (now 2.15%). MR is a board rate as well, so the same caveats apply. Also consider OCBC’s SIBOR-linked home loan for greater transparency.

Best home loan for HDB resale: DBS has the most competitive fixed rate for resale flats at 2.5% with a whopping 5-year lock-in period. The other banks do not have special rates for resale flats, so I compared their general fixed rate packages.

Best fixed rate home loan for completed private property: UOB wins at 2.58% instead of the other two banks’ 2.68%.

Best floating rate home loan for completed private property: I picked UOB again because their SIBOR-linked package has a reasonable spread of 0.4% and remains constant, as opposed to OCBC’s SIBOR package which has a creeping-upwards structure.

 

P.S. A word of caution regarding floating rate home loans

Whether linked to a board rate or SIBOR, a floating rate home loan is only for those with strong constitutions.

Because these rates can give you a heart attack anytime, it’s super duper important to be (a) very savvy about what you’re getting into and (b) know how to refinance.

Ultimate, you might just have to go for the bank that offers you the most flexibility. For example, one that is more generous with free conversions. This is when you’re allowed to switch to another one of their home loan packages, e.g. if the current package interest rate goes up too much for your tastes. It’s a way for them to retain you as a customer.

If you do not have the constitution of an ox, you might like to opt for a fixed rate home loan instead. These packages are a little more expensive, but they do give you (temporary) peace of mind.

And the Winner is…You can do the research and see which loanserves your needs the best.Use the MoneySmart Home Loan Wizard to findthe best loan for you and yours.The Banks! But…

Remember that DBS, UOB and OCBC are not the only banks in Singapore offering home loans. Check out the MoneySmart Home Loan Wizard to find out which bank is offering the best deal for your needs.

 

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HDB Loan vs Bank Loan – Which Is Better? 5 Things to Know Before You Commit

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How to Refinance Your Home Loan in Singapore & Save Money on Your Mortgage

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Clara Lim

I used to be MoneyDumb. I hung out at H&M every day and thought that a $50 lunch set was a good deal. These days, I spend my time researching the crap out of life and trying to maximise utility on micro-decisions. I'm not sure if that's an improvement.