Sick of playing catching with DBS’ home loan rate, OCBC has dropped their fixed deposit-linked home loan rate, the OCBC FDMR, and introduced the OCBC Home Rate, or OHR.
Yes, Singapore has yet another acronym to deal with, but after recent changes to the OHR, it may no longer be a good thing. Here’s what you should know about OHR when getting a new housing loan or refinancing your existing one.
What is OHR?
The OCBC Home Rate has changed its definition. When it was first introduced, it was the “long-term average of 1-month and 3-month SIBOR”. Now, it is simply a “bank-managed rate”. But don’t worry, the interest rate still remains at 1.00%.
Which two kinds of OHR home loan packages is OCBC offering?
To introduce the OCBC Home Rate, you can choose from a fixed rate and a floating rate.
That means that regardless of your preference – whether you prefer the stability of a fixed rate, or the cheaper floating rate that’s subject to change – you can find a suitable OCBC home loan.
|OHR Fixed||OHR Floating|
|Year 1||2.18%||OHR + 0.65% = 1.65%|
|Year 2||2.18%||OHR + 0.65%|
|Year 3||OHR + 1.18%||OHR + 0.75%|
|Year 4||OHR + 1.38%||OHR + 0.80%|
|Year 5||OHR + 1.38%||OHR + 0.90%|
(Table updated 25 May 2018)
What else is offered in the OCBC Home Rate package?
OCBC is offering one free conversion if the OHR changes, as well as up to 50% prepayment of the loan without penalty during the 2-year lock-in period for completed properties.
Here’s what a “free conversion” means:
If you find that the OCBC rates ever go up beyond your ability to pay, you can negotiate a new non-OHR package with the bank without any penalty.
This is not the first time OCBC has included this safety net, and all it means is that it puts pressure on OCBC not to adjust their rates too drastically. The last thing they want is for all their customers to take advantage of their free conversion.
As for the prepayment of up to 50%, it simply means that if you want to take advantage of the low OCBC Home Rate to pay off as much of your loan as you can, you can do so without any penalty, during the 2-year lock-in period. That’s a huge bonus.
Which package should I choose – fixed or floating?
Although you may enjoy the stability of a 2-year fixed rate, there’s a chance it’s going to be the more expensive option, since the rate is at least 0.50% more than the alternative at first.
After the first 2 years, the fixed rate remains consistently more expensive than the floating rate. So do take note of this if you’re keen on the fixed rate.
Because of the change in the definition of OHR however, a floating rate may be less advisable than a fixed rate.
The OHR was really too good to be true
Even when they introduced the OHR, OCBC was smart to not announce publicly how the OHR is calculated. This means they reserved the right to change the definition of the OCBC Home Rate anytime they want. And now they have. While the OHR still remains at 1.00% now, the fact is it is no longer pegged to market interest rate movements, or based on any mathematical formula. This means OCBC can change the OHR any time they want.
And if OHR changes from 1.00% to more than 1.50% within the next two years, those on the floating rate package will wish they had gone with the fixed rate package instead. And because it is no longer pegged to any market interest rate, OHR is essentially a board rate now.
But let’s be fair here… most home loan packages today are board rates
Just look at the fixed deposit-linked home loan rates and how popular they’ve become over the past 3 years. Despite being board rates, they’ve managed to capture the imagination of homeowners and have quickly dominated the housing loan market. The key is the perceived stability of the fixed deposit-linked home loan rates, that the bank will not raise their fixed deposit account interest rates unnecessarily.
So, should I choose the OCBC Home Rate?
As long as the OHR remains at 1.00%, the OHR Floating home loan package is still very competitive. It’s definitely better than any SIBOR-linked rate at the moment. You definitely have nothing to lose, especially since SIBOR is expected to continue to rise this year. Don’t forget, even if OHR increases, you have the option of a free conversion to a SIBOR-linked rate without any penalty.
If you are willing to pay a bit more initially, and are looking for a fixed rate home loan package, we wouldn’t recommend the OHR Fixed home loan package. There are better ones available. Give our mortgage specialists a call to find out more.
Do note that the OCBC home loan packages have a 2-year lock in period for completed properties, which means you can definitely enjoy some of the lowest interest rates in the market today for at least the first two years.
Are you considering the OCBC Home Rate? Let our mortgage specialists assist you for free and walk you through the whole home loan process.
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