An update on fixed deposit-pegged home loans: Rising rates

A home loan package with its interest rate pegged to a bank’s fixed deposit rates was considered extremely innovative, back when DBS first introduced such a product in 2014. Now, this has become a norm, with most banks having offered or are still offering loan packages pegged to fixed deposit rates.

The fixed deposit rate loan packages have been well-received by homebuyers, partly because there is a perception that banks will not raise interest rates too much, whereby doing so will increase cost for themselves.

Loan packages with interest rates pegged to fixed deposit rates are double-edged swords, because in order to increase loan rates, banks must increase fixed deposit rates, meaning that they would need to pay out more to investors. It stands to reason then that banks will not do so lightly.

However, in recent times, interest rates have been slated to rise due to various factors. In fact, many banks have already increased their fixed deposit rates (and consequently mortgage interest rates have also risen). The table below summarises the recent rate hikes by various banks over the past year:

BankProductOld RateRevised RateDate of RevisionIncrement
DBSFHR0.80%0.975%24 Aug 20180.175%
FHR90.50%0.80%24 Aug 20180.30%
FHR180.80%0.95%24 Aug 20180.15%
FHR80.20%0.50%24 Aug 20180.30%
MaybankFDMR361.40%1.80%26 Jul 20180.40%
SRFR2*4.00%4.50%8 May 20180.50%
OCBC15FDMR0.25%0.55%May 20180.30%
36FDMR0.65%0.95%2 Aug 20180.30%
48 FDMR0.95%1.25%May 20180.30%
OHR AD1808*1.00%1.30%16 Aug 20180.30%
MRP*1.50%
UOBFDPR360.65%1.00%5 Mar 20180.35%
FDPR140.25%0.60%27 Jul 20180.35%
FDPR150.25%0.70%27 Jul 20180.45%
MR*0.50%0.85%Jul 20180.35%
Standard Chartered BankFDR90.30%
FDR480.90%1.1%8 Mar 20180.20%
FDR360.72%
HSBCTDMR240.65%

*Packages that are not pegged to fixed deposit rates
Package in red indicates each bank’s current offer

To give you a better idea of each bank’s historical highest and lowest rates, here’s a bank-by-bank breakdown:

DBS

FHR

  • Highest was @ 0.975% (Aug 2018)
  • Lowest was @ 0.10% (Nov 2011)

FHR9

  • Highest was @ 0.80% (Aug 2018)
  • Lowest was @ 0.05% (Nov 2011)

FHR18

  • Highest was @ 0.95% (Aug 2018)
  • Lowest was @ 0.10% (Nov 2011)

FHR8

  • Highest was @ 0.50% (Aug 2018)
  • Lowest was @ 0.05% (Nov 2011)

OCBC

15-mth FD

  • Highest was @ 1.70% (Oct 2005)
  • Lowest was @ 0.25% (Nov 2011)

36-mth FD

  • Highest was @ 0.925% (Nov 2005)
  • Lowest was @ 0.65% (Nov 2011)

UOB

Property Loan Rate_14M

  • Highest was @ 0.45% (May 2011)
  • Lowest was @ 0.25% (Oct 2011)

Property Loan Rate_15M

  • Highest was @ 0.5% (Jan 2010)
  • Lowest was @ 0.25% (Oct 2011)

Property Loan Rate_36M

  • Highest was @ 1% (Apr 2018)
  • Lowest was @ 0.65% (Oct 2011)

SCB

Historical rates for SCB’s FDR is only available from 2010:

FDR9

  • Highest was @ 0.30% (Oct 2010)
  • Lowest was @ 0.30% (Current)

FDR48

  • Highest was @ 1% (Oct 2010)
  • Lowest was @ 0.50% (Sep 2011)

FDR36

  • Highest was @ 0.95% (Oct 2010)
  • Lowest was @ 0.42% (Sep 2011)

HSBC

TDMR24 was launched in Nov 2017 @ 0.65% and the rate has not moved since.

Prior to this, HSBC’s Fixed Deposit rates was available for 3, 6, 9 & 12 months only.

What now?

Since the US Federal Reserve has begun to reverse quantitative easing, the US dollar will appreciate against SGD, causing the Swap Offer Rate (SOR) to rise. This will also lead to increases in the Singapore Interbank Offered Rate (SIBOR), as cost of funds for banks rises. In fact, current 3-month SIBOR (at 1.641%) has already surpassed the peak 3-month SIBOR rate of 2016, and is predicted to continue climbing this year.

Liquidity will be affected for banks, and they are therefore likely to offer higher fixed deposit rates to attract funds. This is good news for investors interested in parking funds in fixed deposits, but it is less positive news for homeowners taking a bank mortgage. Higher fixed deposit rates will mean that mortgage loans pegged to these rates have become costlier.

The US Federal Reserve has signalled that there will be two more rate hikes in 2018 (there has already been two rate hikes this year) and four rate hikes in 2019, with the nearest rate hike likely to be in September. It is thus no surprise that lenders are increasing their lending rates. Barring the possibility of current tensions between the US and China transforming into a full-blown global trade war, interest rates will remain firmly on the uptrend.

In view of rising interest rates, it may be wise to refinance to fixed interest rate loans. Also, it would probably be better to refinance sooner rather than later, in order to lock in lower interest rates. This will protect your bank account from bleeding money should interest rates soar in the near future, and you will definitely be thankful for the significant amount of cost savings.

However, this is not a one-size-fits-all solution, and it really depends on individual situations. If you’re thinking of refinancing or want to find out if there are better loan packages currently offered compared to your own, it is best to engage an expert, such as our team at Redbrick.

*Disclaimer: all information in the above content was accurate at time of publication.

Colin Lim

Colin Lim

Colin was originally an engineer with a manufacturing firm. With the analytical skills and patience he had amassed over the years, he moved into banking, assuming the role of a mortgage banker and subsequently a relationship manager with exposure in wealth management with stints from 2 major foreign banks.
Colin Lim