Housing loan, advices needed!

[AMD_FREAK]

Hey all, I'm deciding which bank to take up loan for my BUC (building under construction) EC.

I'll be using SIBOR for sure.

As there are a lot of banks out there offering rates, i'm swayed between different banks due to the rates they offered, and perks.

DBS offers the lowest interest rates for the 1st 4 years, and subsequently 1.25% for 5th year onwards which is the same for all the other banks.

But Citibank offers a very good perk which is unlimited change in SIBOR tenure. Which means at any one point when I want to change from a 1-mth to a 12-mth tenure, there is no charges. (all other banks charges S$800 for 1 change).

As Citibank has higher interest rates for the 1st 4 years, the total interest payment (accumulated over 30 years) is about S$1300 more than DBS.

So if I see the trend of interest rates going sharply upwards, Citibank allows me to change from a 1-mth SIBOR to 12-mth SIBOR. In that case, I will be able to lock in the current interest rate for the next 12-mth. Until the 12th month, then it's up to my decision to continue another 12-mth or to change to a lower tenure like 3-mth, etc...

But the thing is, a 12-mth SIBOR (0.56125%) rate is higher than a 1-mth SIBOR (0.30625%).

Will it be justifiable for me to take up Citibank's offer which I can monitor the SIBOR movement and make sound decision? Or should I take up DBS's 3-mth SIBOR?

 

[ramlee]

Loan from local bank

 

[AMD_FREAK]

Loan from local bank

Any reason behind it? Many told me so. But from all the rates 5th year onwards, it's the same SIBOR + 1.25%.. And I was told that the '1.25%' numeral figure cannot change once I sign the deal. The only variable which can change is the SIBOR, which is determined by MAS..

 

[ramlee]

When shiat happens, local banks tend to be more lenient because they have the government's backing and government won't want too many defaults that could result in a crash.

 

[lusunshine]

I doubt if 12M SIBOR is a practical option, if I foresee interest rates is going sharply upwards, I'll immediately switch into a fixed rate package and lock in for a few years rather than switching to 12M SIBOR. BTW, DBS offers you one time free switching upon TOP.

 

[limster]

If you go direct to the bank for a loan, they do not need to pay a broker or referrer (such as housing agent) a commission. They will be more willing to offer you a slightly better rate because of this.

For example, Bank A can offer you $200 shopping voucher, Bank B can offer you 0.1% lower rate. Some people might take the $200, but the smart people know that 0.1% can translate to a lot of money for a 10+ year loan.

 

[AMD_FREAK]

If you go direct to the bank for a loan, they do not need to pay a broker or referrer (such as housing agent) a commission. They will be more willing to offer you a slightly better rate because of this.

For example, Bank A can offer you $200 shopping voucher, Bank B can offer you 0.1% lower rate. Some people might take the $200, but the smart people know that 0.1% can translate to a lot of money for a 10+ year loan.

Ohhh... I didn't know that! Thanks for the advice

 

[lusunshine]

Ohhh... I didn't know that! Thanks for the advice

If you have already applied with DBS and Citibank through your agent or broker, I guess it's too late for you to do this.

 

[AMD_FREAK]

If you have already applied with DBS and Citibank through your agent or broker, I guess it's too late for you to do this.

My agent has sent me DBS and Citibank contacts whom I've conversed via email and phone calls. But i've not penned down anything yet, no AIP (approval-in-purchase) yet too.

 

[lusunshine]

Ohhh... I didn't know that! Thanks for the advice

My agent has sent me DBS and Citibank contacts whom I've conversed via email and phone calls. But i've not penned down anything yet, no AIP (approval-in-purchase) yet too.

Personally I suggest you not to bypass your agent in this way unless you think no need his/her service anymore.

 

[AMD_FREAK]

Personally I suggest you not to bypass your agent in this way unless you think no need his/her service anymore.

Nope I didn't get so low rates..

DBS is the lowest with 3M SIBOR + 0.90% (1-3 yr), +1.0% (4th yr), +1.25% (5th yr onwards)

Citi is 3M SIBOR + 0.95% (1-3 yr), +1.25 (4th yr onwards)

I'm holding this property for long term, so I'm more interested in getting the >4 or >5 year's interest as low as possible. Do you think for such case, I will be able to get +1.15%?

Loan amount is 460k..

 

[lusunshine]

Nope I didn't get so low rates..

DBS is the lowest with 3M SIBOR + 0.90% (1-3 yr), +1.0% (4th yr), +1.25% (5th yr onwards)

Citi is 3M SIBOR + 0.95% (1-3 yr), +1.25 (4th yr onwards)

I'm holding this property for long term, so I'm more interested in getting the >4 or >5 year's interest as low as possible. Do you think for such case, I will be able to get +1.15%?

Loan amount is 460k..

Oops......I guess I just sabo someone's business......
You can try to request the 2 rates I mentioned but your agent and banker will have a comm cut. Normally banks only lower the interest rates for the first few years not the thereafter rates, so I don't think you can get +1.15%.

 

[chopra]

Salient points I helped out with my close friend previously. Should be good read for TS.

=====



First of all. A big congratulation as you have found a shelter for your family setup. That's the most important thing in life (in my opinion). Money is only a tool to do that.
That said, we need to be financially savvy to avoid getting trap by caveats.


These are my views. Please gather from other sources and formulate your own views.

1. Affordability can be measured in two ways
a. Tan Kin Lian "5yr method" -- a house is affordable if it's equal or lesser than your 5yr combined salary.
b. Monthly installment. Use the annuity spreadsheet (the one we learn in academics) to get a "feel" of how much installment you need to pay every month based on X% interest rate. For illustration sake, an increase in interest rate from ~2% (from 1% to 3%) would result in monthly installment increasing from $1700 to $3700. An increase of $2000. Not a small sum. So, the key is, calculate your installment based on an average interest rate. In my opinion, a more realistic number would be 2.5% - 3.5%.

2. Check with the bankers on these few things:
a. Are the interest rates quoted by them indicative or guaranteed? Fixed or float (aka pegged to SIBOR/SORA)?
b. Legal fee and fire insurance coverage FOR how long
c. "Contractual period" aka lock-in period, i.e. when are you eligible for refinancing.

3. Some banks pegged against SIBOR while others against SOR. So, you might ask whether to go for SIBOR or SOR?
Answer: I'm not an expert in this. I believe both are equally competitive as can be seen from historical charts. I will explain this point in point 4.

4. To give you a "feel" of the sibor rate, see the link below.
http://singaporesiborwatch.com/wp-content/uploads/2011/12/SIBORSOR-Sep20115-780x1024.jpg

Our sora and sibor are pegged to historical US interest rate [1]. Sadly, i can't find historical singapore sibor/sora rates before 2005. So i've replaced singapore sibor with USA sibor. See excel spreadsheet "SIBOR and SORA". And here's my observations:
a. US Sibor is closely related to Singapore SORA.
b. Noticed that historical interest rate is high, hence my point 1b. Be very prudent.

5. You should also note that people were forced to top up the loan-to-valuation downgrade during Asian Property Crisis in late 90s. Now with Basel III and MAS and USA own versions of Basel, you can expect more sh~t to happen.

6. Based on point 4b and 5, you must keep spare cash for rainy days.

7. Before you lose ur sleep tonite, one very important point is that the big financial bosses in this world (namely Bernanke and Mario Draghi) have promised to keep interest rates very low till late 2014 at least [2],[3]. Interest rate should not surge too high after 2014. In my noob point of view, it will remain <3% for the next decade. What this means for you is that, it is really a good time to borrow money from the banks.


references:
[1] Singapore's interest rate balancing act - BT Invest
[2] Eurozone remains weak, warns Mario Draghi, as ECB cuts interest rates - Telegraph
[3] Fed: Benchmark Rate Will Stay Low Until

Good luck.

 

[chopra]

Oh ya, remember to ask a friend to refer you to the bank that you intend to take loan from. The friend must of course...borrowed from the bank as well la. He/she will get >$300 cash vouchers, depending on your loan amount.

 

[joanie_dan]

When shiat happens, local banks tend to be more lenient because they have the government's backing and government won't want too many defaults that could result in a crash.

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No source to substantiate. DBS's funding may be stronger as their deposit base is strong, hence probably will not need a margin call that urgently. However local banks in general may not be competitive in rates at times. I still prefer to look at $ and cents compared to the local vs foreign bank analogy

 

[joanie_dan]

I doubt if 12M SIBOR is a practical option, if I foresee interest rates is going sharply upwards, I'll immediately switch into a fixed rate package and lock in for a few years rather than switching to 12M SIBOR. BTW, DBS offers you one time free switching upon TOP.

One time free conversion must be utilized within 6 mths, may not have a better package to switch at that time, may have forgotten to switch etc,

Both have its merits, interest rates can move either direction , if interest rates continue to rise continually over 2-3 yrs, switching to fix rates is beneficial. However if rates start to decrease after 6mths or 1yr etc, e 12m sibor can be switched to 1m Sibor to benefit from e decrease. Hence there isn't a correct answer as to which option is the best. Pros and cons. It becomes your own judgement and comfort level.

 

[joanie_dan]

Oh ya, remember to ask a friend to refer you to the bank that you intend to take loan from. The friend must of course...borrowed from the bank as well la. He/she will get >$300 cash vouchers, depending on your loan amount.

$460k probably $50-$150 voucher

 

[joanie_dan]

Nope I didn't get so low rates..

DBS is the lowest with 3M SIBOR + 0.90% (1-3 yr), +1.0% (4th yr), +1.25% (5th yr onwards)

Citi is 3M SIBOR + 0.95% (1-3 yr), +1.25 (4th yr onwards)

I'm holding this property for long term, so I'm more interested in getting the >4 or >5 year's interest as low as possible. Do you think for such case, I will be able to get +1.15%?

Loan amount is 460k..

Realistically speaking highly unlikely you can get +1.15%.
Is $460k loan 80% Of purchase price? Or you are just taking a lesser loan amount?

 

[arctician]

I just refinanced my property with CIMB based on their board rate with 2 year lock in, 1st year 0.86%, 2nd year 1.6%, with intent to refinance again after the 2nd year. Think this is better than the package you are looking at?

 

[henrylbh]

Realistically speaking highly unlikely you can get +1.15%.
Is $460k loan 80% Of purchase price? Or you are just taking a lesser loan amount?

Wa the spread become so fierce? Spread alone nearly about my sor + 0.85% for entire duration.