Wednesday, July 31, 2013

DBS Interest Guard: Want to know more?

The good folks at DBS have sent us details of their latest "Interest Guard" product. They have also thrown in details of their "Hybrid" mortgage products for good measure 

So for those seeking peace of mind on their mortgage interest rates...


DBS Bank today introduced a first-of-its kind mortgage offering to protect homeowners against rising interest rates. DBS Interest Guard is an add-on to existing mortgages and caps the 3-month Singapore Interbank Offered Rate (SIBOR) at 1% for the next three years.
             With this offering, homeowners can enjoy peace of mind, knowing that they are protected against sudden increases in interest rates. DBS Interest Guard will benefit homeowners who may be committed to an existing mortgage programme and those for whom refinancing may not be feasible given recent regulation changes.

Lui Su Kian, Managing Director and Head of Deposits and Secured Lending at DBS Bank, said, “The best time to lock into a set of good rates is during a low interest environment, especially for longer term loans such as mortgages. We recognise that many homeowners may find it challenging to do so due to a variety of reasons, hence the DBS Interest Guard is designed to add a layer of protection against rising interest rates. With the majority of our customers purchasing homes to live in instead of as investment, this offering addresses their need for security in a fluctuating interest rate environment.”

In Singapore, property remains a key asset for many residents and represents one of the longest term financial commitments for a household. The uncertainty in the macro environment since 2008 has not stopped the growth of the property market. Instead, the low interest rate has fuelled interest in the market and contributed to the rise in property prices.

While the government and banks have taken steps to ensure that homebuyers are spending within their means, housing loans in Singapore have grown at a much faster pace than earnings. Over the last five years, the median gross monthly income for full time employed residents grew at an average of 4%. In contrast, housing and bridging loans have doubled over the last five years to SGD 152 billion at the end of 2012, or an increase of 16% year-on-year on average.

Over the last three months, the take up for DBS’ fixed rate programmes has increased by more 65% as homebuyers in Singapore sought to take advantage of the low interest rate environment.

Presently, over 70% of the bank’s customers purchase their homes for owner occupation purposes. With the average loan tenure spanning 20 years, it is prudent for homebuyers to consider their repayment ability at different life stages. For instance, a young couple’s financial commitments would be significantly different when they have children. Assuming the couple is paying 1.5% interest per annum on their $500,000 mortgage, a single percentage point increase in SIBOR could mean a $237 increase in their monthly repayments. If the couple had subscribed to DBS Interest Guard, the increase on their monthly repayments would only be $147, allowing them to set aside more money for other financial goals such as their child’s education or retirement.

While rates are not expected to increase dramatically overnight, historical data has shown that it is not inconceivable for SIBOR to increase by a few percentage points in a matter of months. At the beginning of the global financial crisis, on 26 September 2008, SIBOR increased by 0.47% in a single day. Over the last five years, SIBOR has risen as high as 3.56% in July 2006 and reached a record low of 0.34% in September 2011.

With DBS Interest Guard, homeowners can better protect themselves against rising rates for a nominal increase in their monthly repayments. There is no commitment period required for the DBS Interest Guard and homebuyers can opt to have interest rate caps of either  1% or 1.5% for the 3-month SIBOR over a protection period of two to three years. The monthly cost for adding on the protection starts as low as $5 per month for every $100,000 loan outstanding.

Protection period
2 Years
3 Years

Protection level for 3 month SIBOR of 1% (per $100,000 loan outstanding)

Protection level for 3 month SIBOR of 1.5% (per $100,000 loan outstanding)







             The DBS Interest Guard is also available for new DBS mortgage customers. Customers can contact the bank directly at +65 6333 0033 to determine if the DBS Interest Guard is suitable for them. For more information on DBS’ suite of flexible mortgage programmes, please see Appendix A.

Appendix A: DBS’ suite of flexible mortgage programmes

Today, besides fixed and floating rates programmes, DBS carries a variety of hybrid offerings that combine both fixed and floating rates. These are designed to cater to customers who seek both flexibility and security in knowing that their interest rate is capped:

·         POSB HDB Loan is the first floating rate programme in Singapore to provide HDB homebuyers with the security of having interest capped below HDB concessionary rates for 10 years while benefiting from the current low interest rates.

Pegged to the 3-month SIBOR, the Mortgage Rate Protector allows customers to benefit from the current low interest while remaining protected by a cap on the interest rate, in the event that interest rates go up.

·         DBS 2+2, the first-of-its-kind in Singapore, is a fixed rate programme suitable for customers who prefer more stability in their repayments. DBS 2+2 allows customer to move on to floating rates after two years if interest rates go down or exercise the option to enjoy the same fixed rates for another two years.

Package with MyProtector Mortgage
Year 1
Year 2
Year 3
Year 4
Year 5 onwards


3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years

3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years

3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years

3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years

3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years

Mortgage Rate Protector

3M SIBOR + 1.15% capped at 1.88% for the first 3 years

3M SIBOR + 1.15% capped at 1.88% for the first 3 years

3M SIBOR + 1.15% capped at 1.88% for the first 3 years

3M SIBOR + 1.25%

3M SIBOR + 1.25%

DBS 2+2

1.78% FIXED

1.78% FIXED

1.78% FIXED or 3M SIBOR + 1.25%

1.78% FIXED or 3M SIBOR + 1.25% (if taken up in Year 3)

3M SIBOR + 1.25%


Interest rate hike: First the warnings, now comes the insurance...

Our de facto English newspaper has reported today that DBS has introduced a product offering to help protect home owners in case their mortgage instalments start increasing.

The DBS Interest Guard acts like an insurance policy for new and existing mortgages that are pegged to the interbank rate, which will increase if global rates rise.

The product means a borrower can cap his interest rate for a set period no matter what happens to rates in the open market.

It will cost from $5 to $23 a month for every $100,000 of the loan, depending on the form of protection.

Protection can be bought for only two or three years. After that the borrower will have to pay instalments at the new interest rate.

Customers can choose when their protection kicks in.

One option starts when the local interbank rate hits 1.5%. The more expensive option is triggered when the interbank rate hits 1%, providing a lower interest rate cap for the borrower.

So is this a case of DBS being the opportunist or as per what the Chinese says: 无风不起浪 (translated as: There’s no waves without wind)? Some of us will recognize the English equivalent as 



And in a separate report by our de facto Business newspaper today, the take-up rate for DBS’s fixed rate packages has increased by more than 65% as a result of home buyers’ fear of interest rate hikes.

While rates are not expected to increase dramatically overnight, historical data has shown that it is not inconceivable for Sibor to increase by a few percentage points in a matter of months.
At the beginning of the global financial crisis, on Sep 26, 2008, Sibor rose by 0.47% in a single day. Over the last five years, Sibor has risen as high as 3.56% in July 2006 and reached a record low of 0.34% in September 2011.


Friday, July 26, 2013

Mortgage serviceability: Reality versus Fantasy...

The following article contributed by Mr. Kuo How Nam appeared in the Forum page of our de facto English newspaper today.

Borrowers need reality check

THE key element determining a person's ability to pay his mortgage is income, whether it is from employment or from rent ("One in 10 borrowers overstretched, warns MAS"; Wednesday).

Rising interest rates can be managed if there is sufficient income, and if it grows in tandem with the rate increases.

Trouble begins if this does not happen. All it takes is for one spouse to be retrenched, or go through a period of unemployment, to spark a financial crisis in the household.

The same happens if properties are unoccupied or if rents do not cover mortgage payments.

There has not been much discussion on expected rental trends. This is an important element in determining debt-paying ability, as many people have bought additional properties on the assumption that the promised rental yields are better than the returns from alternative investments.

In many cases, they will be totally reliant on rental income for mortgage payments.

But we know that there is a huge supply of completed units coming on-stream in the next couple of years. Many are in the outlying areas, and several are shoebox units or tiny apartments.

These new locations and designs are, so far, untested in the rental market. There is the real possibility, particularly with slower growth in the labour force, that these new units will go unoccupied when they are completed.

Owners will be hard-pressed to meet their payments if this happens.

Property owners need to do a reality check and evaluate their vulnerabilities in the face of such uncertainties. They need to assess their employment and job security.

Nothing is worse than being unemployed and having outstanding mortgage loans.

They need to think of alternative scenarios, such as whether they can rent out their properties, the expected interest rate increases and how these will affect their cash flow.

Lastly, they must look at what cash reserves and resources they have available to ride out a rough patch that can last several years.

If necessary, they should lighten their debts, perhaps even taking a manageable loss now as a preventive step.


There has been increasing sound bites recently from both government and financial institutions about rising interest rates and how this may affect homeowners with huge mortgages. This raises concerns that the low borrowing rate environment that we have grown so accustomed to for so long may be under threat.

The property buying euphoria has grown from strength to strength over the past 5 or so years, despite seven rounds of cooling measures. However, the latest (8th) sets of cooling measures may have bruised (the wife and I wouldn't exactly say "broken"...yet) the camel's back finally.

While it is natural for people to want to "get in" on a bull market, many have either failed or refused to acknowledge the fact that the property market actually go in cycles and those who are over-committed or highly-leveraged will be in trouble once the market starts to turn. One does not even have to be retrenched to spike a financial crisis at home - a combination of falling prices/rental returns and interest rate spike is sufficient to cause many sleepless nights (trust us, we have been on that road before). This is made worse if you have more than 1 mortgage to service.

Many will pour scorn on our cautionary tale even as recent as last quarter of this year, but the scenario doesn't seem as far-fetched today, given the double-whammy of a huge influx of new "for investment" apartments that are steadily coming on-stream and a much poorer rental climate.

There is this other thing that the wife and I cannot quite comprehend: whenever we spoke with people who need to "downgrade" from their current apartment due to financial constraints, the common notion is that they will be selling at a "loss" if the price they fetch is less than the price that they have bought the property for, say, 5 years ago. Few (actually NOBODY, that we have dealt with on the subject so far) will take into consideration the opportunity cost of occupancy - everyone expects to stay in their apartment "rent-free" and then made a killing off it when they want to sell. The usual "justification" is that if they cannot sell the apartment for higher than what they bought it for, they will be out of pocket and that makes any replacement purchase an even bigger challenge. We reckon this is the main reason for the big price gap seen buyers and sellers, especially during a bull market. But if the market is indeed turning, maybe sensibility will finally prevail and such disparity should become smaller? The wife and I certainly hope so.....

Thursday, July 25, 2013

Foreign buyers getting cold feet..?