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OCBC joins DBS on FD-linked mortgages

Bank pegs home loan to its 36-month FD rate, while DBS uses 18-month tenure

Banking staff wait outside an Oversea-Chinese Banking Corp (OCBC) branch in Singapore in this Feb 11, 2015 file photo.


FOLLOWING in the footsteps of DBS, OCBC has in the last few weeks been offering a home loan pegged to a fixed deposit (FD) rate.

The bank confirmed this new product with The Business Times. OCBC told BT it wants to offer a complete suite of mortgage pricing options. It also said the latest product offers price transparency, and stability, with the selected FD rate unchanged since November 2011.

This comes as DBS has grown its mortgage book on the back of its FD-linked home loan that was launched for the first time in Singapore in April 2014. At its results briefing this month, DBS said its new mortgage bookings for the full year will at least double from a year ago. Eight out of 10 new loans at DBS are priced off an FD rate. Its market share has now reached 26 per cent.

"Compared to market rates such as Sibor or SOR, FHR (fixed-deposit home rate) is less volatile and continues to give consumer transparency on how their loan rate is derived," said Tok Geok Peng, DBS's executive director of secured lending in Singapore. "Our FHR home loan packages have been well received by our customers, and we continue to ensure we have competitive loan packages."

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To be clear, the benchmark rates used by DBS and OCBC for their FD-linked mortgages are not the same. DBS is basing such home loans off its 18-month Singapore-dollar FD rate for amounts within S$1,000 to S$9,999. This is at 0.5 per cent, and has been unchanged since late 2012.

OCBC is fixing such home loans off its 36-month Singapore-dollar FD rate for amounts between S$5,000 and S$20,000. This is at 0.65 per cent, and reflects a higher price that the bank must pay in return for customers keeping their funds with the bank for a longer period.

The benchmark rate is not the final rate charged to customers, as banks charge a spread as well.

Each bank has separate conditions such as lock-in periods too.

For now, DBS charges its FHR customers a total of 1.65 per cent per annum in interest for the first three years, and 2.3 per cent from the fourth year onwards.

With its FD-linked mortgage, OCBC is charging 1.68 per cent per annum for the same period, and 2.15 per cent from the fourth year onwards.

These mortgages from DBS and OCBC are a floating-rate product, as opposed to a fixed-rate loan.

Banks can raise the specific FD rate for the next round of funds it wants to attract and lock up for a fixed period. Correspondingly, customers on FD-linked mortgages will then pay more interest on their home loans.

The fine print also states that banks have the right to change the FD rate that it uses to determine the final interest rate. But market watchers say such a "bad faith" move is frowned upon in the business, and is rarely done.

DBS chief Piyush Gupta has stated publicly that the bank does not intend to compete in the FD market. DBS has the lion's share of deposits here.

One DBS mortgage banker said customers have already begun comparing the two products. "Everybody knows DBS has the lousiest FD rates. It doesn't need those deposits," he said.

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