OCBC's new deposit-based home loan rivals DBS's, says consultancy firm

A BOUTIQUE mortgage consultancy firm has welcomed local lender OCBC's version of a deposit-based home loan peg - 36 FDMR (fixed deposit mortgage rate) - launched last month, adding that it will give DBS a run for its money.

As OCBC's version offers a more generous cash reward that not only has a lower bar to qualify for at S$500,000, it also pays out more, thereby covering almost fully the costs of refinancing to OCBC, mainly legal and valuation fees, the firm said.

The one-time free conversion is a good safety net to homeowners who could then reprice to a fixed rate loan, for example, to contain costs should interest rise up too fast, it added.

Said Darren Goh, executive director of MortgageWise.sg: "Riding on greater awareness (how it works) now of deposit-based home loan first introduced and made popular by DBS with its FHR (fixed deposit home rate) in June 2014, it is a strategic move by OCBC to win back market share."

He said the move by OCBC will help to deepen and widen the product offering in the marketplace for home loan solutions with local banks latching on to deposit-based peg for mortgages.

OCBC's version is defined as the prevailing rate of its Singapore dollar 36-month fixed deposit rate for deposits from S$5,000 to S$20,000. Currently the rate is at 0.65 per cent per annum.

The consultancy firm said it believes the two deposit-based home loans from OCBC and DBS are of the same nature and present the same benefits and risks to the borrower.

"By default 36-month deposits is a higher cost of funds to the bank compared to 18-month, but the final interest after adding the spread that each bank levies is more crucial than which peg," it said.

The difference, said Mr Goh, then lies more in the overall package in terms of the spread and how much it goes up after the first few promotional years, lock-in periods, refinancing incentives like cash rebate, and innovative features like what OCBC offered - a free conversion if FDMR moves.