DBS Interest Guard: Want to know more?

By The Folks @PropTalk - July 31, 2013 No Comments

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 LAUNCHES INTEREST GUARD TO HELP
HOMEOWNERS MANAGE RISING INTEREST RATES

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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)
$10/month
$23/month

Protection level for 3 month SIBOR of 1.5% (per $100,000 loan outstanding)
$5/month
$18/month







             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

POSB HDB Loan

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%

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