Types of Mortgage Loan Packages

Different types of mortgages - Residential HDB Private Apartment Condo EC Commercial Industrial International Overseas AU NZ SG London - Completed Under-Construction BUC - New Purchase RefinancingHave you just purchased a home or commercial office and are wondering what type of mortgage financing plans are available? Let's take a look more in details of the various types of mortgage loans available in Singapore:

1. Fixed Rate Mortgages

Your home loan plan is fixed for a certain period of time, from 1-5 years. Current financing interest rates packages hover around 1 percent plus depending on the timeline that you fixed your home loan / mortgage plan. Fixed rate packages offers you the interest rate certainty that you know you would be paying this fixed amount of monthly instalment every month regardless of the interest rate fluctuations and movements and offers you predictability and stability in monthly instalment with drawbacks of lesser flexibility in partial or full redemption of your home loan / mortgages as you would be typically be locked in for the tenor that your interest rates are fixed. Some banks may include a penalty wavier beneift if the redemption is due to sale of property.

2. SIBOR Pegged Mortgages

SIBOR stands for the Singapore Interbank Borrowing Offer Rate and is a transparent interbank borrowing rate that allows consumers to know exactly what the interbank market interest rate is and the interbank cost of borrowing. The rate is publicly available in Business Times, Teletext and the web.

The Sibor rate comes in tenor terms of 1/3/6/12 months with most banks in Singapore offering home loans or commercial industrial mortgages in either the 1 month or 3 months tenor. A longer term tenor typically comes with a higher interest rate.

The banks charges a certain bank margin spread above the prevailing Sibor Rate for the final aggregate mortgage rate (example 3M SIBOR + 1%).

3. SOR Pegged Mortgages

SOR stands for Swap Offer Rate. I’m going to spare you the financial jargon or theoretical textbook definition for it. The Swap Offer Rate is a US dollar funding mechanism and as the name “swap” suggest, in layman terms, it basically implies the swapping of SGD funds for USD dollar funding at a certain cost (which is the SOR rate) for a certain tenor (1/3/6/12 months).

There might be certain funding advantages given the current United Sates Federal Reserve FED Fund Rate is at between 0 – 0.25%, however given that the funding is USD based, volatility in the foreign exchange (FX) market can play a part in influencing the movement of the SOR rate. In comparison to the Singapore Interbank Borrowing Offer Rate (SIBOR) which is SGD funding, the foreign exchange (FX) will have minimal impact on it.

The banks charges a certain bank margin spread above the prevailing SOR Rate for the final aggregate mortgage rate (example 3M SOR + 1%). 

4. Board Rate Mortgages

The Board Rate pegged is a bank’s own internal interest rate mechanism. Comparative to Sibor or SOR, it offers lesser transparency as to how banks arrive at the concluding board rate figure and pricing for your home loan / mortgage. Given that it is less transparent, some banks have abolished the Board Rate pegged practice while some have adopted a standard universal Board Rate system for greater transparency. In the recent years, we have seen the Board Rate pegged variable packages to be reasonably stable and may offer consumers an extra value proposition for consideration on their mortgage options.

5. Combination Fixed and Variable Mortgages

Some banks from time to time may offer a unique combination of fixed rate plan with a variable Sibor/SOR/Board Rate pegged component. Let’s use an example for illustration. Assuming you have a $1,000,000 loan. 60% of your mortgage / home loan plan would be pegged to the fixed rate while the remaining 40% would be pegged to a variable (Sibor/SOR/Board rate). The Fixed rate portion may have varying terms and conditions to the variable pegged portion. Such mortgage plans offers you the twin benefits of the consistency of a fixed rate pegged with the flexibility of a variable pegged. Not commonly available these days.

6. Combination SIBOR and SOR pegged Mortgages

Similar to a Sibor or SOR pegged package but offers the unique proposition of using both Sibor and SOR. Some banks allow for the free switching between Sibor and Sor while some takes the average value of Sibor and SOR + a certain spread for your mortgage / home loan plan.

7. Interest-Offset Mortgages

Good for customers with excess liquidity. You take up a mortgage / home loan plan with a deposit account offering deposit interest rate similar to your home loan financing cost. The interest offset is typically up to 70% of the financing cost. Offers good value proposition for customers with spare liquidity with flexibility for cash flow.

8. HDB Housing Loan Mortgages

HDB housing loans are offered by the statutory Housing & Development Board for the financing of HDB properties. Current HDB housing loan interest rates are at 2.6% but offers higher quantum of financing of up to 90% of the flat value. Current HDB bank housing loan options could offer borrowers more competitve rates but is fully subjected to prevailing market interest rates. A borrower that have taken up a HDB housing loan may choose to refinance his or her housing loan to the banks to enjoy more competitive rates.

9. Fixed Depsoit Pegged Home Loan Mortgages

The first of its kind in Singapore that references the home loan rates to the bank's 8/9/12/14/15/18/24/36/48 months savings fixed deposit interest rate, and since its the bank's own savings fixed deposit rate, every bank may name it differently - FHR/FDMR/FDPR/FDR.

Became popular in recent 2 years as SIBOR starting rising sharply from its low of around 0.4% 3 years ago to currently about 1%.

Based on historical references over the past 3 years, Fixed Deposit Pegged mortgages generally exhibits low volatility and rose mildly in comparison to SIBOR.

The banks charges a certain bank margin spread above the prevailing FD Pegged reference rate for the final aggregate mortgage rate (example FDR + 0.58%).

10. Interest Only Mortgages

Service only the interest on the mortgage. Not allowed anymore for residential properties. Financing cost may be higher than a normal (Principal + Interest ) mortgage plan. Interest only mortgages are available for Commercial and International Property Loans.

11. Partial Principal Repayment Mortgages

A normal mortgage loan consist of principal with interest. A partial interest servicing home loan consist of only partial principal repayment with interest. The partial principal repayment component is typically only 50% of an original normal principal with interest mortgage loan. The reduction in the principal helps reduce an applicant's monthly loan repayment and improves his cash flow.

12. Multi-Currency Mortgages

Commonly only available for international and overseas property loans, it offers the borrower the option to switch between the base currency of the asset and the local SGD dollars.