There have been interesting changes to the types of bank home loan rate the past couple of years. The various rate types can be confusing and sometimes gimmicky. You are not alone if you are tempted to just pick the lowest rate. However, it is a good idea to give more thought since the right mortgage can cost you thousands each year.
Here is a rundown of the changes to the types of home loan rate:
- Discontinuation of Singapore Swap Offer Rate (SOR) packages
- Introduction of Fixed Deposit pegged rates
- Introduction of Board rate variants
The current rate types are SIBOR (Singapore Interbank Offered Rate), Fixed Deposit pegged rates, Board rates and Fixed Rates. There is also the HDB Concessionary Home Loan Rate which is generally good if you are buying a HDB flat and qualify for one. The HDB Concessionary Home Loan will not be delved into as the consideration process is somewhat different and is covered in detail here: HDB Loan or Bank Loan?.
SIBOR
Of the three floating rate types offered by banks and financial institutions, SIBOR is the most transparent. The rates are determined by the Association of Banks in Singapore and are published on financial mediums such as The Business Times, Reuters and Bloomberg.
SIBOR packages are normally pegged to the 1 or 3 months SIBOR. 1 month SIBOR is lower than the 3 months SIBOR but changes every month whereas the 3 months SIBOR changes every 3 months.
It is noteworthy that SIBOR packages started in early 2007 due to consumer discontent with the lack of transparency of Board rates.
Fixed Deposit pegged rate
Fixed Deposit pegged rates have been around for about three years. It is more transparent than traditional Board rate packages as the banks publish their Fixed Deposit rates online. But it is less transparent than SIBOR, as each bank set her own rates.
A key aspect of this rate type is that rate movements cut both ways: the bank will have to pay a higher interest to the corresponding group of Fixed Deposit customers if the Fixed Deposit rate increases. As such, it tends to be more stable than SIBOR.
Board rate
The Board rate is another type of rate that is set by each bank. Different banks have various Board rates with different terms, such as Mortgage Financing Rate, Home Mortgage Rate et cetera. How the Board rate is determined is almost as whimsical as her many names.
The latest addition to this rate type is a Board rate variant that was recently announced by OCBC in early October 2017. It is coined the OHR (OCBC Home Rate) and is pegged solely to the long term average of the 1 and 3 months SIBOR. While this is more transparent than prior Board rates, it is less transparent than SIBOR or Fixed Deposit pegged rate as the exact formula for the peg is not known.
Update 21 July 2018: OHR has been discontinued.
Fixed rate
The Fixed rate is 100% stable. The interest rate is locked at a certain level over a set period of time and is usually priced at a premium as the banks bear the risk of interest rate hikes.
| Rate Type | Transparency | Stability |
| 1 and 3 months SIBOR | 1 | 4 |
| Fixed Deposit pegged rate | 2 | 2 |
| Board rate | 3 | 3 |
| Fixed rate | N.A. | 1 |
To round-up, the key factors to consider when deciding your rate type are the nett interest rate, transparency and stability.