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Thread: Getting a home loan from a foreign bank may be cheaper

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    Default Getting a home loan from a foreign bank may be cheaper

    http://www.straitstimes.com/PrimeNew...ry_650090.html

    Mar 28, 2011

    Getting a home loan from a foreign bank may be cheaper

    Savings of up to $500 in first year; low Sibor rate is to their advantage

    By Gabriel Chen, Finance Correspondent


    RECORD low interest rates are allowing some foreign banks to offer cheaper mortgages than their local rivals.

    The difference between the best floating rates at a foreign bank and that at a local one means savings of only $42 or so a month on a $1 million loan.

    But take that over the course of a year and you are saving about $500 - well on the way to a new iPad.

    Although this is based on comparing loans for the first year, savings can extend into the second and third years of the loan, depending on how the rates move.

    Market observers say it is unlikely that Singapore banks will respond aggressively because they have other advantages like branch network and customer reach - but the rock-bottom rates are sure to get the attention of home hunters.

    A major factor behind cheaper loans is how the key interbank lending rate, which is at record lows and tipped to stay that way for much of the year, can favour foreign banks.

    The rate - the three-month Singapore interbank offered rate (Sibor) - is around 0.44 per cent and in line with the trend of interest rates set by the United States Federal Reserve, which are also at historic lows.

    The Sibor, which is instrumental in setting a raft of mortgage and consumer loan rates, has fallen alongside the appreciating Singapore dollar.

    Asia, including Singapore, is seeing major capital inflows, and this puts more liquidity into the system than would otherwise have been the case. All this cash sloshing around the system puts downward pressure on rates.

    Most foreign banks here are net borrowers in the Singapore interbank market as they do not have a large deposit base of Singapore dollar funds.

    A lower Sibor means these foreign banks pay much less to borrow from the interbank market, and this makes it easier for them to launch attractive deals to entice borrowers.

    Conversely, a lower Sibor is less attractive to local banks, which are armed with plenty of Singdollar deposits and are net lenders in the interbank market.

    With local banks having to service the high costs of maintaining branches and cash counters, they will not be as free to make razor-thin cuts to mortgage rates.

    'It is clear that given this advantage, foreign banks can start to beat local banks in the housing loan game,' said a senior local banker who declined to be named as the banker was not authorised to speak to the media.

    Maybank, for instance, has a three-month Sibor-pegged loan package with an additional 0.5 per cent interest for the first year of the loan. This translates to an interest rate of 0.94 per cent for the first year - the lowest Sibor-pegged deal among major banks.

    By comparison, OCBC Bank's latest three-year lock-in package has first-year rates at three-month Sibor plus 0.55 per cent.

    How do they match up? Take a home buyer with a 30-year, $1 million loan.

    At Maybank's rate of 0.94 per cent, a back-of-the envelope calculation shows a monthly repayment of $3,561.11.

    With OCBC, it would escalate to $3,602.77, a difference of $41.66 a month.

    Maybank is not the only foreign bank with deals.

    Citibank Singapore's rates start from one-month Sibor plus 0.65 per cent for the first year of the loan.

    This works out to an effective first-year interest rate from as low as 0.96 per cent, Citi said.

    The rates for the second and third year will be one-month Sibor plus 0.7 per cent.

    Even foreign banks that do not offer Sibor-pegged packages are being aggressive on pricing.

    Malaysia's fourth-largest lender RHB is offering a floating rate package pegged against its board rate with first-year rates at 0.9 per cent.

    'We monitor the market very closely and will revise our rates accordingly to ensure our rates and packages remain attractive to our existing and potential customers,' said RHB Bank Singapore's country head, Mr Jason Wong.

    Consumers appear to be won over by some of the deals that foreign banks are offering.

    'I'm not a Maybank or RHB customer yet, but judging from their competitive rates, I could be one soon,' said 24-year-old home buyer Jason Huang.

    Analysts caution Singapore's three local banks not to compete entirely on pricing as they have the 'largest market share' of mortgages and re-pricing of loans will hurt margins.

    'Mortgage has never been a very profitable product for the Singapore banks,' said CIMB analyst Kenneth Ng.

    'The foreign banks come in aggressively because they use it as a loss-leader to get consumers' wallet share and attempt to use it as a tool to forge the relationship, then cross-sell other products.'

    Phillip Securities analyst Magdalene Choong said it does not make sense for local banks to defend turf in exchange for razor-thin margins in the mortgage loan segment when there are more lucrative lending opportunities elsewhere in Asia.

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    With local banks having to service the high costs of maintaining branches and cash counters, they will not be as free to make razor-thin cuts to mortgage rates.


    Mortgages for less

    One of the best deals from a local bank currently comes from OCBC, with a first-year rate at three-month Sibor plus 0.55 per cent, working out to 0.99 per cent.

    Foreign banks are offering better rates for their first year: Malaysia's RHB is offering 0.90 per cent; Maybank, 0.94 per cent; and Citibank, 0.96 per cent.

    Take a home buyer with a 30-year, $1 million loan. The monthly difference between the first-year loans for OCBC and Maybank comes to about $42 a month, or about $500 a year. There may still be savings in subsequent years, depending on how the rates move.

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    With local banks having to service the high costs of maintaining branches and cash counters, they will not be as free to make razor-thin cuts to mortgage rates.

    Means we should open our cty to more foreign banks to set up shops here ?? likewise same reasoning as FTs ? So as to enjoy lower interest loans rates ??

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    I heard that small fry loan the foreign banks wun entertain u. eg. $500k.

    1 million maybe.

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    Quote Originally Posted by pod
    I heard that small fry loan the foreign banks wun entertain u. eg. $500k.

    1 million maybe.
    they will entertain.....i asked maybank b4...but their rates seems not so gd after i check out....bcoz their variable rates package got lock in period one...
    furthermore, their 3M sibor rate not attractive:
    (1yr lock in), 1st yr +0.5%, 2nd yr +1%, thereafter +1.25%

    Maybank got 5yr fixed rate(5yr lock in)
    average out, each yr interest rate is 2.026%
    wat u guys tink?

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    Quote Originally Posted by devilplate
    they will entertain.....i asked maybank b4...but their rates seems not so gd after i check out....bcoz their variable rates package got lock in period one...
    furthermore, their 3M sibor rate not attractive:
    (1yr lock in), 1st yr +0.5%, 2nd yr +1%, thereafter +1.25%

    Maybank got 5yr fixed rate(5yr lock in)
    average out, each yr interest rate is 2.026%
    wat u guys tink?
    Some of these 'foreign' banks offers only 1st year good deals. Quite 'risky' if you ask me.

    I no balls... so i stick to local bank, cos at least terms are simpler and no lock

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    Quote Originally Posted by pod
    Some of these 'foreign' banks offers only 1st year good deals. Quite 'risky' if you ask me.

    I no balls... so i stick to local bank, cos at least terms are simpler and no lock
    yeah....i nvr trust their variable board rate too

    sibor/sor or fixed rate better

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    Quote Originally Posted by devilplate
    they will entertain.....i asked maybank b4...but their rates seems not so gd after i check out....bcoz their variable rates package got lock in period one...
    furthermore, their 3M sibor rate not attractive:
    (1yr lock in), 1st yr +0.5%, 2nd yr +1%, thereafter +1.25%

    Maybank got 5yr fixed rate(5yr lock in)
    average out, each yr interest rate is 2.026%
    wat u guys tink?

    me tinks 5-yr lock in is way too long for a meaningful relationship with a foreign bank

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    Quote Originally Posted by KarenK
    me tinks 5-yr lock in is way too long for a meaningful relationship with a foreign bank
    I like the one-month SOR with no lock-in given my local bank. Why support the foreign banks?

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