Thursday, November 23, 2006
[RealEdge] BT : DBS's home mortgage deal promises more certainty
| Published November 21, 2006  | |
| DBS's home mortgage deal promises more certainty Package pegs interest to CPF ordinary account rate
By CONRAD RAJ
THOSE seeking more certainty on home loan costs can look at DBS Bank's latest mortgage product - The POSB Home Ideal, with interest pegged to that on the CPF Ordinary Account. The package - the first such product in the market - pegs the interest rates for the entire loan term to the CPF ordinary account rate, now 2.5 per cent per annum. And to make it more attractive still, there are no penalties for early redemption. Home Ideal, which can be used for Housing and Development Board and private property, is capped at $500,000. Explaining the thinking behind the loan, DBS managing director and head of secured loans Koh Kar Siong said: 'Much has been said about home loan rates not being transparent, but through POSB Home Ideal, DBS offers customers peace of mind with transparency in home loan interest rates by pegging them to the CPF Ordinary Account rate.' Response to the scheme since its launch last Tuesday has been overwhelming, Mr Koh said. 'The feedback we received is that customers are excited because of the package's stability and transparency since it is pegged to the CPF OA rate. This rate is something they understand and are familiar with, and they know it is stable. In fact, the CPF OA rate has not changed since July 1999.' With Home Ideal, those who apply for a loan of less than 80 per cent of a property's value will pay the CPF OA rate of 2.5 per cent plus 0.25 per cent for the first year, or a total of 2.75 per cent. In the second year, the charge is 3.5 per cent (the CPF rate plus one per cent). For subsequent years, the charge is the CPF rate plus 1.5 per cent, for a current total of 4 per cent. Those who want more than 80 per cent finance will have to pay CPF rate plus 1.25 per cent for the first year, the CPF rate plus 2 per cent for the second year and the CPF rate plus 2.5 per cent for subsequent years. First-time home buyers get a preferential rate of a quarter percentage point off for the first year. The loan tenure, however, will not stretch beyond a person's 70th birthday. So if you are 30 now your loan can have a tenure of 40 years, and if you are 50 the maximum tenure will be 20 years. In comparison, United Overseas Bank's First Zero Home Loan charges for private property charges no interest for the first year, 5.75 per cent in the second year and 6 per cent in the third. In line with the quarterly interest rates reviews by the CPF Board, DBS will do a quarterly review of Home Ideal rates on Jan 1, April 1, 1 July and Oct 1 each calendar year. If the CPF Board changes the rate payable on the OA, the bank will make the same change to the Home Ideal package. DBS also reserves the right to review the interest rates if the CPF Board changes the formula from the CPF OA rate is derived. At present the OA rate is derived from an average of the three local banks' rates, with 80 per cent weightage on fixed deposit rates and 20 per cent on savings rates. A DBS spokesman said that because Home Ideal is a no-frills package, there will be no subsidies for legal fees, valuation or fire insurance premiums. However, those who sign up for the package will receive a three-in-one breakfast maker set worth $109, and there will be a preferential rate of 6.8 per cent a year for renovation loans. |
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