Singapore Property News & Prices

Should you join the crowd?

If you have top-notch credit, and expect to stay in your home for several years, refinancing may make financial sense. You probably won’t have any difficulty getting a loan, provided you have adequate income that you can document.

But for everyone else, the calculations have become increasingly complicated. And you’re unlikely to qualify for the lowest advertised rates.

Borrowers now need to clear a number of hurdles that didn’t exist the last time they applied for a loan.

One of the big factors in determining whether refinancing pays is how long you expect to remain in your home. If you expect to stay for less than two years, you’re unlikely to recoup your closing costs.

It’s probably worth running the numbers if you expect to shave your rate by one percentage point. But, in some cases, that old rule of thumb doesn’t necessarily apply.

People with larger mortgages can benefit from smaller rate reductions, brokers say. Smaller reductions may also make sense if you expect to stay in your home for many years.

Of course, you also need to factor in the costs of achieving that rate. Some borrowers pay points, or a fee, to lower the mortgage rate. Points are expressed as a percentage of the loan amount.

Before you begin tinkering with the many refinancing calculators on the Web, be sure to keep the following in mind:

Consider your reasons

First, think about why you want to refinance.

Lowering the overall amount you’ll pay over the life of the loan is an obvious one.

But in today’s economy, many people are simply trying to save a couple of hundred dollars a month to improve their cash flow (and they don’t care if refinancing will raise their overall costs in the long run).

Other people want to get out of riskier loans, like adjustable-rate mortgages.

This is also a good time to reduce the term of your loan. For instance, if you’ve been in your home for a decade, you may consider refinancing from a 30-year fixed mortgage into a 15-year loan.

Not only is the rate even lower on a 15-year mortgage, but you will be able to pay off your loan earlier and your payment may be about the same as you’re paying now.

That strategy may work well for people nearing retirement.

Be realistic

Only borrowers with good credit scores who are borrowing less than 80 per cent of their home’s value are likely to get the best rates.

Shop around

There are huge variations in mortgage pricing across lenders. Since rates change daily and vary by lender, it pays to do your rate shopping on the same day to perform a valid comparison, said Professor Jack Guttentag, professor of finance emeritus at the University of Pennsylvania’s Wharton School, who runs the Web site mtgprofessor.com.

Rate locks

Given the high volume of applications, it’s also important to ask the lender when the loan will close – and what happens to your rate if the loan fails to close before your rate lock expires.

Such locks typically guarantee your loan pricing for 30 to 45 days.

Get your rate lock in writing. Rates aren’t expected to rise anytime soon, but even if they move only slightly higher, it can diminish the benefits of refinancing.

Rate locks can cost money, so factor this into your cost comparisons across lenders.

Understand the rules

You will also need to document your income fully, and you can expect lenders to check it vigorously too – something they didn’t do previously. “Every data item is being verified at least once,” said Ms Christine Clifford, vice-president of Access Mortgage Research and Consulting.

If you’re looking to refinance a jumbo loan, you need to have superior credit and a sizable amount of home equity.

“You have to provide income verification and the bank wants to make sure you have reserves or liquid assets in the bank,” said Mr Bob Moulton, president of Americana Mortgage Group, a jumbo broker in Manhasset, New York.

That means three to six months of mortgage payments and insurance.

Source : Today – 13 Feb 2010

HOMEBUYERS should rejoice as it looks like a home loan war is afoot.

DBS Bank has been lowering its home loan rates, forcing rivals to scramble to match its offerings in order to prevent the mortgage giant from gobbling their market share. The bank said that, last month alone, it enjoyed a more than 50 per cent increase in mortgage applications.

BT understands that HSBC, for one, is countering that with what some call ‘guerilla tactics’. Next week it will launch a special home loan package, but the offer may be valid only for a short time – to get customers to commit before the competition can react.

DBS has cut its rates several times in the last two months – a fact that has not gone unnoticed by analysts who say that DBS’s recent aggressive moves to sell loans under its new chief executive is a headache for other banks.

‘DBS has always been the market spoiler, dating back to the late 1990s,’ said Morgan Stanley analyst Matthew Wilson.

A recent Credit Suisse report noted that chief executive Piyush Gupta said the bank has the lowest cost of deposits, after all. ‘We have already seen the best home loan package coming from DBS recently,’ said Credit Suisse.

For the fourth quarter of 2009, DBS grew its housing loans 7 per cent, and 12 per cent over 2008.

DBS’s most aggressive package brings the spread it is charging borrowers back to pre-crisis levels and is less than half of what it was some 24 months ago.

For its 3-month Sibor (Singapore interbank offered rate ) plus package, it is charging a spread of 0.5 per cent and 0.75 per cent for the first and second years, respectively.

Citibank said that, as of Feb 10, it is charging a spread ranging from 0.8 to 1.25 per cent. It also offers the widest selection of Sibor tenors in the market, from one month to three years.

This means clients can take advantage of the low one-month Sibor now and then change to a 12-month Sibor later when they feel that interest rates are likely to rise, thereby fixing the rate on their instalments for that period.

Conversely, a client who has chosen a 6-month Sibor initially can switch to a one-month Sibor if he believes that interest rates could ease in the coming months, Citibank said.

DBS said its popular 3-year fixed-rate package charges from 1.99 to 2.19 per cent.

‘The fact is, DBS offers the widest suite and most competitive home loan packages in town,’ said Jeremy Soo, DBS managing director, consumer banking group, Singapore.

‘Our fixed-rate packages remain very popular, with more than 60 per cent of our customers opting for them,’ he said.

‘The response is not surprising as they were designed specifically to give homeowners both the certainty in repayments (over the three years) and still enjoy the flexibility to make partial repayments. This flexibility is usually not found in fixed-rate packages,’ he added.

‘Our momentum has been very good. Month-on-month, in January alone, we saw a more than 50 per cent increase in applications,’ Mr Soo said.

Asked about its coming promotion, an HSBC spokesman said the bank is very happy with the growth of its mortgage business for 2009 and the market share it achieved.

‘For 2010, we are continuing with this approach, which we are confident will help us to build on the momentum we achieved to attract and win more customers to our proposition. Watch this space.’

Vibha Coburn, Citibank Singapore business director for secured finance, said that while having competitive rates is important, ‘we strongly believe that providing innovative value-added products and good after-sales service is just as important’.

United Overseas Bank (UOB) said it will continue to be prominent in the home loan scene. ‘We will compete, but not on pricing alone,’ said Eddie Khoo, the bank’s head of personal financial services.

A UOB spokeswoman added that the bank reviews its product offerings on an ongoing basis to meet the changing needs of homebuyers.

‘As everyone’s situation is different, customers are encouraged to visit any UOB branch or speak to any UOB mobile banker for a package customised to their needs.’

Source : Business Times – 13 Feb 2010