My Home Loan Report Card (Yr 2)

Time flies and before you know it, the second year of my SOR-pegged loan is drawing to an end. The chart above shows my home loan interest rates over the past 2 years.

I will no longer enjoy the promotional bank margin (what the bank charges on top of SOR) of 0.75% and it will bump up to 1.25%. As was reported in my post yesterday, the refinancing offer i got was SOR + 0.85%, with 1 year lock-in. To be honest, it doesn’t look like an attractive offer, and with just 1 year of promotional margin being offered, it looks half-hearted. Considering that i may be selling my house later this year, i decided to just let the 3-months-in-advance redemption notice deadline lapse. If i switched to another bank, i will have to pay legal fees, which in the end probably works out to be more. Lets hope the current property frenzy continues for a while.

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Loan packages on offer

As promised, here are the details of the loan packages i have been offered:

Bank A (Refinancing, quoted on 12 Feb)

  Variable 2 yrs Lock-in 2 yrs Fixed SOR 1 yr Lock-in
Yr 1 1.68% 1.99% 3mth SOR + 0.85%
Yr 2 1.68% 1.99% 3mth SOR + 1.25%

Prepayment penalty: 1.5% (For the SOR package, 1.5% penalty is also applicable if redemption is not done on the rate review date, even after the lock-in period)

Bank B (New loan, quoted on 26 Feb)

  Variable No Lock-in SOR 1 No Lock-in
Yr 1 1.50% 3mth SOR + 0.98%
Yr 2 1.50% 3mth SOR + 0.98%
Yr 3 2.50% 3mth SOR + 0.98%
Cancellation Fee 0.75% 0.65%

Note that the cancellation fee is the penalty incurred on the loan amount that has not been disbursed (i.e. loan is cancelled before the full loan amount has been disbursed). For this particular bank, no penalty is imposed if the redemption for SOR package is not carried out on the rate review date.

Some observations:

  • No lock-in loan packages are back, with attractive rates too! When i first took up a loan in 2003, the market was so bad that practically every bank offered loans without lock-in. As time goes by, such packages evaporated, or were offered with unattractive rates. Looks like the competition is heating up again recently.
  • The cancellation fee for a new loan is much lower than the typical penalty of 1.5% banks typically impose. i have not checked if other banks offer comparable rates, but this is certainly encouraging property speculators, no?
  • Most SOR or SIBOR-pegged loans stipulate that redemption (partial or full) must be done on the rate review date, otherwise a 1.5% penalty is imposed. On top of that, it is quite standard that you have to request to perform the redemption 3 months in advance. What this means is that, if you’re trying to sell your house, you have to time the sale such that it is slightly more than 3 months before the rate review date, or risk having to pay the 1.5% penalty. Let me cite an example: say your rate review dates are 1 Jun, 1 Sep, 1 Dec and so on. To avoid paying the 1.5% penalty, you’ll have to sell your house say 2 weeks before 1 Jun, 1 Sep and so on. This no doubt makes things difficult as you never know when someone will agree to buy your house! If you happen to just miss the mark and sold your house say on 2 Jun, in order to avoid the 1.5% penalty, the loan redemption has to be done almost 6 months later and your buyer may not be willing to wait so long! Do take this into consideration if you’re thinking of taking up a SOR/SIBOR-pegged loan. Packages that do not stipulate that the redemption must coincide with the rate review date ARE AVAILABLE!
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SOR six months later

It’s been almost 6 months since i last posted an entry, and during this time more than 10,000km has been added to my car mileage, i have quit my job (without first having found a new job.. for the first time), got married, gone for a two weeks plus self-drive honeymoon across 7 countries in Europe, launched a new e-commerce website, started on my new job, and bought a new property (took up a new SOR-pegged loan for it). Yes, much has happened during this time, but fortunately there hasn’t been much action on SOR rates.

SOR stayed consistently low (below the 0.6% level). It even touched the historical low (as in since 22 Apr 06) of 0.42% again on 18 Feb 10. Time and again, signs that the Federal Reserve will start raising interest rates end up being a false alarm, with expectations that things will remain status quo for some time. Similar sentiments are seen on the local front – “Singapore interbank rates not expected to move for the next six months”. This no doubt is helping to move property prices despite government actions to curb speculation, with attractive loan package offerings from banks. Stay tuned for my first hand report on the prevalent loan packages!

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Honda Jazz 2009 mileage

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Honda Jazz 2009 mileage at 17000+ km (60/40 highway/city) : 13.7 km/l. Still a little disappointing. Nowhere near the 16 km/l that a reader is getting (granted, that was achieved on the previous model, and a manual one at that). Nevertheless, the engine runs a lot smoother now and the mileage is improving, hopefully hitting 14 km/l soon.

Petrol wise, my personal choice is SPC, not for anything else, but for the price. With the combo of Loyalty Card + Credit Card + $2 Voucher (promo till end of the month), the final discount rate is in excess of 17%. Nothing comes close to this in terms of instant discount. Mileage wise, experience tells me that all petrol of the same grade gives similar result. Why be hard on your wallet..

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SOR plunges to 0.44%

Here’s a newsworthy event – The 3-month SOR fell to 0.44% yesterday. This is a whopping drop of 1.1% over the last 3 days! This makes SOR more attractive than SIBOR (3-month) which continues to hold at 0.69%. In fact, at 0.44%, the 3-month SOR is at the same level as the 1-month SIBOR. The fall in SOR might have something to do with the falling US dollar. Here is the technical analysis of the USD/SGD exchange rate trend for those of you knowledgeable in this area.

Recent news indicate that there is “a strong consensus among the G-20 for the need to continue with the trillions of dollars worth of extraordinary stimulus packages”, thus we are likely to see low interest rates for a while yet, though the opposing force of rising inflation is also at work, as seen in the rally in oil price.

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Interest Rate Roundup

The recent property buying frenzy has given rise to increased interest in interest rates, as evident from the higher traffic volume to this blog (thanks for visiting!). I reckon it’s time to do a roundup on interest rates.

Interest rates are still generally very low. Libor is at a record low, and central banks worldwide continue to keep interest rates low. In Singapore, the 3-month SIBOR and SOR are holding steady at 0.69% and 0.6% respectively. This translates to rather favourable home loan rates, though they are “for a limited period only”. As an example, one bank offers a floating rate package at 1.68% (Year 1), 2.48% (Year 2) and 2.88% (Year 3) for 3 years lock-in. Another bank offers an attractive 1.6% (Year 1), 2.6% (Year 2) and 2.9% (Year 3) fixed rate package (yup, FIXED, at rates that are comparable to other floating rate packages).

Another trend to note is the increase in the margin banks are charging for SIBOR and SOR pegged loans. For one particular bank, the margin has gone up by 1% over the past 1 year! This makes SIBOR and SOR pegged loan packages less competitive, and perhaps this is the intended effect. With many predictions by analysts that the Feds will keep rates low well into 2010, there is still relative safety in taking up SIBOR or SOR pegged loans, though it is for sure that interest rates will go up some time in the future, when policy makers take the necessary action against rising inflation. The latest official figure for CPI in Singapore is up by 0.8%.

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Honda Jazz 2009 Review @ 10000 km

Here’s my next and probably final review of the Honda Jazz 2009, after the 10000 km servicing, plus a long distance trip.

The Good:

  • Slight improvement of engine smoothness with engine oil change
  • Hit 500km on approximately 33L of petrol top up, which translates to about 15km/L. This comes from about 85% of highway driving on a long distance trip.
  • Relatively low 1.8k rpm to attain 80km/h, and 2.5k rpm to attain 120 km/h, on a mere 1.3L engine
  • Awarded 5 star Euro NCAP rating

The Bad:

  • Car developed rattle on probably the headliner in less than 6 months
  • Slow first to second gear change. Choose between going easy on the accelerator and allowing a drop to 1.5k rpm after the gear change before building up power (more natural but risk getting stares when the car behind overtakes), or step hard on the accelerator to keep the car moving, with the engine stuck at 2.2k rpm from the first through the fourth gear. Have to get used to being overtaken by vans and lorries
  • When ferrying 3 or more people, the car starts to feel like it is pulling a heavy cart attached using a rubberband. The car moves off reluctantly. Braking becomes much harder as well. The 1.3L engine seems to be designed to carry just 2 persons most of the time.

The Ugly:

  • Currently priced at about $68k, much higher than typical PI pricing at around $55k
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Another day, another record

SOR hits yet another low, at 0.59%. And this happens on my SOR-pegged home loan re-pricing date, bringing the interest rate down to 1.35% for the next 3 months. This is simply amazing. Previously i had been very tempted to switch over to the home loan package pegged to the 1-month SIBOR rate which, at 0.44%, plus the 0.85% margin the bank charges (for 1 year lock-in), stands at 1.29% overall. Compared to that, the interest rate i am getting, at 1.35% fixed for 3 months (3-month SOR) isn’t too bad at all. This translates to a whopping $210 savings in interest per month, wow..

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SOR at new low of 0.67%

SOR just broke through the previous recorded low of 0.68% set on 27 Nov 2008 to hit 0.67% on 27 May 2008, exactly half a year later. One of the driving factors for this is of course is the diving Libor, which happens to be hovering at a range (0.66-0.68%) similar to SOR. The fall in Libor itself may be attributed to cash infusion from the Fed and overall reduced risk aversion.

Meanwhile, the ten year treasury yield continues on an upward trend due to the US borrowing spree, though this is expected to be kept in check by a protracted exit from the recession and falling inflation. The treasury yield and Libor are somewhat linked, with the treasury yield leading, though this is not a strong correlation.

Here is what an analyst has to say about the dollar, treasuries and US government credit rating. Basically, the US dollar is already falling, and we have already seen that treasuries are also on the decline, sending yields higher. Lower confidence in the US government’s ability to repay debt will send interest rates higher as people seek higher returns for taking up more risk. Iceland is the classic example.

Coming back to interest rates in Singapore, it’s interesting to note that SOR has once again fallen to the same level as SIBOR, which is relatively rare. At this level, my home loan rate would be 1.45%, just slightly higher than those who took up the home loan that is pegged to the one month SIBOR, at 1.3%.

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