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OCBC’s New OHR. How does it defer from Fixed Deposit-Linked Rates?

OCBC’s New OHR. How does it defer from Fixed Deposit-Linked Rates?

Announced recently, OCBC has discontinued its current fixed deposit-linked home loan rate ‘the OCBC FDMR’ and introduced a new OCBC Home Rate (OHR)

How does the OHR fare? Should you consider it the new OHR when getting a home loan or refinancing your existing one? We definitely think so!

Here’s why:

What exactly is OHR?

Firstly, OHR stands for OCBC Home Rate, which is the ‘long-term’ average 1-month and 3-months SIBOR’. This refers to the official definition of the OHR that is publicly advertised which the current interest rate is set at 1%

What are the 2 kinds of OHR Home Loans Packages that OCBC is offering?

 For starters, you have a choice of 2 different kinds of interest rates:

  1. A Fixed rate, which provides the stability of a fixed rate
  2. A Floating rate, a lower rate that is subject to change.

Additional perks included in OCBC Home Rate Package

  1. Allows partial prepayment of the loan without any additional fees during the loan in a period of 2 years for completed properties.

This means that should you wish to take advantage of the low OCBC Home Rate and have the flexibility to pay off part of your home loan up to 50% without incurring any additional prepayment fee during the 2years lock-in period.

   2. One free interest rate conversion if the OHR increases

What does this means? This means that in the scenario that OHR increases anytime (even by 0.001%), you may negotiate another new interest rate package be it a fixed or floating rate with no additional charges or fees. The benefit of this is that it actually pressures OCBC to avoid any sudden increment of their OHR rate which will potentially cause a large number of existing customers to use this free conversion to their advantage.

How stable will OHR be?

The OCBC Home Rate (OHR) is benchmarked against the ‘long-term average of 1-month and 3-month SIBOR’ To be more detailed, OCBC also defines ‘Long-term average’, as the average over a 12-year period.

OCBC-OHR-Graph

Based on the trends over the past 12 years of 1-month and 3-months sibor is at 1.0728% and 1.11990 respectively, but since it is a new interest rate launched by OCBC it is rounded down to 1% instead of 1.10%. Looking at the trends, this rate should be transparent and less volatile.

Do note that for a large majority during the period from December 2008 and May 2017. both the 1-month and 3-month SIBOR have dropped below 1%. This means for almost 10 years; the long-term average was below 1%!

With this information, one can make an educated assumption that, regardless as to how high the SIBOR will climb in the near future, OHR will continue to stay around 1% for a considerable amount of time.

With an interest of approximately 1%, and comparing with the highly popular fixed-deposit linked rate, what this means is that the OHR is even more stable than the former however must be aware of the considerably high SIBOR rate before 200 (approx 2.5% in 2007 and 3.5% in 2008).

As the OHR Home loan package offered by OCBC averages the 1-month and 3-month SIBOR over a period of 12 years. It is therefore beneficial for customers. Should SIBOR drops below 3% in 2018, the OHR will drop below 1% over the next 2 years

Basically, it means that for OCBC Home Rate to remain at 1%, SIBOR would have to increase beyond 3% next year. 

What is the difference between OHR and Fixed Deposit-Link Interest Rates?

Well, both interest rates are still technically board rate but there are differences between them. Fixed Deposit-Link interest rates  are pegged to fixed deposit that pays out to consumer that places funds within the bank, this is an internal board rate that is decided by the bank and there are different kind of Fixed Deposit-Link interest rates that are pegged to different tenures (E.g. 9 / 36 / 48 months), however for OHR there is only 1 type of 1-month and 3-months sibor rate unlike internal board rate that has different tranches. Also, the sibor figures are publicized, therefore there is a level of transparency.

Should you consider OHR?

Our take on OHR is definitely positive and yes you should consider OHR. OCBC being one of the biggest three banks in Singapore has launched an innovation of interest rate to stay competitive in the mortgage market. Speak to our Mortgage Gurus today! They are excited to share and analyse the options with you!

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