Comparing home loan rates? Understand how home loan packages are priced based on different reference rates.

A home loan is a big financial commitment that requires you to carefully pick the most appropriate home loan package. Here’s an overview of the different types of home loan pricing that will help you pick out the best package for your financial situation.

Home loan reference rates

Home loan pricing packages are based on interest rates that reference a benchmark, also known as a reference rate.

There are three main categories for home loan pricing with different reference rates:

1. Market-pegged: Determined by the market, and a single bank does not influence the value, e.g., 3-month Singapore Interbank Offered Rate (SIBOR)
2. Bank-managed: Bank decides on the benchmark value and can change it, usually offering customers 30 days’ notice, e.g., mortgage board rates and Fixed Deposit-pegged rates offered by most banks
3. Fixed: Bank determines the fixed rate for 1 to 3 years, and thereafter, the loan switches to a market-pegged or bank-managed rate, e.g., 1-Year to 3-Year Fixed Rate packages offered by most banks

Lock-in periods

Before comparing the different pricing packages, it’s worth noting that pricing packages are quoted with lock-in periods that usually go up to 3 years.

As the name suggests, a lock-in period “locks” you into the loan for a particular amount of time. As such, you will be penalised for making a partial prepayment of the principal or for paying off the loan (with your own cash/CPF funds, sale of your property or refinancing to another bank) during this period.

Typically, the longer the lock-in period, the lower the interest rates for the initial years. Note that banks also tend to offer lower interest rates for the initial promotional period as well.

You will be free to pay off the loan in full or partially with no penalties after the lock-in period is over. Likewise, you can also switch from one pricing package to another after this period, subject to the prevailing regulation on refinancing.

Pros and cons of home loan pricing packages

Let’s take a closer look at some home loan pricing packages available at OCBC.

Reference rate	Key features
Singapore Interbank Offered Rate (SIBOR)	Completely transparent rate SIBOR is published by the Association of Banks in Singapore For a 3-month SIBOR package, the SIBOR rate will be revised once every 3 months
Fixed Rate	Stable monthly instalment for the initial years with fixed interest rates Only applicable to completed properties Penalties if you redeem your loan or sell your property within the lock-in period
OCBC mortgage board rates	These are bank-managed rates in which the bank can revise at any time by giving you 30 days’ notice. Each pricing package has a specific mortgage board rate identified by a unique code in the letter of offer and this rate and the associated spread may differ from packages offered from time to time. Should the mortgage board rate on your account be increased, you will have the flexibility to switch to another OCBC pricing package at no cost. You have the flexibility to prepay up to 50% of the loan amount within the lock-in period.
1-month Compounded Singapore Overnight Rate Average (SORA)	The 1-month Compounded SORA for a given Singapore business day is published by 9 am on the next Singapore business day on MAS Website. Click here for more details Monthly rate changes. Each 1M Compounded SORA will be fixed on the Rate Review Date and will apply throughout the next 1-month period. Free switch to another pricing package after the 1st year (for new loans only) Flexibility to prepay up to 50% of the loan amount in the first 2 years

Pick the right pricing package

Ultimately, it’s best to take a holistic view and consider the overall package beyond interest rates. Other key terms worth considering include the prepayment penalties, cancellation fees, fees and charges, as well as the service provided. Do refer to the Residential Property Loan Fact Sheet provided during the loan application for details of the pricing, the expected monthly instalments and how your instalments would change should interest rate increase.

To prepare for this long-term financial commitment, speak to a mortgage specialist to gain a deeper understanding of the financial considerations involved.