DBS vs OCBC vs UOB home loan: Which home loan is best?

When the time comes to buy a home, most Singaporeans go straight for the HDB loan as if on autopilot. It's only when we're ineligible for it that we realise that we can take up a DBS, OCBC or UOB home loan for potentially lower interest rates. Wah, rebel sia!

Singapore might fancy itself the financial hub of Southeast Asia… but the truth is, most Singaporeans' exposure to banks are limited to the big three local banks. The competition between them is fierce, but does any one of them have an edge over the rest?

1. Home Loan Bank Rates: Summary

Let's start from the basics. When we're talking bank home loans, there are two different types of packages you would encounter: fixed and floating. Whether you're eligible for a floating or fixed rate home loan packages can be dependent on the type of property you're looking to purchase. 

In general, completed projects are privy to both fixed and floating home loan rates. However, Buildings Under Construction (BUC) are only eligible for floating rates. However, this can also vary from bank to bank.

That aside, wondering what the difference between "floating" and "fixed" is? Floating interest rate packages are pegged to moving a benchmark. In the past, the floating rate home loan packages used to be benchmarked by Singapore Interbank Offered Rates (Sibor). That has since been phased out for Singapore Overnight Rate Average (Sora).

Floating rates are often cheaper, but more volatile. Fixed-rate home loans' interest rates don't move for the first couple of years (say, two years for a "2Y" lock-in period).

When trying to assess a floating rate home loan, you need to understand two main components of the package:

First, what is the benchmark that the interest rate is based on? You should understand what exactly the acronym refers to, how transparent is it and whether it's likely to be volatile.

Second, look at how the interest rate is structured. Is the formula the same each year, or does the interest creep up every year? You're likely to be repaying your home loan for a good number of years, so make sure that the rate past the first few years is something you can live with as well.

2. DBS home loan vs OCBC home loan vs UOB home loan packages

Let's take a quick look at the home loan packages offered by DBS, OCBC and UOB at the moment. The home loan packages across the three local banks have seen some pretty drastic changes in the past year.

With the US Federal Reserve's interest rate hike in June and September 2022, bank home loan interest rates have also increased. On top of that, the banks have also streamlined their home loan packages. 

For instance, in July, DBS bank has scraped its popular five-year fixed rate home loan package which it used to offer at 2.05 per cent p.a.. Well, those days are behind us. Let's have a look at what home loan packages the banks are currently offering and how they stack up against one another.

We'll split them into fixed and floating home loan rates for easier comparison. It's only fair to compare apples to apples. 

The DBS fixed rate home loan package used to be the most competitive. On the floating rate home loan end, UOB's package offers the lowest interest.

Let's take a closer look at the home loan packages offered by each bank and see how one differs from the other.

3. DBS home loan rates  

Given the long queues at DBS ATMs in today's cashless world, it's hardly surprising that DBS home loans are a top choice for many Singaporeans.

Are DBS's home loan packages really worth the loyalty Singaporeans seem to have towards it? Let's find out by looking at DBS's fixed and floating rate home loan packages.

DBS home loans: Fixed interest rates

Note: DBS removed its fixed home loan rates from its website as of Sept 23, Friday.

DBS has two fixed rate home loan packages, one that offers a two-year fixed rate and another that offers a three-year fixed rate.

In the past, DBS aggressively chased the "HDB market" and enticed HDB resale flat buyers to switch from their HDB loan to DBS.

They had a special five-year fixed rate package for resale HDB flats at 2.2 per cent p.a. - which was 0.4 per cent lower than the HDB loan! However, those days are behind us. DBS's fixed rate package is currently 2.75 per cent p.a. which is more than HDB's 2.6 per cent p.a..

So, unless you don't qualify for a HDB loan because you're rolling in dough, you'd rather opt for a HDB loan. Plus, you won't have to worry about changing interest rates after a certain number of years.

If the DBS fixed rate home loan package is your best bet, bear in mind that you never know what will happen in Year three and Year four when the package reverts to a floating rate. So, best be prepared to refinance that DBS home loan.

Now, are the floating rates any better? 

DBS home loans: Floating interest rates

DBS's floating rate home loan packages are dependent on either the 3M Sora or FHR6. While the former is a published rate by MAS, the latter is determined by the bank.

DBS home loan: two-year lock-in 3M Sora + 1 per cent p.a.
Year one – Year two	3M Sora + 1 per cent p.a.
Year three – thereafter	3M Sora + 1 per cent p.a.
Commitment period	Two years

*The 3M SORA is 1.5967 per cent currently.

If you were to take a HDB floating rate home loan with a two-year lock in period pegged to 3M Sora, the current interest rate 2.5967 per cent p.a. - making DBS's floating home loan interest rate lower than its previous fixed deposit home loan rate of 2.75 per cent p.a.

Alternatively, the other floating rate package from DBS is one that is pegged to the bank's Fixed Deposits Home Rate six months (FHR6). But what does that even mean?

FHR6 is essentially an interest rate determined by the six-month average of DBS Fixed Deposit accounts' interest rate, and DBS bank's own internal board interest rates. There's also FHR8 which stands for Fixed Deposits Home Rate eight months, FHR24 for Fixed Deposit Home Rate 24 months, and FHR for just Fixed Deposit Home Rate.

These too have increased from July 8 2022 onwards. If you thought you had scored a deal during Covid when interest rates were low, we hate to break it to you that your happiness will be short-lived. Here's how your FHR6-based interest rate is tabulated for the home loan package with a two-year lock-in an alternative with no lock-in:

DBS home loan: two-year lock-in FHR6 + 1.3 per cent p.a.
Year one – Year two	FHR6 + 1.3 per cent p.a.
Year three – thereafter	FHR6 + 1.3 per cent p.a.
Commitment period	Two years

The current FHR6 rate is 1.4 per cent which means the two-year FHR6 home loan lock-in will incur an interest rate of 1.4 per cent + 1.3 per cent = 2.7 per cent p.a.

DBS home loan: No lock-in FHR6 + 1.75 per cent p.a.
Year one – Year five	FHR6 + 1.75 per cent p.a.
Year six – thereafter	FHR6 + 1.75 per cent p.a.

On the other hand, with a no lock-in FHR6 home loan package, you'll be paying 3.15 per cent. You pay more for the freedom.

However, you have to bear in mind that with fluctuating 3M Sora and FHR6 rates, you should have enough cash flow for when in the interest rate increases.

Let's dive into UOB's home loan packages next.

4. UOB home loan rates

What makes UOB home loans different from the other two popular banks is that apart from the usual fixed and floating interest rate home loan packages, UOB offers a third which is a combination of both fixed and floating rates. Before we get into the combined fixed and floating rate home loan package, let's take a look at the two standard floating rate packages.

UOB home loans: Fixed interest rates

Note: UOB removed its fixed home loan rates from its website as of Sept 23, Friday.

Like DBS, UOB offers two fixed-rate home loan packages with a lock-in period of two or three years. However, UOB's two-year fixed rate home loan is 2.98 per cent p.a. and its three-year fixed rate home loan is 3.08 per cent p.a.. While both banks offer similar fixed rate home loan packages, DBS's fixed rate home loan package offers a lower interest rate at 2.75 per cent p.a..

UOB home loan: two-year fixed rate
Year one – Year two	2.98 per cent p.a.
Year three and thereafter	3M Sora + 1.50 per cent p.a.

UOB home loan: three-year fixed rate
Year one – Year three	3.08 per cent p.a.
Year four and thereafter	3M Sora+ 1.50 per cent p.a.

However, at the end of the lock-in period of two or three years, both banks revert to the same floating rate of 3M SORA +1.50 per cent p.a. for the remaining years.

If you're in the market for a fixed-rate home loan package from a bank, DBS still holds the fort with the lowest interest rate across the board.

With that being said, bear in mind that HDB's interest rates are perpetually 2.6 per cent p.a.. The banks' fixed rate home loan packages are honestly not much of a deal. Are UOB's floating interest rate home loan packages any more hopeful? Let's dive in.

UOB home loans: Floating interest rates

UOB's floating rate home loan packages are pegged to the 3M SORA and vary depending on how much you're borrowing from the bank. The more you borrow, the lower the interest rates.

UOB home loan quantum between $100,000 to $300,000:

UOB Home Loan: two-year lock-in 3M Sora + 1 per cent p.a.
Year one – Year two	3M Sora + 1 per cent p.a.
Year three – thereafter	3M Sora + 1 per cent p.a.
Commitment period	Two years

UOB home loan quantum above $350,000:

UOB home loan: two-year lock-in 3M Sora + 0.7 per cent p.a.
Year one – Year two	3M Sora + 0.7per cent p.a.
Year three	3M Sora + 0.8per cent p.a.
Commitment period	Two years

*3M SORA is currently 1.5967 per cent

If you do the math, UOB's floating rate home loan packages will come up to be lower than its previous fixed rate home loan packages.

This makes UOB's floating rate home loan packages pretty attractive - it's also lower than DBS's floating rates.

In case the interest rate becomes unfavourable from after the lock-in period, at least you have the option to refinance your UOB home loan and get a better deal elsewhere.

UOB home loan Rate: Combination of fixed & floating

UOB's combined fixed and floating rate home loan package sounds like an offer that might allow you to have your cake and eat it too. Now, let's do the math:

UOB home loan: Two year lock-in combination of fixed & floating
Year one – Year two	2.98 per cent p.a. for 50 per cent loan + 3M Sora + 1.08 per cent p.a. for 50 per cent loan
Thereafter	3M Sora +1.5 per cent p.a. for 50 per cent loan + 3M Sora +1.4 per cent p.a. for 50 per cent loan
Commitment period	Two years

*3M Sora is currently 1.5967 per cent

If you take a combined fixed and floating interest rate:

Fixed Rate portion: 2.98 per cent p.a. Floating Rate portion: 2.6767 per cent p.a.

Average Interest Rate: (2.98 per cent + 2.6767 per cent)/2 = 2.828 per cent

To answer the big question, is it really better that the other home loan packages at least in the first two years? No. The lowest interest rate you will get with UOB's home loan packages is its floating rate home loan package.

Interest rate	Total interest payable (two years)
HDB Loan	2.6 per cent
UOB Fixed Home Loan	Unavailable
UOB Floating Home Loan	2.2967 per cent
UOB Combo Fixed + Floating Home Loan	2.828 per cent

Lastly, let’s move along to OCBC.

5. OCBC Home Loan Rates 

The main difference between OCBC home loan packages and that of DBS and UOB is the fact that OCBC's floating rates are pegged to 1M Sora. How does 1M Sora differ from the more popular 3M Sora benchmark?

As its name suggests, 1M Sora is the one-month compounded rate. This means that the turnover period for 1M Sora is faster. If the interest rates are on the decline, 1M Sora can work in your favour.

OCBC home loan: two-year lock-in 1M Sora + 0.98 per cent
Year one – Year two	1M Sora + 0.98 per cent p.a.
Year three	1M Sora + 1 per cent p.a.
Thereafter	1M Sora + 1 per cent p.a.

*1M Sora is 2.0443 as at Sept 23 2022. 3M Sora is currently 1.5967 per cent

At 3.02 per cent p.a., OCBC's floating rate home loan package is definitely not the best amongst the three banks in question.

Note: OCBC's fixed rate home loans are no longer available on the OCBC website as at Sept 24 2022.

OCBC home loan: two-year fixed rate
Year one – Year two	2.98 per cent p.a.
Year three	1M Sora + 1.20 per cent p.a.
Thereafter	1M Sora + 1.60 per cent p.a.

Like UOB, OCBC’s fixed rate home loan package offered an interest rate of 2.98 per cent p.a.. Subsequently, it’ll revert to a floating rate pegged to 1M Sora. Again, there’s no telling whether the 1M Sora will increase or decrease. Last, there’s the option of refinancing at the end of your lock-in period.

6. Conclusion: Which bank offers the best home loan now?

If you're shopping for a bank home loan now, I hate to break it to you that the timing couldn't be worse. Bank home loan interest rates across the board have hiked and if the gloom and doom of a potential impending recession is anything to go by, you can expect further hikes in bank home loan interest rates across the board.

So, if you're buying an HDB BTO, you can of course go with the HDB loan until your new home is built. The HDB loan interest rate of 2.6 per cent is competitive to the current fixed rate home loan packages offered by banks and its stable. However, as far as banks' fixed rate home loan packages go, DBS's rates are the most promising. DBS also has the lowest borrowing minimum of $100,000.

On the hand, UOB'S floating home rate home loan package offers the lowest interest rate compared to that of DBS and OCBC. If you do well with uncertainty and have excess cash flow to manage unexpected increases in interest rates, I would suggest going with UOB. On that note,

P.S. A word of caution regarding floating rate home loans

A floating rate home loan is only for those with strong constitutions.

Because these rates can give you a heart attack anytime, it's super duper important to be (a) very savvy about what you're getting into and (b) know how to refinance.

Ultimate, you might just have to go for the bank that offers you the most flexibility. For example, one that is more generous with free conversions. This is when you're allowed to switch to another one of their home loan packages, e.g. if the current package interest rate goes up too much for your tastes. It's a way for them to retain you as a customer.

If you do not have the constitution of an ox, you might like to opt for a fixed rate home loan instead. These packages are a little more expensive, but they do give you (temporary) peace of mind.

ALSO READ: With rising interest rates, should you refinance your home loan now?

This article was first published in MoneySmart.