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SIBOR is generally more stable while SWAP tend to fluctuate more. However 3-month SWAP has recently stayed consistently lower than 3-month SIBOR for an extended period of time. SOR is also very reactive to currency exchange rates.


HSBC SmartMortgage

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The Hong Kong Shanghai Banking Corporation (HSBC) is a well-known international bank with a strong physical presence all over the world.

Their banking branches are mostly concentrated in the CBD area and around the regional hub in the west.

While their local strategy appears to target business enterprises and people with high net-worth, their consumer home loans are very competitive when measured against the Singapore local banks.

This shows that they take the property loans market very seriously whether it’s for HDB or private property.

One of their home loan packages is SmartMortgage.

This is basically a mortgage credit facility that enables borrowers to offset their mortgage rates with interest earned from deposit accounts that borrowers keep with them.

Quite similar to MortgageOne offered by SCB.

The interest rate structure of Smart Mortgage gives home buyers and home owners the options of choosing between fixed rate, SIBOR pegged rate, and time deposit-pegged mortgage rate (TDMR).

It should be noted that there is a minimum loan amount of $200,000.

TDMR is basically HSBC’s own version of fixed deposit rate used for home loans.

The variant of TDMR used by HSBC is TDMR24 at the time of writing this. This refers specifically to the 24-month personal banking SGD time deposit rates for amount ranging from $5000 to $49,999.

The unique feature of SmartMortgage is that it is tagged to an interest-bearing current account where the interest earned can be used to offset the interest payment on the home loan that is is tied to.

However, the interest earned is labelled as interest credit and can only be used for the purpose of offsetting against the interest due on the housing loan.

The difference between the SmartMortgage account and other types of accounts that others banks use for these types of mortgages is that this one by HSBC is a current account. This implies that it comes with a cheque book which allows the account owner to draw on it as and when he pleases.

In addition, the interest earned works more like a reverse version of a HELOC account.

Instead of simple interest accumulated on an annual basis, it works on a daily interest basis by dividing the annual interest of the SmartMortgage facility by 365 (days).

Compared to other banks that offer such types of housing loans, HSBC’s offering seems the most generous by assigning 70% of the deposit amount’s interest with the exact same interest rate as the home loan’s interest.

The remaining 30% do not earn an interest at all.

For example, if the interest rate on the property loan is 1%, and the deposit is $100,000, then $70,000 (70%) of that $100,000 will help the account owner accrue a matching 1% interest which will then be used to offset the interest portion of the mortgage payment amount.

As far as to our knowledge, this is the highest among these types of loans in the market, and is only applicable to complete properties. Real estate under construction will not be eligible for the SmartMortgage facility.

However, the remaining 30% of the deposit will not be interest bearing.

Opinion on SmartMortgage

The attraction of such types of facilities is that it enables borrowers to save on the interest payment portion of the monthly installment.

It does not reduce the monthly required payment, but rather reduce the interest portion of the installment payment that goes into interest payment. The excess is then used to pay off the loan balance.

For example, if a homeowner has a monthly mortgage debt obligation of $3,000 consisting of $900 interest and $2,100 principal repayment, an interest credit of $300 from the Smart Mortgage facility would reduce the interest payable to $600. So after factoring in the interest credit, the $3,000 payment would not consist of $600 interest and $2,400 principal.

The scenario above essentially means that the borrower pays off the principal faster. Which in turn can result in an earlier full repayment before the initial loan tenure is scheduled to complete and further savings on interest costs.

The question for these types of loan structures is that why homeowners and home buyers would place their monies in the bank to offset the home loan.

It might make sense when interest rates are exceptionally high. But during this prolonged period of low interest rates since 2008, interest rates are still as low as ever compared to historical rates.

However, people who do a lot of transactions on current accounts that have no interest-bearing features might be able to take advantage of this facility. They are going to such a service anyway. Why not let it work for them?

But do note that this account has no overdraft feature. Which means that you would not be able to draw more than what is the positive balance.

Who would benefit from Smart Mortgage?

The conceptualization of this housing loan package appears like it is meant to serve HSBC’s base of international clientele with high networth.

This indicates people who are already customers of the bank, and are buying or already bought properties in Singapore. This facility enables them to easily obtain financing and also put their parked funds to good use by offsetting the mortgage interest.

Consumers generally prefer to deal with as few banks as possible because it can be quite a hassle to keep track of all the accounts, credit facilities and statements.

And if you already do most of your banking with HSBC in another country, it makes sense to go with them again in a foreign country. Especially when there is a personal relationship manager tagged to you.

It also helps that HSBC home loans itself can often be very competitive even against the local banks’ offerings.

Sometimes returns is not an important priority to people. They are already financially strong and like the bank enough to just deal with them on more products.

Further more, international investors might see Singapore as a safer haven for their parked funds deposited in a foreign land. It can make sense to move money into Singapore as SGD. This also plays as a hedge against loss from currency risks as borrowers convert foreign currency to Singapore dollars for SmartMortgage.

It just gives them another reason to move their funds into Singapore and makes the decision easier.

However, take note that HSBC is positioning this account as a current account. So the target market that this product serves are people who often make transactions concerning large amounts of money.

This is because a small amount of funds in the account balance is not going to help the borrower save any significant amount of interest charged on the mortgage.

More terms and conditions of this package can be found here

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How Does SOR Rates Hit Negative Value?

SOR rates are calculated with a complex financial formula, solved with simple algebra. The results of solving the equation therefore depends on the inputs used. Varying inputs that result from economic impacts and indicators can lead to negative value when the formula is solved. Key input indicators include USD/SGD spot rates and USD/SGD forward rates.

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Interest rates and spreads are not all that matter. Don't ignore the closing costs involved. Different banks can have different customized home loans for you. Don't be surprised if you will save more on a home loan that charges more interest because of the lesser closing costs involved. This is especially so if you know that you will refinance your home loan as soon as the lock in period has expired.

Want to see housing loan interest rate trends for the last 36 months?

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It makes absolutely no sense to pay more
than you have to on a home loan.

Find the best mortgage rates here

It makes absolutely no sense to pay more than you have to on a home loan.

Find the best mortgage rates here
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