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DBS and UOB raised home loan rates to as high as 3.85%! How much more interest are you paying? [October 2022]

04 Oct 2022

Home loan rates in Singapore have hit a new high not seen in past years. How much more are you actually paying each month?

What happened

Most of us have lived in periods of low interest rates.

With low interest rates, loans were relatively cheap and we did not have to struggle too much.

The reality hits us differently. Banks are increasing their loan rates as interest rates rise.

DBS just announced that it will raise its fixed home loan rates to 3.5%.

This is a whopping 0.75% increase from the previous rate!

OCBC told the Straits Times that its two-year fixed rate package offering is 2.98%.

I am certain that loan rates will continue going up.

(Update as at 4/10 5 pm - UOB just launched two-year fixed-rate packages at 3.75% pa and three-year fixed-rate packages at 3.85% pa.

Due to popular demand, I have added a comparison table below and calculated how much more you are paying for your mortgage based on the two rates)

Let me use math and show you how much more you are paying with this latest increase.

The math on how much more you are paying on DBS fixed home loan rates

For a start, I will assume that the mortgage loan has about 30 years of tenure.

Many of us underestimate the 0.75% increment, and some of us think that we are just paying 0.75% more each month.

The answer is an obvious no.

How much more are you paying?

 

Previous 2.75% fixed rate

New 3.50% fixed rate

Loan Amount

Monthly Instalment

Total payable Interest

Monthly Instalment

Total payable Interest

$500,000

$2,041

$234,833

$2,245

$308,279

$600,000

$2,449

$281,800

$2,694

$369,936

$700,000

$2,858

$328,767

$3,143

$431,591

$800,000

$3,266

$375,734

$3,592

$493,248

$900,000

$3,674

$422,700

$4,041

$554,903

$1,000,000

$4,082

$469,667

$4,490

$616,560

$1,200,000

$4,899

$563,601

$5,389

$739,872

$1,500,000

$6,124

$704,502

$6,736

$924,839

$2,000,000

$8,165

$939,335

$8,981

$1,233,120

You are paying 10% more every month, and you are paying 31% (!!!) more on your total payable interest (assuming the interest rate stays the same).

Oh. My. God.

I knew that the numbers were going to be higher but the reality hit me differently after I compiled the numbers.

10% more each month and 31% more on the total payable interest.

If we were to look at the amount in absolute terms, I think it is safe to say that it is quite a substantial sum.

With inflation and everything, life really becomes harder for everyone.

New update: Comparing DBS to UOB loan

DBS is offering 3.5% and UOB is offering 3.85%. 

I know that common sense tells us that the lower number is better.

But the question is, how much more are you paying for UOB loan relative to DBS? 

 

 DBS 3.5% 

 UOB 3.85% 

 Difference 

 Loan Amount 

 Monthly Instalment 

 Total payable Interest 

 Monthly Instalment 

 Total payable Interest 

 Monthly Instalment 

 Total payable Interest 

$500,000

$2,245

$308,279

$2,344

$343,852

$99

$35,573

$600,000

$2,694

$369,936

$2,813

$412,626

$119

$42,690

$700,000

$3,143

$431,591

$3,282

$481,396

$139

$49,805

$800,000

$3,592

$493,248

$3,750

$550,166

$158

$56,918

$900,000

$4,041

$554,903

$4,219

$618,937

$178

$64,034

$1,000,000

$4,490

$616,560

$4,688

$687,707

$198

$71,147

$1,200,000

$5,389

$739,872

$5,626

$825,251

$237

$85,379

$1,500,000

$6,736

$924,839

$7,032

$1,031,562

$296

$106,723

$2,000,000

$8,981

$1,233,120

$9,376

$1,375,418

$395

$142,298

You can see the difference in absolute terms in the table above.

You might think that the number is small.

Actually, you will be paying 4% more each month for monthly instalments and 12% more for total payable interest.

The difference between the two loan rates is 0.35%, and the difference in your monthly payments is more than 0.35%. 

Do your math friends, and make informed decisions. 

The 0.35% matters!

OMG. What should I do now with mortgage rates going up!

Wait. Do not panic.

The first thing to do is to find out two things

  • When is your home loan expiring?
  • What rates are you taking?

For the lucky individuals who locked in a good 3-year fixed rate during the COVID period, you should be spared from this (for now).

For the unlucky people (like me) whose loan rates are about to expire soon, it is time to go to the different banks (or just call them) and check for the different rates.

Find out the difference between fixed and floating, then choose the ones with the lower rates.

I personally will prefer fixed rates for now because interest rates are touted to rise again next year.

My key lesson learnt in the last 2 years is – Do not fight the Fed.

If they say they are going to increase interest rates, they will.

My opinion is that interest rates will not fall any time soon. Locking in may bring greater benefits.

Update as at 4/10 5 pm: UOB just increased their loan rates to as high as 3.85% pa for a 3 year package. Are you still doubting me? 

If you like, I could write an article on this too. 

Just join the Beansprout Telegram group and let me know if you would like me to cover this.

But my investment guru told me to buy Singapore Savings Bonds/T-Bills instead of paying down my loans

Let me stop you here.

This is not a fair comparison because you are comparing debt to investments.

But if you are still obstinate…

The recent Singapore Savings Bonds and T-Bill issuances are paying less than 3.5%.

Your guru could have been right previously.

Not now.

Closing words – are you thinking of buying a house soon?

For some of us, we have no choice but to buy now because of family issues, incoming newborn etc.

For the others, we just want to move out and enjoy freedom.

Regardless, always do your math and calculate how much you are going to pay each month.

Instead of calculating the loan rate at 3.5%, try a higher number like 4% (as what the recent cooling measures suggest)

This will give you a good buffer.

Know what you are getting yourself into so that you will not be surprised later on.

Practise good personal finance.

Plan ahead and join the Telegram group for more tips and tricks 😊 

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