In Singapore, property owners are regularly in quest of the lowest home loan rates. Yet, they often gloss over a very crucial aspect of mortgage packages — the product features. Did you know that the interest offset mortgage package in Singapore can reduce your monthly mortgage repayments?
Interest offset packages help reduce your mortgage interest payment and increase your savings. This package serves as a savings account that earns you an interest rate similar to that of your housing loan when you maintain a good balance of deposit with the bank.
There’s no minimum sum required, and you do not need to park your funds in the account for a fixed period (i.e. the bank does not lock in your deposit).
However, a small catch is that the interest rate granted does not apply to the entire deposit, but only to a certain fraction of it, depending on the banks. There could also be a minimum housing loan amount required to enjoy the package.
Who is it for? What are the benefits?
As there’s no minimum deposit required, the market for interest offset packages in Singapore has relatively low barriers to entry.
This means that any property owner can enter the market as long as they sign up for a housing loan with the bank.
Once a deposit is placed, a borrower can utilise the matching interest rate earned on the deposit to make up for the mortgage loan’s interest rate. The interest ‘earned’ will be first used to offset the interest of the loan. The remaining balance will be used to paydown the principal. In the long run, the loan can be redeemed within a shorter repayment period.
This allows the borrower to reap cost savings. Furthermore, since the funds don’t have to be “locked up” in the account, liquidity is enjoyed.
You can withdraw the funds at any point of time to tide through rainy days. Additional funds can also be paid into the account as and when you have any spare cash.
Which banks offer interest offset mortgage packages in Singapore?
In this table, we compare the interest offset packages offered by 3 banks, using the following figures:
- Home loan amount: $800,000
- Deposit: $50,000
- Interest rate: 2%
|Bank Package||Fraction of Deposit||Interest rate||Interest offset||Other requirements|
|HSBC: SmartMortgage||70% capped at Outstanding loan||Same as mortgage loan||2% (0.7×50,000) = $700||– Minimum loan amount of $500,000|
|Standard Chartered:MortgageOne||Capped at Outstanding loan||⅔ will enjoy the same interest as per the mortgage loan|
1/3 will earn 0.25%
|2% (⅔ x 50,000) + 0.25% (⅓ x 50,000)|
|– Minimum loan amount of $100,000|
|Citibank: Home Saver||100%||50% of mortgage loan||(½ x 2%) 50,000=$500||– Minimum loan amount of $100,000|
An interest offset package is an extraordinary feature that can allow you to reap substantial cost savings. Borrowers should take on a comprehensive approach in evaluating which interest offset package suits them best.
If you have any further queries and would like to be furnished with more information, feel free to contact us for a chat.
Have some mortgage questions? Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Get a non-obligatory assessment and loan product recommendations here.