Long, long ago, before home loans in Singapore were pegged to SIBOR, before banks introduced the fixed deposit linked rate, when policemen still wore shorts, there was only one type of home loan package in Singapore. This is the Board Rate.
What is a Board Rate?
A board rate is a home loan interest rate that the bank determines internally. There is no transparency to you and me. How this rate is decided and what benchmarks are used are not revealed to the public. What’s worse, banks reserve the right to change their board rate at any point of time, and they are only required to give you 30 days notice.
Only 30 days! Even the library allows you to borrow a book for up to 42 days if you need it.
Board Rates can change quarterly
And if that wasn’t scary enough, some banks even link your home loan to new board rates EACH QUARTER. So every three months, the bank may have a new board rate to use in their home loan packages.
That means that there’s no way of knowing when the best time to sign up for a home loan is! For example, imagine you sign up for a board rate home loan in December 2019, your letter of offer will state the bank’s 4Q2019 board rate. Suppose you have a friend who only signs up for a board rate home loan in January 2020 with the same bank. Their home loan will be pegged to the 1Q2020 board rate, and it may be different from yours.
This also means the day may come when your board rate increases and your friend’s does not. But don’t worry, you can rest assured your friend’s home loan interest rate will eventually increase as well, and sooner than they expect! Banks are equal opportunity offenders.
Mortgage Rate, Prime Rate, Home Rate… they’re all the same
Board rates don’t have a very good reputation, and for good reason. People have been burnt by them in the past. Nowadays, banks hide board rates under another name, hoping that you don’t realise until it’s too late.
So don’t be fooled by the different names that banks use - mortgage rate, prime rate, home rate, and so on. They are all referring to the same non-transparent board rates.
How are board rates determined in Singapore?
The short answer is, no one knows. Sometimes, even the mortgage bankers, their supervisors and bosses themselves may not know. These rates are often determined way up the bank’s hierarchy.
But that doesn’t mean we can’t guess. For example, we can look at global interest rates to make an educated guess. In the past 15 years, a rise in global interest rates have been consistently matched by rising board rates. This should be common sense.
However, we’ve also noticed that when global interest rates fall, board rates do not drop. Ever. It’s like public transport fares in Singapore! Rising fuel costs are blamed for higher fares, but when petrol is cheap, the fares don’t seem to drop.
Are Board Rates always bad?
If we are to be honest, no. In fact, they’re often the lowest in the market! Why? Banks know that there’s a huge risk in taking a board rate home loan, since the interest rate can change at any time. So they entice you with a low board rate, and once you’re hooked, they can change your interest rates with only 30 days notice.
So should you go for a Board Rate?
As a mortgage broker, our priority is to identify the needs and wants of our clients. That means that if we feel that you meet certain criteria, we would recommend a board rate to you because it would benefit you the most.
Here is our criteria:
- You plan to sell this property within a year or two: We would recommend a board rate package that has a lock in period, but also allows selling of property, full or partial payment without penalty. Banks that offer Board Rates normally offers these perks as well. The lock in period only applies if you refinance your home loan with another bank.
- You can make full repayment or at least a significant amount: If you expect to come into some money soon and may not need a long-term loan, it may be prudent to go with a board rate since the interest rates are often lowest.
Ultimately, there are home loan packages that can suit everyone’s financial situation. Board rates were the first floating rate in the market and despite the recent drop in popularity, we suspect banks will never do away with it entirely.
We believe you should always make an informed decision and choose the home loan rate that is most beneficial to you. That is the reason why Mortgage Master exists.
If you still have questions after reading our articles, feel free to send Mortgage Master a WhatsApp message or fill up our enquiry form for a free consultation! We’re happy to help you with any questions you may have. Alternatively, just fill up your information in the form below.
Want to know more about home loan interest rates? Read our series of articles and familiarise yourself with everything you need to know about home loans in Singapore: