Two new 5-year fixed rate home loan packages from DBS, but which is better?

DBS recently announced new fixed rates in June that are extremely competitive. On their website, the latest DBS home loan packages offer 1.50% fixed for up to 5 years! This is one of the lowest fixed rates in the market today and clearly indicates DBS' goal to remain an industry leader.

(Believe it or not, this post is not sponsored by DBS! These really are some of the best fixed rate packages we've seen in recent years. At Mortgage Master, we want to make sure you know what you're getting yourself into if you choose them.)

But there is another 5-year fixed rate package that DBS has announced that is only for HDB homeowners. It looks like this:

5 Year Fixed Super Cash Reward Package

UPDATE: We have been reliably informed that this promotion has ended, and the last day to apply for this was 10 Feb 2021.

While your first reaction may be… wah, 2.60%! That’s as much as an HDB loan! Yes, we know it doesn’t look good on paper. But if you noticed the name… you know the best part of this package – the super cash reward. If you sign up with this package, you can get up to $10,000 in cash, upfront! Here’s how it works:

That’s quite a significant amount you can save upfront just by refinancing to this DBS HDB only package! The cash rebate can then be used to absorb the costs of the typical legal fees and valuation fees you encounter when refinancing.

How do the two fixed rate packages from DBS compare?

If you’re looking to refinance your HDB flat, which fixed rate package from DBS should you choose?

The best way to compare these packages is to see how they work with three scenarios:

Scenario 1: $220,000 outstanding loan, 20 years loan tenure

In this scenario, you are the owner of a 4-room flat and your home loan has less than $250,000 outstanding.

By choosing the 5 Year Super Cash Reward package, you will pay about $3,000 more in 5 years. However, you will also get the $5,000 cash rebate upfront, which means you’re saving more money compared to the 5 Year Fixed-Flexi Rate package.

If you choose the 5 Year Fixed-Flexi Rate package, you won’t get any cash rebate from the bank because your loan amount is below $250,000. That means you’ll have no cash rebates to offset the legal fees and valuation fees when refinancing.

Here’s how we got those numbers:

(Edited on 6 Oct to add: A reader, Jon, kindly contacted us to point out that you also have to take into account how much goes into paying off the principal amount after 5 years. For the 5 Year Fixed-Flexi Rate, you would have paid off $48,979.16 of your principal amount. For the 5 Year Fixed Super Cash Reward, you would have paid off only $47,226.31 of your principal amount. In other words, you're not just paying more interest when you choose the 5 Year Fixed Super Cash Reward, you are also paying less towards the principal amount. So do take note of that as well. Thank you Jon!)

Scenario 2: $350,000 outstanding loan, 20 years loan tenure

In this scenario, you are the owner of a 5-room flat and your home loan has less than $350,000 outstanding.

By choosing the 5 Year Super Cash Reward package, you will pay almost $5,000 more over the 5 years. However, you will also get the $5,000 cash rebate upfront.

If you took the 5 Year Fixed-Flexi Rate package instead, you would get a $2,000 cash rebate, and save MORE money compared to the 5 Year Super Cash Reward package.

Here’s how we got those numbers:

Scenario 3: $650,000 outstanding loan, 20 years loan tenure

In this scenario, you are the owner of a 5-room flat or an executive apartment and your home loan has about $650,000 outstanding.

By choosing the 5 Year Super Cash Reward package, you will pay almost $9,000 more over the 5 years. However, you will also get a $10,000 cash rebate upfront.

If you took the 5 Year Fixed-Flexi Rate package instead, you would get a $2,000 cash rebate, and save MORE money compared to the 5 Year Super Cash Reward package.

Here’s how we got those numbers:

So which DBS 5-year fixed rate promotion is better?

Clearly, homeowners whose loan amounts are less than $250,000 will benefit from choosing the 5 Year Super Cash Reward package. Not only are they able to get $5,000 cash upfront, but the difference in cost between the two promotions is LESS than $5,000 after 5 years!

On the other hand, for loan amounts more than $250,000, it’s clear that the 5 Year Fixed-Flexi Rate package saves you more money in the long run.

However, in 2020, cashflow is an even bigger consideration than before!

For multiple reasons, having cash upfront may be a priority. Whether $5,000 or $10,000, this can really improve your current cashflow situation. Choosing the 5 Year Fixed Super Cash Reward package may cost you more in the long run, but it gives you more cash today!

It’s important to consider your current financial situation before deciding which home loan package to choose. $5,000 can go a long way with the present pandemic and global economic situation.

What about SIBOR and floating rates?

Furthermore, while floating rates inclusive of bank spreads have an absolute rate of 1.40% today, the 0.10% difference is a small premium to pay to avoid the risks that come with a volatile SIBOR-linked package for the next 5 years.

Ultimately at Mortgage Master, we advise that you should choose a rate that best fits your financial situation and risk preferences. We always encourage our customers to choose home loan packages that are transparent, such as fixed rates and SIBOR-linked rates.

A fixed rate home loan offers a sense of security for the more risk-adverse, but that security comes at a small premium. While we don't expect the currently low SIBOR to increase over the next year, it's harder to predict the movement beyond that. Home loans are a long-term game, so always make sure you have the financial means to back up your decision.

One more thing we need to point out…

Before choosing the 5 Year Super Cash Reward from DBS, do consider if there’s a possibility of you selling your property in 5 years. If you do, then do keep in mind the Super Cash Reward package’s 5-year clawback penalty.

This 5-year clawback penalty means that if you sell your property while in the middle of these 5 years, you will need to return the entire cash rebate to the bank.

If you are planning to sell your property in the next 3 to 5 years, no worries! Give Mortgage Master a call, or WhatsApp us, or fill up our enquiry form and we’ll advise you on the best home loan packages for your situation.