In this article, we will discuss what a mortgage board rate is, specifically the OCBC Mortgage Board Rate (MBR). A major subcategory under floating rates, the mortgage board rate (or simply board rate) is an internally managed reference rate determined by the bank.
Since it is pegged to a benchmark, it can go up and/or down. In a way, it’s like accepting a home loan put together by the bank with whatever terms and conditions they charge.
OCBC Bank offers a full suite of mortgage solutions for purchasing HDB and private properties. One of the key features of OCBC home loans is that they don’t differentiate based on your property type – be it HDB, condo or private property. Like most banks, OCBC offers three popular types of home loan packages — fixed rate, floating rate (pegged to SORA), and floating rate (pegged to board rate).
The OCBC Mortgage Board Rate (MBR) is essentially a bank-managed reference rate that is internally determined (by OCBC). This means OCBC sets the mortgage board rates and then ties your home loan interest rates to it. They don’t need to explain or justify any increase.
Note that mortgage board rates can be revised by OCBC bank as per their convenience. There is no stopping the bank from adjusting the board rate (upwards or downwards) whenever they want, for whatever reason they want.
This means the market conditions do not play any role in setting the MBR. Little is known about how these internal board rates are determined. This is why some homebuyers may be sceptical of choosing board rate loans. However, the mortgage board rates can be very attractive at times.
OCBC just needs to give homeowners a 30-day notice before revising the interest rates. If you don’t want to continue, the bank allows you to switch to another price package without any penalty.
Note that the mortgage board rate and the accompanying spread (bank’s margin) may differ from loan packages offered to other patrons or showed on OCBC’s website from time to time.
A home loan packaged pegged to MBR comes with a lock-in period of 2 years. If you want, you can also prepay a portion of the loan within this period.
OCBC charges a few standard fees, including full redemption fee, partial repayment fee and cancellation fee for OCBC mortgage board rates. The below table shows OCBC’s housing loan fees based on its board loan.
|Loan Package||Full Redemption Penalty||Partial Repayment Penalty||Cancellation Fee|
|OCBC Mortgage Board Rates||1.5%||No fees if the outstanding balance is more than 50% of the loan principal. Otherwise, the bank charges 1.5% as a fee.||1.5%|
Remember that for all OCBC home loans in Singapore, the minimum loan amount must be $200,000 for HDB flats and $300,000 for private properties.
It may appear delusional, but the short answer is that: no one knows! Yes, no one among the mortgage bankers or even their direct supervisors will have idea about how this rate is decided and what benchmarks are used to decide this rate. The truth is that those parameters are never revealed to the public.
Generally, no one except a few superiors high up in the organisational management of the bank knows how these rates are determined. Others may not have any idea of when will the next rate revision be made, or by how much it will increase/decrease. This lack of transparency is one reason why MBR pegged home loans are less popular.
However, you can make an educated guess by looking at the trend of global interest rates. As history tells us, mortgage board rates have increased in tandem with the rise in global interest rates in the past 15 years or so.
But interestingly, the reverse doesn’t hold true in this case. This means typically the board rates increase when the global interest rates go up, but when the interest rates fall, board rates do not drop as much in comparison.
OCBC floating rate home loan packages are pegged to either the mortgage board rate or SORA. The floating rates fluctuate according to the reference rates, which means when the MBR or SORA increases or decreases, homeowners will see a change in their mortgage repayments accordingly.
|What does it stand for?||Mortgage Board Rate, or Internal Board Rate||Singapore Overnight Rate Average|
|Who governs it?||Bank managed||Monetary Authority of Singapore (MAS)|
|Transparency||No transparency; internally determined by the bank||More transparent & robust benchmark than SOR/SIBOR and MBR|
|Volatility||Do not change or fluctuate as frequently as other floating interest rates||Rate refreshes every one month (1M SORA) or three months (3M SORA)|
|Free package conversion||Free switch to another package if the MBR increases||Free switch to another package after the lock-in period|
|Flexibility to prepay||Within the lock-in period||Depending on lock-in period|
|New or Old?||The oldest interest rate benchmark used by banks||Relatively new interest rate benchmark|
Often called “the bank’s own rate”, there are times when a mortgage board rate pegged home loan could be the best choice for you. Let’s take a look at the different benefits of mortgage board rates.
Mortgage board rates may actually be the lowest interest rates available for home loan packages. Taking the risk of any-time-revision of interest rates into account, sometimes banks keep their mortgage board rates fairly low during the initial few years of the loan compared to other loan packages. It also allows banks to entice potential customers.
A floating-rate home loan package based on a bank’s board rate may look appealing to prospective homebuyers as they do not adjust or fluctuate as often as a market benchmark like a SORA rate, which is governed by more volatile market movements.
While banks can adjust board rates as and when required, they tend to not change them frequently to keep the confidence of potential clients high on MBR pegged home loan packages.
OCBC offers the flexibility to prepay up to 50% of the outstanding loan amount during the lock-in period for its floating rate home loans pegged to either SORA or board – without any penalty.
As interest rates continue to rise every year, homeowners try to find ways to pay down their liabilities as early as possible. This prepayment feature comes across as a huge aid for homeowners.
Free package conversion refers to the option some banks offer to switch to another prevailing package without being charged the usual conversion fee. Typically offered at the end of the lock-in period, free conversions often act as an incentive for homebuyers to choose a home loan where the interest rates increase after the lock-in period ends, which is usually the case.
However, OCBC offers free package conversion for its floating rate home loans pegged to MBR if the bank increases the board rate even during the lock-in period.
This is a saving grace for homebuyers who aren’t too comfortable pegging their home loan with the non-transparent mortgage board rate. Should the board rate be increased; the borrower can switch to another OCBC home loan package for free. It is particularly more suitable in a rising interest environment.
The mortgage board rates don’t have a very good reputation among homebuyers. Many have been burnt by them in the past. Some banks also try to often disguise mortgage board rates with alternative names like variable rates, prime rates, etc. hoping that borrowers would not notice. Let’s delve deeper into why board rates have garnered a bad reputation in the past.
One of the biggest downsides that discourage more and more borrowers from taking up a mortgage board rate-pegged home loan package is the lack of transparency.
As discussed, mortgage board rates are mostly determined way up the bank’s hierarchy, and no one else has much idea about how they are determined. So, neither the customer nor your mortgage broker has idea about which direction a bank’s mortgage board rate will move.
In fact, most banks do not publish their mortgage board rate anywhere. You will only know the current board rate when you enquire about it.
Since banks reserve the right to change their board rate at any point in time without having to justify it to you, some banks may even hike your home loan interest rates every few months. So when you pick an MBR pegged home loan package, be prepared to have your interest rates changed as quickly as in a month. While it’s not the norm, it can happen!
So, we can say that there is no way for borrowers to know when is the ideal time to sign up for a board rate home loan.
Suppose you and your friend sign up for a board rate home loan in February 2022 (pegged to 1Q2022) and November 2022 (pegged to 4Q2022), respectively with the same bank. There is a good chance your friend’s home loan interest rate would be different than yours. Also, your friend’s board rate doesn’t need to increase when your board rate increases or vice-versa.
This can create a lot of confusion among homebuyers.
Therefore, you should only go for MBR linked home loans if you believe that the bank is not going to revise (increase) the rates anytime soon.
What’s worse, the bank is required to send you a notification of 30 days before changing their mortgage board rates. Clearly, it is not a very pleasant news for someone trying to do financial planning.
Apart from the fact that the mortgage board rates are often kept the lowest in the market to entice borrowers, there are some other situations where an MBR-pegged home loan can benefit you.
Some banks offer a board rate linked home loan that allows the selling of property, full or partial payment without incurring any penalty during the lock-in period. In such cases, the lock-in period is only applicable if you want to refinance your home loan with a new bank.
Those who are somewhat property-market-savvy can opt for the riskier floating rates like the mortgage board rates. Home loan packages linked to mortgage board rates allow homebuyers to bail out quickly and switch to a different loan package faster. So, people who follow markets closely can take advantage of such loan packages.
Can you make a full repayment or at least a significant amount? If yes, then going with an MBR pegged home loan may be a practical choice. It means if you are expecting some money in the form of lumpsum rental income or yearly bonuses to come with which you can pay off a significant part of the loan amount, then selecting an MBR pegged home loan is a smart choice.
Also, if you are not taking up a long-term loan, choose board rates as they often come with the lowest interest rates.
There can be times when accepting a mortgage board rate linked home loan is the only choice you have! You don’t have any alternatives available as there is only a particular bank willing to approve your housing loan.
Believe it or not, mortgage board rates are indeed the longest surviving interest rates for home loans offered by banks in the Singapore property market. Even with the recent slump in its popularity, it is hard to say that banks in Singapore will ever do away with them completely. And why would they, as banks can pretty much set these rates as and how they like.
As a homebuyer, you should choose a home loan that best meets your financial needs. We hope this article will help you decide if OCBC mortgage board rate pegged home loans will work for you or not.
If you are still confused about board rate loans or have any questions about home loans in Singapore, don’t hesitate to get in touch with us. DollarBack Mortgage consultants can help you make a more informed decision and choose the best home loan rate that works best for you, depending on your financial situation.
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