SmartMortgage Account HSBC: In-Depth Review

In addition to competitive home loan rates, flexible repayment terms, and added convenience to its customers throughout the home financing process, HSBC offers a range of attractive packages for prospective homeowners. One product that has increasingly piqued interest is HSBC’s SmartMortgage. This innovative home loan product empowers customers to make well-informed mortgage-related decisions.

Currently, HSBC is one of the three banks in Singapore offering mortgage packages with the interest offset feature. The other two banks include Standard Chartered Bank and Citibank.

Experience the power of smart financing and embark on your journey to homeownership with HSBC SmartMortgage in Singapore. This article aims to explain the nuances of the HSBC SmartMortgage and equip you with all the necessary knowledge to understand this unique product.

What is HSBC SmartMortgage?

HSBC SmartMortgage is the premier home financing solution, tailored specifically for Singapore.

HSBC’s SmartMortgage, an interest-offset home loan product, seamlessly connects your HSBC home loan account with your current account. This unique synergy leverages the interest earned on the balance in your linked current account to reduce (or offset) the interest payable on your home loan. Essentially, this means that the more you save, the less interest you pay on your loan.

However, choosing the SmartMortgage product does not reduce your monthly instalment. You will still be paying the same monthly instalment on your mortgage home loan, but a bigger portion will go towards principal payment, helping to pay down the loan balance.

For example, if you have a monthly mortgage instalment of $4,000, consisting of $800 interest and $3,200 principal repayment. An interest earned of $300 from the SmartMortgage package would offset the interest payable to $500 (i.e. $800 minus $300).

The monthly instalment of $4,000 would now consist of $500 interest plus $3,500 principal repayment. Such a scenario means the borrower can redeem the loan mortgage within a shorter repayment period.

By combining these accounts, this innovative mechanism enables you to take advantage of the interest earned from the deposit account to offset interest expenses associated with your home loan. It brings a new level of smartness to mortgage repayments, ensuring maximum financial efficiency. It helps prospective homeowners to achieve their homeownership goals more effectively.

HSBC’s SmartMortgage optimises your finances, allowing you to benefit from the interest earned while simultaneously saving on your home loan interest costs.

To qualify for HSBC SmartMortgage, the minimum loan amount is $500,000. Also, this only applies to completed properties with the Temporary Occupation Permit (TOP) obtained.

Note: HSBC offers a free conversion that allows borrowers to choose between a fixed-rate home loan or a SORA rate loan (floating-rate loan) even during the loan tenure. So, with HSBC’s SmartMortgage, if a SORA-pegged loan offers a lower interest rate than a fixed-rate home loan midway through your loan tenure, you can convert your loan at no cost, subject to applicable terms and conditions.

How does HSBC SmartMortgage work?

One needs to comprehend how HSBC’s SmartMortgage works to benefit from the innovative design of this product. In this section, we will explain how this innovative home loan product works and demonstrate its potential to save on total interest paid.

HSBC SmartMortgage is simple and user-friendly. You maintain an ordinary current account in HSBC that is linked to your mortgage account. Any balance in the current account offsets the outstanding loan amount in the mortgage account, which lowers the interest rate applied to the home loan.

With HSBC’s SmartMortgage, 70% of the loan or deposits, whichever is lower, will earn the same interest as what is charged to the mortgage loan. The remaining 30% of the deposits or any excess deposits do not earn any interest.

HSBC’s SmartMortgage has one of the highest qualifying deposits ratio (70%) amongst the three banks offering interest offset accounts in Singapore. For Standard Chartered Bank and Citibank, the qualifying deposits ratio is 67% and 50% respectively.

So, we can say that HSBC SmartMortgage really makes your savings work harder for you!

How to calculate interest in the HSBC SmartMortgage account?

Let’s say Jovin wants to take out a home loan of $1 million at a 3% p.a. rate. He has to decide whether to choose HSBC SmartMortgage or a typical bank loan from another bank. Currently, Jovin has $500,000 in savings, which he will maintain throughout the year.

Now, let’s do the maths.

HSBC SmartMortgage		Typical Home Loan
SmartMortgage Home Loan	SmartMortgage Current Account
Loan amount: $1,000,000	Account value: $600,000	Loan amount: $1,000,000
Interest rate: 3% p.a.	Interest rate on $420,000 (70% of account value): 3% p.a.	Interest rate: 3% p.a.
Interest payable (first year): $29,626.95	Interest offset/earned (first year): $12,600	Interest payable (first year): $29,626.95
Final interest paid (first year): $29,626.95 – $12,600 = $17,026.95		Final interest paid (first year): $29,626.95

With a typical home loan for 25 years, the interest payable after the first year would be 3% of $1,000,000, which is $29,626.95.

With SmartMortgage, only 70% of the $600,000 in the current account ($420,000) earns the same interest (of 3%) as what is charged on the mortgage loan. So, for $420,000, you earn 3% p.a., which is $12,600.

So, in comparison to $29,626.95 in a conventional home loan, the net annual interest payable would be $17026.95 ($29,626.95 – $12,600).

From the example scenario above, we realise that Jovin will pay less interest annually on his home loan thanks to the savings in his SmartMortgage current account.

*Please note that this scenario shows a simplified look at how much he can save in the first year and is for illustration purposes only.

It includes assumptions of loan amount, interest rate, interest payable, etc. The actual calculations might be slightly more complicated due to the daily interest calculations, and the actual deposit amount in the current account may fluctuate over time.

The Advantages of HSBC SmartMortgage Singapore

A common question that should come to your mind is why homeowners and buyers would place their monies in the SmartMortgage current account to offset the home loan.

While it makes sense in a high interest rate scenario (like now!), HSBC’s SmartMortgage in Singapore brings several benefits to its customers. These benefits empower homeowners to take control of their mortgage and achieve their homeownership goals more efficiently. Here’s an overview of the key benefits:

1. Interest Savings

The primary benefit of SmartMortgage is the potential for significant interest savings. With HSBC SmartMortgage, up to 70% of your current account balance earns the same interest rate as your home loan. It further offsets your mortgage interest costs as you effectively reduce the principal amount on which interest is calculated. Also, you are earning interest on the funds in your current account. Thus, it allows homeowners to save a substantial sum over the loan tenure.

2. Reduce interest expenses

By linking your home loan mortgage account with a current account, you can earn interest on up to 70% of your outstanding loan amount or deposit balance, whichever is lower. This interest earned can offset a portion of the interest payable on the home loan, ultimately reducing your overall interest expenses.

3. Pay off your home loan faster

With the reduced interest payable, a larger portion of your monthly instalment goes towards paying off the principal amount. This accelerated repayment schedule allows you to make progress on your home loan more quickly, helping you become debt-free and own your home outright at a faster pace.

4. Enjoy the flexibility in managing your finances

The combination of your HSBC current account with your home loan account provides greater control and flexibility in managing your finances. You have the freedom to deposit funds into or withdraw funds (as there is no lock-in period) from your current account at any time without penalties. This flexibility allows you to optimise your money management strategies and make the most of your savings.

5. Reduce interest costs

Partial mortgage prepayments may attract a penalty if done during the lock-in period. But if you have some rainy-day funds in cash, you can deposit them into a SmartMortgage account to offset the monthly interest costs. It has the same effect as prepayment – without attracting a prepayment penalty.

Who would benefit from HSBC SmartMortgage?

The HSBC SmartMortgage is designed to cater to specific individuals who can benefit from its unique features and advantages. The target market for this product includes:

1. Existing HSBC customers

SmartMortgage is particularly advantageous for those who are already customers of HSBC Singapore. If you currently hold a credit card or savings account with HSBC, you have the opportunity to enrol in SmartMortgage. Using this mortgage product, they can conveniently obtain financing while leveraging their existing relationship with the bank.

2. International clientele with high net worth

HSBC’s SmartMortgage is tailored to serve the bank’s international clientele with high net worth. These individuals may be purchasing or have already purchased properties in Singapore and require a mortgage solution that parks their funds to good use (by offsetting the mortgage interest).

3. Individuals with substantial current account transactions

SmartMortgage is especially beneficial for those who frequently engage in a lot of transactions through their current accounts. This mortgage product can make their current account funds work for them and offset their mortgage interest.

4. International investors seeking a safe haven

Singapore is often considered a safe haven for international investors looking to protect their funds deposited in a foreign country. SmartMortgage offers an opportunity to move money into Singapore as Singapore dollars (SGD), serving as a hedge against currency risks when converting foreign currency for the mortgage.

It’s important to note that SmartMortgage is positioned as a current account, which means it is most suitable for individuals who regularly transact with significant amounts of money. Without a large account balance, borrowers may not be able to save a significant amount of interest charged on their property mortgage.

Things to Consider Before Choosing HSBC SmartMortgage

While HSBC’s SmartMortgage product can offer significant benefits, it’s also essential to understand the potential risks and considerations involved. Here are some key things you must take into account when analysing whether HSBC SmartMortgage is the right interest-offset mortgage account for you:

• Risk of Limited Cash Flow: While a SmartMortgage account offers flexibility in accessing the funds in your current account, maintaining a high deposit balance to offset the mortgage interest can potentially limit your cash flow. It is essential to manage your funds wisely to ensure you can cover any unexpected expenses.

• Partial Interest Earning: With the SmartMortgage account, only 70% of the current account deposit amount earns an interest equal to the mortgage interest rate. The remaining 30% does not earn any interest. So, if you have a substantial balance in the current account, the non-interest earning portion may be significant.

• Interest Rate Fluctuations: For mortgages pegged to floating interest rates, the interest rate for the HSBC SmartMortgage is subject to market conditions and can change over time. It means their interest rates could rise or fall depending on the market conditions. This fluctuation in interest rates could affect your monthly repayments as well.

• Financial Discipline: Given the full accessibility to the current account funds, you require financial discipline to maintain a substantial balance in your linked current account. The effectiveness of the SmartMortgage product depends on your financial discipline and ability to maintain a high deposit balance in the current account that may help offset interest rates against the mortgage loan.

• Regulatory Changes: Changes in HSBC banking regulations or policies might also affect the terms and benefits of the SmartMortgage product.

Before choosing any mortgage or home loan product, it’s crucial to fully understand the risks and implications associated with it. Consider seeking independent financial advice tailored to your specific circumstances and long-term financial goals.

Final Thoughts

When exploring mortgage options in Singapore, the HSBC SmartMortgage stands out as a comprehensive solution that caters to the unique needs of individuals and investors alike.

With SmartMortgage’s attractive features and benefits and trust in HSBC’s expertise, you can embark on your homeownership journey with confidence. It will offer you an efficient way to manage your mortgage, ultimately saving you money in the process.

As with any financial product, it is advisable to review your personal financial situation, understand all terms & conditions of the product, and consult a financial advisor before making a decision.

With HSBC SmartMortgage and the expertise of Dollarback Mortgage, individuals can confidently navigate the Singapore mortgage market and secure the best home loan that suits their needs and preferences.