I have the opportunity to re-price my housing loan with DBS. There are 2 options currently other than doing nothing which will be paying more.
For the first 2 years, the gap all-in is about 0.345% between Fixed and Floating package.
FHR is tied to DBS Fixed Deposits 8 months rate. The rate is kind of "Board Rate". I read somewhere that there is limits on how much a bank can change as there is some MAS oversight. Not sure is true and how stringent will MAS allows though. Nevertheless there is more transparency in how the final loan rate is charged.
Rationale for Fixed Package
This 0.345% gap can be closed within a year of rate rise which could make the Fixed package more attractive however the spread for year 3 and 4 will be wider and to floating method. Since the lock-in period is 2 year, i could re-price again but there is some work and fees to consider. I think DBS structured this way so that they can manage their fixed package risk.
Rationale for Floating Package
If there is no significant upward moves for the first 2 years in FHR8 rate, the floating package could be cheaper than fixed. This is especially so with Fed recent rate hike that invited some quarters of criticism. And they may stay low for Year 2019. Not sure about 2020 though. However with SSB limits up from 100k to 200k the bank may up the rate to make themselves more attractive. This won't matter much if there is no one to lend to with property curbs on-going or recession strikes. So if all goes well, there aren't need for a re-pricing exercise after lock-in period unless we like to do a refinance to other banks or there is a better re-price package like FHR4 ? :)
Seems like either options will work fine as they do not offer significant advantage over one another. I would probably choose the later.