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How Home Loan Letters of Offer Look Like
By SUSAN TEO
Sample DBS
Sample HSBC
Sample Maybank
Sample Standard Chartered
Taking a home loan is a major financial commitment for most. Hence we seek to explain some
common loan terms and conditions you may find in a Letter of Offer.
Layout of a Letter of Offer
A typical Letter of Offer always begin with the amount you borrow, duration of the loan; followed
by the conditions of the loan. Attached at the end, is an acceptance form to be returned to the
financing institution.
Terminology used varies for financing institutions
The loan amount, or the principal, is usually called the “loan quantum” or “facility limit”. This is
seen in the Sample Maybank, page 1 and Sample HSBC, page 1 (illustrative only).
Sample Maybank, page 1
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Sample HSBC, page 1
There are many types of mortgage loans available, the key differentiating feature for each is the
mode of repayment. Some of the loan packages we are going to explore here include the “Fixed
Interest Rate Mortgage”, “Floating (Variable) Interest Rate Mortgage” and “Interest-offset
Mortgage”.
Are Fixed Rate packages fixed for the entire duration of the loan?
For fixed rates packages, in Singapore, the interest rate is only fixed for the initial period of up to 2
or 3 years. There are no known perpetual fixed rates in the market.
Thereafter, the rates are pegged at a discount to the financing institution's Board Rate or floating
rate based on SIBOR or SOR. The Board Rate is a margin plus the cost of fund for the institution.
For instance, in Sample Maybank, page 2, the Board Rate is the Singapore Residential Financing
Rate (SRFR). Here, after the initial 3 years, the rates are pegged at 1.15% below SRFR in the 4 th
and 5th year , and 0.50% below thereafter.
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Sample Maybank, page 2
What is a spread (aka margin)?
A spread is the margin the financing institutions add to the loan. For example, for an interest rate of
SIBOR + 1%, the +1% is the spread.
For the “Floating (Variable) Interest Rate Mortgage”, the interest rate is usually the margin plus the
Singapore Interbank Offered Rate (SIBOR) or the Singapore Swap Offer Rate (SOR) [i.e. margin +
SIBOR or SOR]. SIBOR is the interbank lending rate, while SOR add lending costs to SIBOR.
There are different tenors for both rates - 1-month, 3-month, 6-month, 9- month and 12-month. The
shorter the tenor, the more volatile is the rate.
The annual margin usually increase after the first few years of the loan. For example in Sample
DBS page 1, Standard Chartered page 2 and HSBC page 4, the margin increases from the fourth
year onwards. All three packages are pegged to the 1-month SIBOR. The revision period for the
SIBOR varies. For Sample DBS, Standard Chartered and HSBC, the revision period is 3-month, 1Join us | Login for Financial Advisors |
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month and 1-month, respectively.
Sample DBS page 1
What is an Interest-offset loan?
Finally, for the Interest-offset package, you will enjoy the same interest rate for part of the deposit
in your account and your loan facility. The interest earned on your deposit account can be used to
offset the interest payable on the loan facility. This is seen for Sample Standard Chartered page 1-2,
under the MortgageOne Facility, 2/3 of the deposit earns this interest, with the remainder earning
normal interest.
The period in which repayment is subjected to a penalty
Other conditions in a Letter of Offer include the period which you are tied to the loan. Any full or
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partial repayment of the loan during this period will be subjected to a repayment fee. This is known
as the Commitment Period or Lock-in Period. For example, the former terminology is used in
Sample DBS page 2 and Sample Maybank page 2. For Sample Standard Chartered page 5, “Lock-in
Period” is used. The repayment fee can be known as a commitment fee, redemption fee, partial
redemption fee or prepayment fee. In some cases, full or partial redemption may incur zero penalty.
See Sample Standard Chartered, for one such example.
Sample DBS page 2
Sample Standard Chartered page 5
Refund of subsidies if you redeem your loan within a certain period
Another common condition in a Letter of Offer is that you are liable to return all perks given such
as subsidised legal and administrative expenses, valuation and insurance premiums if full
redemption of the loan is made within a certain period. This period can be known as the Clawback
Period or Reimbursement Period. See Sample DBS page 4 for an example of the former and Sample
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Standard Chartered page 5 for the latter.
Sample DBS page 4
On a last note, …...
If you are confused by the myriad of jargon and conditions, our consultants will be most happy to
help you examine the Letter of Offer, using a layman approach, as part of our added service.
(Disclaimer: If in doubt, you should always check with a lawyer and NOT hold our consultants
accountable for any loss whatsoever, arising from our advice.)
References
1. Maybank, “ONE Home Loan Board Rate”, Web
< http://info.maybank2u.com.sg/personal/loans/property-loans/single-board-rate.aspx >
2. BTINVEST, “Understanding Housing Loans and Mortgages”, Web
< http://www.btinvest.com.sg/personal_finance/home-loan/understanding-housing-loans-andmortgages/ >
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