Interest-offset mortgage account: How it can reduce your mortgage

Following the increase in Federal Rates towards the end of last year, home-owners here are frantically looking out for refinancing opportunities in anticipation of higher interest rates. Other than locking in your rates with a fixed-rate loan, there is another way to reduce your monthly mortgage repayments – an interest-offset mortgage account.

What’s an interest-offset mortgage account?

An Interest-Offset mortgage account is a repayment account that is linked to your mortgage loan. The account acts like a savings account but allows you to earn a high interest rate that matches your housing loan.

Depending on the bank, the interest rate earned may vary and may not apply to the entire sum you have saved in the account. The great thing is that you can use the account like a normal savings account and draw on the funds anytime when you need them.

Who can benefit from an interest-offset mortgage account

You may wonder why someone would rather put a large amount of funds into a savings account rather than pay down part of their home loan to reduce their total interest payments. Well, there can be several reasons, such as preferring to have liquidity instead of having locked up their funds in financing their property. This can be part of their emergency funds to ensure they have enough cash for a rainy day.

Some home-owners may also prefer to use the maximum leverage they can get to put their cash to greater use. This means that they fully maximise the amount of loan they can borrow, and may have other ideas of putting their liquid cash to better use.

Borrowers can also make use of this account as a hedge against higher loan rates since they will simultaneously earn a higher interest rate in their accounts as well.

Generally, such accounts will benefit those who have spare cash that they can put in an interest-offset mortgage account to earn the higher interest rates, rather than put them into a normal savings deposit where interest rates average about 0.5 percent or less. Even fixed time-deposit may have a hard time matching the rates of these accounts!

Product Features

Currently in Singapore, there are three interest-offset mortgage accounts available provided by Standard Chartered, Citibank and HSBC. While the interest rates offered across the three loans are different, we will focus on the product feature relating to the interest-offset feature instead:

1. MortgageOne SIBOR – Standard Chartered

The MortgageOne SIBOR Account matches 2/3 of the deposit in the repayment account to the housing loan interest rate, with the remaining 1/3 earning the bank’s prevailing rate, which is currently at 0.25 percent.

Here’s an example:

Loan Amount	$600,000
Deposit Amount	$50,000
Interest charged	2%
Interest Offset per year	2/3 of deposit enjoys 2% – $666.66 1/3 of deposit enjoys 0.25%- S41.66 Total interest earned per year – $708.33
Interest offset per month	$59

2. Citibank Home Saver

Citibank Home Saver is a mortgage loan that comes with a checking account which earns you interest adjustment of up to 50 percent of the effective home loan interest rate. If your home loan interest is at 2 percent, the cash balance in your account will earn 1 percent interest instead.

Here’s an example:

Loan Amount	$600,000
Deposit Amount	$50,000
Interest charged	2%
Interest Offset per year	1% of $50,000 Total interest earned per year – $500
Interest offset per month	$41.66

3. SmartMortgage – HSBC

HSBC’s SmartMortgage allows borrowers to earn an interest rate that matches their home loan for 70 percent of the borrower’s deposit while the remaining 30 percent of the deposit do not earn any interest. It is a current account that is linked to a SIBOR-Pegged SmartMortgage loan, and you can choose to have no lock-in or lock-in periods of up to three years.

To qualify for the account, you need to have a minimum loan size of S$500,000 and is only available for completed properties with the Temporary Occupation Permit(TOP) obtained.

Here’s an example:

Loan Amount	$600,000
Deposit Amount	$50,000
Interest charged	2%
Interest Offset per year	$700
Interest offset per month	$58.33

As you can see from the above examples, Standard Chartered’s MortgageOne SIBOR allows borrowers to earn the most interest from the accounts. However, borrowers need to consider the other features that come with these loans to have a better comparison.

For instance, while HSBC’s SmartMortgage provides the highest amount for deposit matching, but their loan rates are pretty high compared to the others as well due to the high spread of 1.35 percent. Comparatively, Standard Chartered’s MortgageOne SIBOR only charges a spread of 0.5 percent with a 2 year lock-in period.  

Thus, borrowers will need to access the individual loan products from a more holistic view to ensure their suitability.