THE mortgage war finally erupted, as Singapore banks responded to a dramatic rate cut by Maybank three weeks ago - with one even offering a zero per cent package.

That attractive deal comes from United Overseas Bank (UOB), which has relaunched a package with a teaser first-year rate at rock-bottom.

DBS Group Holdings has also rolled out new rates on several packages, including a fixed-rate deal that claims to be the lowest of its type here in Singapore.

Unlike the fanfare that marked the rate war in 2003, though, the battle now is focused on specific targets and is being kept under the radar.

Banks are quietly offering promotional rates on a case-by-case basis and tend to target clients with loans of well over $300,000. While the market for new mortgages has softened, banks are still busy.

'A lot of customers are looking to refinance their loans taken less than a year ago, when interest rates were much higher,' Mr Bryan Ong of mortgage consultancy bcgroup.com.sg said.

Maybank sparked the war with an aggressive three-year, fixed-rate package at 1.68 per cent for the first year. This promo, which ends on Monday, has sent customers 'rushing to submit loan applications', said Maybank consumer banking head Helen Neo.

About 80 per cent of the applications were for buying private properties with an average loan size of about $675,000. Maybank is now 'reviewing the rates'.

Other banks have not taken the move lying down. Most have tacitly matched - or undercut - Maybank's rates.

DBS has a new three-year, fixed-rate package with an aggregate rate of 7.64 per cent - lower than Maybank's 7.74 per cent. It offers a 1 per cent cash rebate in the first year.

UOB has revived its FirstZero Home Loan - a three-year, fixed-rate package available 'only for a limited period'. The bank launched this in 2003, but it was quietly taken off the market last year amid interest rate volatility.

FirstZero is now back with a zero per cent rate on the first year, 3.6 per cent on the second and 4.5 per cent on the third, making a three-year aggregate rate of 8.1 per cent.

It has hefty penalty charges and a three-year lock-in period.

Standard Chartered Bank (Stanchart) actually moved before Maybank, cutting its three-year, fixed-rate package from 3.58 per cent to 2.98 per cent in January. It also cut its two-year package by 0.55 of a percentage point to 2.88 per cent.

DBS countered this week with a 2.88 per cent average annual rate for a three-year package and a 1 per cent cash rebate on the first year.

This three-week promotion is only for customers with loan quantums of at least $300,000.

OCBC Bank had not joined the fray, with chief executive David Conner saying last month that a mortgage rate war was unlikely.

OCBC said 'from time to time, it offers loan packages with promotional rates that are highly competitive compared to other players'.

The most popular packages now are those linked to transparent rates, like the Singapore Interbank Offered Rate (Sibor) or swap offered rate (SOR), comprising the Sibor plus a bank's lending costs.

These are official, regularly published industry rates customers can check to see how their packages are structured.

Riding on this interest, DBS has just cut by half its rate for its 12-month, two-year, Sibor-linked loans to 0.5 per cent for the first year.

Nearly 80 per cent of Stanchart's new customers in recent months have taken up its package offering SOR plus 0.5 per cent for the first year.

The SOR has dropped from about 3 per cent last year to about 1.5 per cent currently.

Stanchart's head of consumer banking, Mr Ajay Kanwal, said: 'With the interest rate environment expected to soften further, customers of SOR-linked packages will benefit even more.'

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