There's some confusion here, but the distinction between a grace that is outside of us versus a grace that is inside of us is very good and right. This is what we call Objective Justification.
Our Roman Catholic friends teach that grace is a God-given quality inside of us that enables us to believe and merit salvation. But the Lutheran and also to a large degree the Reformed and historic Anglican position is that even though we are sinners, God counts us as righteous in His sight because of the person and works of our Lord Jesus Christ.
So, in other words, grace is not a quality or thing inside of us, but God's unmerited favour. To speak simply, Jesus died for us, so this means that when God looks at you, He doesn't see your sins, but the righteousness of His Son. Your sins were nailed to the cross in the body of Jesus! And this is God's promise to us that we receive by faith apart from works (which we call Justification proper, or sometimes Subjective Justification). So in this respect, what you've described is not controversial at all. It's the Gospel. It's the good news that Jesus suffered and died for us, that we may have life in Him.
Now, does this contradict Baptism or Predestination? Not at all! For Scriptures say that we are predestined in Christ and that whoever believes and is baptised will be saved, but whoever does not believe is condemned.
As for keeping the commandments, Christ is the one who fulfilled the Law in our place, and through Him, by the power of the Holy Spirit, we now begin to love and obey God and His Word. But this is what we call Sanctification, wherein the Holy Spirit gradually moulds us into the image of Christ. But this has no bearing on Justification, which is already complete and is apprehended by faith alone.
Ephesians 1-2 summarises all of this fantastically, and with regard to the relationship between salvation (Justification) and works (Sanctification), it reads: "For by grace you have been saved through faith. And this is not your own doing; it is the gift of God, not a result of works, so that no one may boast. For we are his workmanship, created in Christ Jesus for good works, which God prepared beforehand, that we should walk in them."