Ravi Chandran
Homeowners have to be mindful that Singapore mortgage rates have almost doubled in the last six months because of global effort by central banks to combat inflation.
Median mortgage rates have roughly doubled here over the last six months as the global effort by central banks to combat inflation through higher interest rates takes a toll on local home-buyers.
Property analysts believe that further increases in mortgage rates are on the way, especially after the United States Federal Reserve announced its biggest rate hike since 2000 on May 4th. The relatively sudden spike in the cost of borrowing money has led analysts and banks to warn home-buyers to set aside sufficient savings as a “buffer” and to seek new loan packages or arrangements if necessary.
For a fixed two-year mortgage, the Singapore mortgage rates across banks has increased from 1.15 per cent in December last year to 2.25 per cent in May,
Mr Paul Ho, chief officer at iCompareLoan said, “Mortgage rates have been rising since six months ago as Singapore`s interest rates fluctuate in tandem with global interest rates.”
Interest rates in Singapore, and globally, were relatively low at the end of last year as they had largely remained that way through the pandemic. When Covid started two years ago, it was expected there would be economic slowdown, so to save the economies all over the world, central banks kept interest rates low. But earlier this year, as economies around the world opened up and people started spending more money, central banks raised interest rates so as to slow demand and take pressure off prices.
“It is possible that the two-year fixed mortgage rates will rise from the current 2. 25 per cent to 2. 75 per cent by the end of the year,” said Mr Ho.
“If the Singapore mortgage rates keep rising, homeowners should ensure that they have enough savings to tide through any change in interest rates,” he added.
In such a climate where Singapore mortgage rates are rising, homeowners should set aside sufficient funds as a buffer for further increases.
“It is good practice to regularly review your mortgage plans and those seeking to refinance their home loans should approach independent mortgage brokers to secure the best home loans,” Mr Ho said.
As most Singapore mortgage rates are now pegged to SORA, you will not see interest rates prematurely rising too out of step with the US Fed Funds Rate. This is because although SORA is a “backward”-looking interest rate mechanism which reacts to interest rate movements in Singapore, changes to the US Fed Funds Rate has global repercussions, so SORA is expected to react accordingly.
The biggest interest rate hike in the US will definitely dent some of the enthusiasm in the buoyant property market, and could pose a big problem for homeowners who are still servicing their mortgage loans. This is because banks and financial institutions calculate lending rates by adding a margin (which covers their costs and their profit) to a published financial index, like SORA.
If you want to refinance your mortgage loan you must be curious about how SORA, or Singapore Overnight Rate Average, works.
SORA basically uses a volume-weighted approach where the average rate of all actual transactions traded and booked in the unsecured overnight interbank SGD cash market in Singapore between 8 am and 6:15 pm. The phrase “volume-weighted” simply means that the calculations consider the actual amount being lent.
Which means that a 3M compounded SORA rate is based on a compounding period of 3 months of the historical SORA rate which is published daily on the MAS website and a 1M compounded SORA rate is based on a compounding period of 1 month of the historical SORA rate which is published daily on the MAS website.
Mr Ho said, “All these terms, 3M, 1M, fixed rate, floating rate, etc can be confusing to some home owners who want to refinance. And also there may only be a short window of opportunity open if you want to refinance your mortgage loan.”
He added, “So, anyone who wants the best home loan should speak to mortgage consultants as they can get the best rates for home owners who want to refinance their home loans by comparing across 16 banks and financial institutions. The have the latest home loan info to guide home owners to make the right decision and best of all, their services are free.”
What are some reasons which will bring you to refinance your mortgage loan?
During a low-interest Singapore mortgage rates climate, savvy borrowers may prefer to capitalise on low interest payments by taking a market-pegged interest rate variable package. But when these borrowers are (like now) hit by the biggest interest rate hike, they may try to change the loan to a fixed rate package for some years so as to be able to lock in lower rates and better manage their cash flow.
Fixed rate packages are usually more expensive, but provide the most stability as rates are kept fixed for up to the first 3 to 5 years of the loan tenure. There is no perpetual fixed rate being offered by banks in Singapore at the current moment. This is where a refinancing guide can be useful to home owners to read-up on remortgage and be knowledgeable about the entire process.
Today, consumers have a wide range of home loan packages to choose from compared to several years ago. Home loans could also be tied up with other programmes which rewards customers with a higher interest rate on their deposits if they transact more with the bank, such as getting a home loan and crediting their salary with the same bank.
Typically, with mortgage loans you are offered attractive rates for the first three years when you refinance – following which the interest rates are adjusted upwards. This usually coincides with the end of the lock in period, offering borrowers a good opportunity to relook their loans.
But is there such a thing as a bad time to refinance your mortgage loan?
If home owners are planning to sell their home within a few months, it is usually unwise to refinance. This is because it takes some time before the savings exceed the costs of refinancing. Secondly, they may incur the penalty of the clawback period or lock-in period of the refinanced loan or legal conveyancing fees, valuation fees and other incidental fees.
