Private property prices in Singapore have been slipping for the last 24 months and even HDB resale prices haven't been spared.
While the correction of Singapore's residential property prices has been largely expected, what came as a surprise to many potential home buyers are the spikes in interest rates, which is delivering a huge impact in raising the cost of home loans.
So while those who are considering buying a new home might be happy at the falling property prices, you may also be worried about the recent rise in SIBOR rates (Singapore Interbank Offered Rate) and SOR rates (Swap Offer Rate) - both of which are used as benchmark rates to price home loans in Singapore.
New & Refinance Home Loans in Singapore
We at GET.com will show you the different kinds of home loans, along with their pros and cons so that you can decide which type is right for your own situation.
Let us first take a look at the SIBOR vs SOR rates in Singapore right now:
Despite all the fluctuations, you can see that generally the rates are on an uptrend and have been rising steadily since the start of 2015.
Which Home Loan To Choose?
In a rising interest rate environment, the most practical advice is for home buyers to get a fixed rate home loan in order to lock in the interest rates.
While fixed rate loans are often priced at a slightly higher percentage point compared to floating rate loans due to the certainty of the amount you'll pay, in a rising rates environment it'll still work out to more savings over the lock-in period.
But with all financial products, there are always pros and cons and the comparison seldom works like comparing apple to apple.
For instance, taking into consideration that the gap between SIBOR and SOR has widened much more than what has happened historically, economists are expecting SIBOR to rise at a more conservative pace.
This could result in a smaller difference between taking a fixed or floating rate loan.
Additionally, interest rates here have largely risen due to the expectations that the US will likely raise its interest rates this year.
Fixed Deposit Home Rate (FHR) Loan
Fixed deposit home rate (FHR) loans are the newest kids in town, and have been very popular among new borrowers.
An example of such a package is the FHR loan offered by DBS which have proven to be quite popular.
The loan uses a floating rate derived from the bank's fixed deposit rates to price its loan. It takes the average of the bank's 12-month and 24-month fixed deposit (FD) rates as a base, then adds on a spread to make up the effective interest rate.
For now, the rates are at (FHR + spread) for the first three years, which stands at 1.10%. Last updated, the FHR was at about 0.4%, making the effective rate at 1.5%.
Advocates of the FHR rate loans argue that the FHR rate is likely to lag behind the increase of the SIBOR and SOR rates (find out more about SIBOR and SOR home loans here).
This is because fixed deposit rates are determined internally by banks, and it is to the bank's disadvantage to raise fixed deposit rates as this increases the cost of interest they need to pay for their fixed deposits.
For those who have already started servicing their home loans a few years back and are reaching the end of their fixed term, now may be the time to look at refinancing your home loan.
If you decide to refinance, remember to look beyond just the interest rates, look at the extra costs as well. Here are 4 things you should consider when comparing home loans.
Use a home loan comparison site like GET.com to get the latest home loan packages from all banks in Singapore. Here you can compare DBS home loans, UOB home loans or OCBC home loans, amongst a total of 14 financial institutions in Singapore in just seconds.