Purchasing a home is often the most significant financial decision one can make. In Singapore, where the property market is dynamic and competitive, understanding the various types of bank interest rates for mortgage loans is crucial. Whether you're a first-time homebuyer or looking to refinance your existing mortgage, knowing the ins and outs of these interest rates can help you make informed decisions and save money in the long run. To help you out, here are the different types of bank interest rates for mortgage loans in Singapore.
One of the most common types of interest rates offered by banks in Singapore is the fixed interest rate. With this option, the interest rate remains unchanged for a specified period, typically ranging from one to five years. This stability provides borrowers with predictability, allowing them to budget their finances more effectively without worrying about fluctuations in monthly mortgage payments.
Fixed rates are available in different tenors -1 year, 2 years and some banks even offer 3 years. That being said, it is not without risk especially when interest rates are high like now. Fixing an interest rate could mean that you lose out on the benefits of a fall in interest rate. Therefore it is usually advisable to fix rates not more than 2 years. If you notice that the current fixed rate is lower than the variable rate, this means that the market is expecting a cut in interest rates within the period. Vice Versa, if the fixed rate is higher than the variable rate, the market is expecting hikes in interest rates.
Also note that for new launch, the progressive payments are not eligible for fixed rates and therefore have to be on variable until the project TOPs.
In contrast to fixed interest rates, variable interest rates fluctuate according to market conditions. Also known as floating or adjustable rates, these rates have often been linked to a benchmark such as the Singapore Interbank Offered Rate (SIBOR) or the Swap Offer Rate (SOR). However, these will soon be replaced by the Singapore Overnight Rate Average (SORA), a volume-weighted average borrowing rate in the local unsecured overnight interbank cash market.
While variable rates may initially offer lower interest payments, borrowers should be prepared for potential fluctuations, which could result in higher monthly payments if market interest rates rise. Here are some variable rates that you might know.
SIBOR-based mortgage rates are among the most common variable rate options in Singapore. SIBOR represents the interest rates at which banks lend to one another and is influenced by factors such as monetary policy and global economic conditions. Borrowers opting for SIBOR-based rates should monitor market trends closely, as changes in SIBOR can directly impact their mortgage repayments. As mentioned before, SIBOR-based rates will soon be phased out but borrowers may make use of the 1 or 3 month SIBOR periods up until December 31, 2024.
Some banks in Singapore offer mortgage loans with interest rates based on their board rates. Unlike SIBOR or SOR-based rates, board rates are set at the discretion of the bank and may not necessarily reflect prevailing market conditions. While board rate mortgages may offer flexibility, borrowers should carefully assess the terms and conditions, as these rates are subject to change at the bank's discretion.
Fixed deposit pegged rates are another option available to borrowers in Singapore. These rates are linked to the bank's fixed deposit rates, providing a degree of stability similar to fixed interest rates. However, borrowers should be mindful of potential limitations, such as minimum deposit requirements or early withdrawal penalties, associated with this type of mortgage rate.
Selecting the right interest rate for your mortgage loan requires careful consideration of your financial goals, risk tolerance, and market outlook. Fixed interest rates offer stability and predictability, making them suitable for borrowers who prefer consistency in their monthly payments. On the other hand, variable interest rates may be more appealing to those willing to accept some degree of uncertainty in exchange for potentially lower initial payments.
It is also important to note that both variable and fixed rates offered by banks are only within the promotional period which is typically the lock-in period. After which these rates return to non-promotional rates which could result in up to 1% increase in interest cost. Therefore, it is imperative to check with your bank 2-3 months in advance to reprice your loan or look out for other banks that can offer a cheaper loan package.
When evaluating mortgage rates, it's essential to compare not only the interest rates themselves but also the terms and conditions, including any fees, penalties, or lock-in periods associated with each option. Additionally, consider consulting with a financial advisor or mortgage specialist who can provide personalised advice based on your individual circumstances.
Navigating the myriad of interest rate options for mortgage loans in Singapore can seem daunting, but with the right knowledge and guidance, borrowers can make informed decisions that align with their financial needs. Whether opting for the stability of fixed rates or the flexibility of variable rates, understanding the nuances of each option is key to securing a mortgage that suits your needs and preferences. By staying informed and proactive, borrowers can navigate the complexities of the property market with confidence and peace of mind.
Lendingpot aims to help individuals get the best outcomes in loan approvals and pricing. With a single application, you can access more than 20 lenders on our platform, each vying to provide the best offers. On top of that, we can assist you directly with our one-on-one service, where our dedicated mortgage loan officers can guide you to the best option for your needs.
Register today and receive multiple loan offers almost instantly from our partner banks and private lenders.
.png)
.png)
