Housing Loan Singapore

SIBOR or SOR?

SIBOR is generally more stable while SWAP tend to fluctuate more. However 3-month SWAP has recently stayed consistently lower than 3-month SIBOR for an extended period of time. SOR is also very reactive to currency exchange rates.

Definition

Interest Rate Ceiling (cap)

An interest rate ceiling on a housing loan refers to an upper limit imposed on the maximum interest rate that a borrower will be charged by the bank.

Because all bank home loans are floating rate mortgages, borrowers are always under the risk of rising interest rates causing excessive monthly payments that might be unaffordable.

Even fixed rate home loans will float with an index rate once the initial period of fixed rates expire.

To counter this risk of overly high interest rates being a burden to borrowers, some banks do introduce an interest rate ceiling feature for their housing loans so that mortgage interest rates will never get out of hand to a point of being unaffordable to the consumer.

Such a feature on a credit facility will prevent interest from going above a specified rate.

For example, if a home loan is SIBOR + 1.75% and adds up to 3.75%, an interest rate ceiling of 4% would mean that 4% is the maximum that a borrower will be charged for the loan even if SIBOR rises to 3%. Technically speaking that would result in 4.75% (3% + 1.75%).

But since the interest rate ceiling (sometimes referred to as the interest rate cap) is 4%, then that is the maximum that the borrower would pay according to the terms of the agreement.

Interest rate ceilings offer a regular borrower a little extra peace of mind when he is afraid of interest rate spikes. It will offer protection when there is uncertainty in the market.

When the general trend is that interest rates are rising, such limits become very popular with borrowers.

However, if the general trend is one of declining interest rates, an interest rate ceiling will add little value to the mortgage from the perspective of the borrower since it will not trigger unless in the event of an extraordinary and sudden rise in interest rates.

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SIBOR 14 Jun 2018

1 Month 1.40009
3 Month 1.52038
6 Month 1.66171
12 Month 1.85096

SOR 14 Jun 2018

1 Month 1.39053
3 Month 1.56581
6 Month 1.67225

How Does SOR Rates Hit Negative Value?

SOR rates are calculated with a complex financial formula, solved with simple algebra. The results of solving the equation therefore depends on the inputs used. Varying inputs that result from economic impacts and indicators can lead to negative value when the formula is solved. Key input indicators include USD/SGD spot rates and USD/SGD forward rates.

HDB loan or bank housing loan?

Our opinion is to always take a HDB concessionary loan if you are eligible for one. One of HDB's objectives is to to provide affordable housing for the people. While a bank is profit driven.

Which bank offers the best home loan deals?

Interest rates and spreads are not all that matter. Don't ignore the closing costs involved. Different banks can have different customized home loans for you. Don't be surprised if you will save more on a home loan that charges more interest because of the lesser closing costs involved. This is especially so if you know that you will refinance your home loan as soon as the lock in period has expired.