Definition
Payment Rate
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The payment rate refers to the actual interest rate which is used to calculate an actual mortgage payment.
There has to be a distinction made with payment rate as the interest rate of a home loan is often mentioned as index rate plus spread which equals to fully indexed rate.
This is then expressed as something like SIBOR + 1%.
As one can tell, this does not provide any real clarity of what is the actual housing loan interest rate that is being charged. SIBOR could very well be 1% or 2% or something else.
On top of this, the SIBOR today might not be the same when the latest mortgage payment amount is calculated and deducted from a borrower’s loan repayment account.
Because all home loans in Singapore are adjustable rate mortgages, or would eventually become one, the payment rate can change from month to month, and even be different from borrower to borrower due to different refresh intervals signed up by different borrowers.
The only time when payment can be certain is when a borrower is within a period of fixed rate during the tenure of a fixed rate loan.
It must be said that Singapore mortgages are mostly fully amortizing.
The interest rate and the payment rate are usually similar. But this is not a rule that absolutely applies.
When the payment rate is higher than the interest rate, a borrower can expect the loan to be fully repaid earlier than expected. And if payment rate is lower than interest rate, the borrower might not fully pay off the loan even when the supposed maturity date of the mortgage arrives.
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