The spread is the premium, expressed in percentage, that is added to a base rate which sums up to the total interest rate that would be charged on a loan.
In Singapore, housing loans offered by banks come with a base rate that moves with economic conditions plus a spread, or margin. The exception is fixed rates.
This base rate can be one of a huge variety of indices related to financing costs like:
- Prime rate
- Board rate
Some banks even have their own internal index rates that’s generated with their own internal equations, and give these indices a fancy name.
However, internal rates would almost always still account for the prime lending rate.
This means that the prime rate would most certainly be a variable used in their formulas to calculate an internal index.
Floating rate mortgages would have a total interest rate which would be the index rate plus a spread.
Even for fixed rate loans, after the initial period of fixed rates, they would be converted to an index plus spread similar to a floating loan.
While index rate can move with market trends and movements, the spread is fixed and clearly stated in the loan agreement.
However, it is still possible for the spread to change on a year-to-year basis. This would be expressly stated in the contract if a loan is structured in this way.
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