Mortgage
Bank Housing Loan – Singapore Home Loan Interest Rate Structures To Ponder Over
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It’s no surprise to find that the number 1 question on the mind of every home buyer seeking a new loan or home owner looking to refinance is “What is the best interest rate for housing loan?”.
Although every lender will know how an unbeatable mortgage deal will look like, seldom will you find a housing loan being offered that is undoubtedly the best deal around.
A housing loan with 1% fixed rate throughout it’s life, without a lock in period, with full legal subsidies, free fire insurance, free mortgage insurance and no redemption penalties will surely beat every other lender hands down.
However, a deal like this will probably never be available because it is simply not viable for the bank to underwrite.
Banks are profit driven entities. Not charitable organizations.
Instead of seeking the best mortgage loan in the market, you should instead be looking for the best mortgage loan for you.
This will depend on your personal risk tolerance, how you perceive the market will move in future, your property purchase circumstances, etc.
There are hundreds of housing loans packages available in Singapore.
And if you closely follow the mortgage market, you will find that there are new promotions and deals being conceptualized every week.
These deals are not created just to make up the numbers. There may be different deals for new purchases or promotional packages for refinancing home loans.
Each package is tailor-made to suit the profile of a target segment that the banks have identified.
The first thing to figure out is which are the deals out of the hundreds published do you qualify for.
A good example is whether your property in question is one that is “Completed” or “Building Under Construction (BUC)”. Some very attractive deals are devised specially for completed or BUC properties because there would not by any risk of the property being unable to complete construction.
Other details you should keep in your mind during qualification are
- Private property or HDB flat
- Floor area
- District and neighbourhood
- Requested loan quantum
- Remaining lease
These information should help you and bankers to narrow down which home loan packages you qualify for while filtering out those that does not apply to your circumstances.
Bank Housing Loan Interest Rate
The next stage is where you choose between the interest rate structure of your housing loan.
This is where you spend most of your time making a decision. In all likelihood, you will be choosing one from the 4 most common housing loan interest rate packages.
- SIBOR pegged
- SOR pegged
- Fixed interest rate
- Variable rate
A very common dilemma of a home buyer is in choosing between SIBOR and SOR.
Both are benchmark rates that fluctuate with market movements.
However, it is generally accepted that SIBOR is more stable and SOR is more volatile.
A borrower who is more risk-adverse and prefers stability will surely choose the former.
But note that being more volatile also means that SOR can potentially fall below SIBOR without any warning.
Benchmark pegged housing loans will include a specified spread (or margin). Adding that margin to the benchmark rate will determine the interest rate which you will be paying on.
For home buyers who fully expect benchmark rates to rise in the short term, fixed rate mortgages are a good option as they offer the borrower some form of protection from fast rising interest rates.
These interest structures fix a specified rate on your housing loan.
This means that you will be paying a fixed interest rate even when markets experience exponentially high mortgage rates, index rates, or spreads.
When SIBOR and SOR rise to high levels, borrowers who took up benchmark pegged mortgages will be charged accordingly once the refresh interval arrives.
While borrowers on fixed rate housing loans will still be on the fixed rates that they have taken up.
Variable rate mortgages are a little more tricky as different banks may have different components and factors that determines their variable rates.
You should always find out how variable rates are determined before signing up on one.
To make it easier to choose between your home loans, you should always weigh up all information available and decide for yourself which type of interest structure housing loans are best for you.
Only you know your own situation and position best.
Interest rates for mortgage loans in Singapore behaves like most developed economies around the world.
When economies grow at a face pace, the demand for credit facilities like business loans, trade financing loans and property loans increase.
A quick jump in demand for loans and funding while having limited supply will mean rising interest rates.
Unless you are a civil servant who knows exactly what are the actions that government agencies will take to manage the money markets, your guess of how interest rates for bank housing loans will move in the foreseeable future is as good as anyone’s.
When you predict that interest rates will rise, a fixed rate mortgage will be a good option. Whereas if you think that interest rates will fall or remain the same for a few years, a benchmark pegged home loan will be more tempting.
Weigh up you appetite for risk and choose wisely.
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