No matter if you are choosing a Singapore mortgage loan for the first time or a seasoned property buyer, you will come across a stage where you have to choose from fixed rate mortgages, variable rate mortgages, and floating mortgage loans that are pegged to the SIBOR or SOR. It can be a tough choice.
Although SIBOR pegged mortgage loans in Singapore are the most popular among real estate buyers, it is advised that you weigh up you decision criteria and decide on a mortgage rate structure that you are comfortable with instead of following the crowd.
Fixed rate mortgage loan Singapore
Information of 20-year or 30-year fixed mortgages can be found all over the internet. However those are not applicable when it comes to Singapore mortgages. Singapore fixed rate mortgage loans only have a fixed rate for the initial years. After the period of fixed rates, your mortgage loan will most likely be converted to one that is pegged to the Singapore Interbank Offer Rate (SIBOR) or Swap Offer Rate (SOR) with a spread.
The period of fixed rates can be anywhere between 1 year to 5 years. So if you are one who has a risk tolerance that leans towards stability, mortgage loans with fixed rates can let you know exactly what you will be paying in the initial period of fixed rates. This helps you conceptualize a clear budget for a few years on your home loan. And you know your exact financial commitments on the housing loan for a few years. But you can expect interest rates that are fixed to be higher than floating interest rates. In a way, you are paying for predictability and certainty for your financial peace of mind.
Floating rates for SIBOR and SOR
Since SIBOR and SOR are public rates, they are a little more transparent in how it is determined compared to fixed rates and variable rates. At times of low mortgage interest rate, borrowers will benefit from floating rate mortgage loans. However, when interest rates peak, borrowers will have to ride the tide as well.
You can choose from 1-month, 2-month, 3-month, 6-month, 9-month and 12-month depending on what the lender is offering. Some mortgage structures also offer the flexibility to convert between these different classes during the term of the mortgage. It is also worthy to note that SIBOR hit it’s record high in 1998 just before the financial crisis.
Variable rate mortgages for Singapore property
Variable rate mortgage loans are most commonly pegged to the lending bank’s internal board rate. This means that the lending bank can review the interest rates anytime and make changes accordingly. The Singapore mortgage rates that you will pay will then be adjusted.
Variable rates are not pegged to a public bench-mark rate nor fixed like a fixed rate. So there is a certain level of uncertainty to what a borrower will pay. Economic changes or how well the bank perform can mean changes in interest rates.