Fixed or Floating Rates for your Singapore Mortgage Loan?

Fixed or Floating Rates for your Singapore Mortgage Loan – Singapore is a place for investing in property and also a good place to start on buying a nice property for yourself to live in and at the same time making good capital gains on your investments and your personal home.

There are many mortgage loan options in Singapore because Singapore is a strong financial hub and there are many local and regional banks that have set up shop in Singapore. Most of them want to get a piece of the pie in Singapore and will wish to provide some forms of Mortgage Loan for the residential, commercial and industrial property market of Singapore.

This makes for a big option of choices through the banks, with many different rates and conditions to work with. There are also different tenures and different data sets that they use.

But the main two packages that are different is the fixed rate mortgage loan and the floating rate mortgage loan packages.

So what are the main differences between this two mortgage loan rates and why you should consider one over the other, lets explore that now:


Fixed Rate Mortgage Loans

So the fixed rate mortgage loan is a loan package that sets a fixed amount of interest rate for a fixed amount of time. So for example, one of the rates available now is at 1.5% per annum. That means the interest rate is kept at a fixed amount of 1.5% for a fixed amount of years. So most commonly there are 2 year packages or 3 years packages that you can choose from and this means it is kept locked in at 1.5% for 2 or 3 years. After which, the rates will move towards a floating rate where the inter bank lending rate is used plus a certain percentage.

So what are the reasons to use the Fixed rate Mortgage Loan packages:

Pros:

1. Rates to not fluctuate like the Floating Rates Mortgage Loans
2. Customer is able to budget for a fixed amount every month for a fixed time frame of 2 or 3 years
3. You do not need to worry about interest rates going way above in a good economic condition

Cons:

1. When floating rates fall drastically due to a poor economy, you are stuck with a fixed high amount.


Floating Rate Mortgage Loans

So what does a floating rate mortgage loan mean? For most who may not know, there is this thing called the inter bank lending rate that banks charge as interest rates when they lend money to each other. This rate is usually decided by the banks and some times influenced by the central bank of Singapore, the Monetary Authority of Singapore. Known as SIBOR short for Singapore Inter Bank Offered Rate, this rate can move up and down based on the conditions of the economy and usually when the economy does well to prevent inflation, interest rates will move upwards and causing SIBOR to climb. In a bad economy, to encourage more spending and therefore lending to boost the economy, interest rates will fall and so will SIBOR.

Fixed or Floating Rates for your Singapore Mortgage Loan?

How SIBOR affects the floating rate mortgage loan is that for most floating rate loans, they will use the current SIBOR rate and do an addition to it, so it can be SIBOR + 0.5% for example. So if you manage to get a rate where the +X.X% is low (also called the spread), you will be able to enjoy a good rate when SIBOR is low and relatively good rates when SIBOR is high because of lower spread. But of course, the down side of the SIBOR system is that when there are good times, SIBOR is high and so does floating rate mortgage loans, if you expect the economy to stay bad, you can consider using the floating rate mortgage packages to take advantage of a likely low interest rate economy.

But as the economy recover and you are still in a 2 or 3 years lock in period, you will have to raise your payments of interest to what the increase in SIBOR will be and you might end up paying more as time goes by.

 

Pros:

1. Rates are lower in a bad economy as SIBOR falls
2. Relative to the economic performance and therefore increase or decrease in rates

Cons:

1. No control of monthly outlay as the rates can go up or down depending on SIBOR
2. Rates might skyrocket in a good economy and you have no control over it.

 


The decision to choose between Fixed Rates or Floating rates usually comes with the risk appetite of the person who is taking up the Mortgage Loan.  And also the financial capabilities of the person taking up the loan, there are many factors and speaking to an experienced Singapore Mortgage Advisory Broker will help you to understand your situation a bit more and make a better decision.

At Avant Mortgage, we will sit down with each and every customer to let them better understand what works best. Talk to us if you want to find out more.

Thank you for your interest and reading our article on “Fixed or Floating Rates for your Singapore Mortgage Loan?”.

Fixed or Floating Rates for your Singapore Mortgage Loan?



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