HOW TO CHOOSE THE BEST HOME LOAN IN SINGAPORE?

[SPECIAL GUIDE 2019: FOR FIRST-TIME HOME BUYERS/MORTGAGORS]

Updated As At 10-Feb-2019

This is a special section dedicated to educating first time homeowners and mortgagors on how to shop for a residential home loan in Singapore, and what to consider during the first re-mortgaging exercise, or what is more commonly known as refinancing in Singapore.  Those familiar with the concept of home loan financing may choose to skip this section.

Understand that first in Singapore, most homeowners would review and refinance every 3 years and rightfully so as mortgage costs form one of the biggest household expenditure over the long term.  For a typical home loan of $700,000 at an average interest over 25 years at 3.5%, when serviced to the very end of the tenure, the total interest paid to the bank would add up to $351,310, almost 50% of the original loan amount borrowed! And because banks are also constantly jostling and falling over one another to sign up housing loan customers by offering much lower promotional rates in the first few years of the tenure, it will be silly not to shop around for the best home loan and look at ways to reduce mortgage costs periodically.

We have input all the interest rate raw data from all major 16 mortgage lenders in the market and churn out the latest and most updated housing loan packages using our interactive Rates Display widget which you can access throughout our website:

Still, we will summarize on a monthly basis some of the best home loan packages from the 7 major mortgage lenders in Singapore (including the three local banks) across the various property categories in 10 Parts:

Table Of Content

A. What Are The Different Types Of Home Loans & Mortgage Pegs?
B. Best Floating Rate (FDR/BOARD) Home Loans For Private Property
C. Best Floating Rate (SIBOR) Home Loans For Private Property
D. Best Fixed Rate Home Loans For Private Property
E. Best Home Loans For Private Property BUC (Building Under Construction)
F. Best Floating Rate (FDR/BOARD) Home Loans For HDB
G. Best Floating Rate (SIBOR) Home Loans For HDB
H. Best Fixed Rate Home Loans For HDB
I. Overview Of All Best Home Loans Across The Board
J. Six Considerations To Choose Between The Best Fixed Or Floating Rate Home Loan

A. What Are The Different Types Of Home Loans And Mortgage Pegs?

There are only two types of home loan in the market – fixed rate versus adjustable rate (more commonly referred to as floating in Singapore).  For fixed rate home loans in Singapore, banks normally offer only a fixed period of 1-3 years albeit occasionally you do have banks offering up to maximum 5 years.  This is unlike in the U.S. market where lenders can offer fixed term of 15 years of 30 years.

On the average, fixed rates are higher than prevailing floating rates by approximately 20 to 50 basis points (ie. 0.20% to 0.50%) in our interest rate data points research.  Occasionally this gap may close for only for a brief period of time before banks start to adjust their fixed rates up.  Fixed rates are at a premium to floating as banks would need to pay hedging costs to secure or lock-in a tranche of funds to run fixed rate promotions.

As fixed rates end usually after two or three years, the home loan reverts to a floating rate package and hence the type of mortgage peg is also important.  There are generally only three types of mortgage pegs in Singapore, those that:

- Track a market-determined index like SIBOR (Singapore Interbank Offer Rate)

- Track an internal lending rate for mortgages also known as BOARD rate

- Track deposit rates by various tenor from 8-month to 48-month for example

The last mortgage peg is fairly new pioneered by DBS in 2014 with the ubiquitous FHR (Fixed Deposit Home Rate).  Many banks have followed suit with their own versions of such Fixed Deposit Pegged home loans from OCBC’s FDMR, UOB’s FDPR, SCB’s FDR, Maybank’s FDMR, to HSBC’s TDMR.  Collectively, we will refer to them as simply FDRs or fixed deposit rate home loans.  Importantly thing to note is that FDRs are not fixed rates, but a mortgage peg that fluctuates whenever lender decides to increase its deposit rates.  That is why we do not like to use the term “Fixed Deposit Pegged” home loans as there are still people who think they are fixed rate.

B. Best Floating Rate (FDR/BOARD) Home Loans For Private Property

Floating rate home loans, favoured by the market in the last few years, started losing some lustre from 2018 with rapidly rising SIBOR rates in Singapore.  Still, floating rate does offer some superior advantage over fixed especially when it comes to the flexibility to pay down partially during the lock-in period without incurring a 1.50% penalty.  Some floating rate packages may even offer no lock-in period albeit at a slightly higher spread.

As SIBOR is always the first to rise before banks will adjust their internal lending BOARD rate or FDR, we favour floating rate home loans on the latter mortgage pegs.  For this month, some of the best floating rate home loans (FDR/BOARD) for private property are offered by the following banks.

Updated as at 2-Apr-2019
Loan Type	DBS Floating FDR	OCBC Floating BOARD	UOB Floating BOARD	HSBC Floating FDR	SCB Floating FDR	MAYBANK Floating BOARD
Loan Peg	FHR8 = 0.95%	MBR = 1.55%	MR = 0.85%	TDMR24 = 0.65%	36FDR = 1.22%	FDMR36 = 2.05%
Year 1	FHR8 + 1.33% = 2.28%	MBR + 0.75% = 2.30%	MR + 1.53% = 2.38%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.25% = 2.30%
Year 2	FHR8 + 1.33% = 2.28%	MBR + 0.75% = 2.30%	MR + 1.53% = 2.38%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.25% = 2.30%
Year 3	FHR8 + 1.33% = 2.28%	MBR + 0.75% = 2.30%	MR + 1.53% = 2.38%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.25% = 2.30%
Year 4 & Thereafter	FHR8 + 1.33% = 2.28%	MBR + 0.95% = 2.50%	MR + 1.65% = 2.50%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.53% = 2.58%
Lock-In Period	2 years	2 years	2 years	2 years	2 years	2 years
Partial Redemption Penalty	1.50%	Nil (up to 50%)	Nil (left $200K)	1.50%	1.50%	1.50%
Full Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%
Legal Subsidy/Rebate	Yes	Yes	0.40% of loan	Yes	Yes	0.40% of loan
Subsidy Cap At	$1,800	$2,000	$1,800	$2,000	$1,800	$2,000
Min. Loan (for subsidy)	$500,000	$500,000	$100,000	$500,000	$400,000	$100,000

C. Best Floating Rate (SIBOR) Home Loans For Private Property

SIBOR has been used to price home loans in Singapore since 2007.  Notwithstanding it is the first to respond to any increase in interest rate, it is still the most transparent and unbiased mortgage peg trusted by many in the market.  This is because its value is set daily through market-pricing mechanisms by ABS (Association of Banks In Singapore) and hence no one single bank can increase it unilaterally.

Some of the best home loans based on 1-month and 3-month SIBOR for the current month are summarised below:

Updated as at 2-Apr-2019
Loan Type	OCBC Floating SIBOR	UOB Floating SIBOR	CITIBANK Floating SIBOR	HSBC Floating SIBOR	SCB Floating SIBOR	CIMB Floating SIBOR
Loan Peg	1-month SIBOR	3-Month SIBOR	1-Month SIBOR	1-Month SIBOR	1-Month SIBOR	1-Month SIBOR
Year 1	1-month SIBOR + 0.35%	3-month SIBOR + 0.63%	1-month SIBOR + 0.25%	1-month SIBOR + 0.35%	1-month SIBOR + 0.30%	1-month SIBOR + 0.25%
Year 2	1-month SIBOR + 0.45%	3-month SIBOR + 0.63%	1-month SIBOR + 0.25%	1-month SIBOR + 0.35%	1-month SIBOR + 0.30%	1-month SIBOR + 0.25%
Year 3	1-month SIBOR + 0.50%	3-month SIBOR + 0.63%	1-month SIBOR + 0.40%	1-month SIBOR + 0.35%	1-month SIBOR + 0.35%	1-month SIBOR + 0.25%
Year 4	1-month SIBOR + 0.60%	3-month SIBOR + 0.63%	1-month SIBOR + 0.60%	1-month SIBOR + 0.75%	1-month SIBOR + 0.45%	1-month SIBOR + 0.60%
Year 5	1-month SIBOR + 0.60%	3-month SIBOR + 0.63%	1-month SIBOR + 0.60%	1-month SIBOR + 0.75%	1-month SIBOR + 0.45%	1-month SIBOR + 0.60%
Year 6 & Thereafter	1-month SIBOR + 0.60%	3-month SIBOR + 0.63%	1-month SIBOR + 0.60%	1-month SIBOR + 0.75%	1-month SIBOR + 0.45%	1-month SIBOR + 0.60%
Lock-In Period	2 years	1 year	2 years	2 years	2 years	2 years
Partial Redemption Penalty	Nil (up to 50%)	Nil (left $200K)	Nil (left $200K)	1.50%	1.50%	1.50%
Full Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%
Legal Subsidy/Rebate	Yes	0.40% of loan	0.40% of loan	Yes	Yes	0.40% of loan
Subsidy Cap At	$2,000	$1,800	$1,800	$2,000	$1,800	$2,000
Min. Loan (for subsidy)	$500,000	$100,000	$100,000	$500,000	$500,000	$100,000

D. Best Fixed Rate Home Loans For Private Property

Fixed rate home loans offer the greatest peace of mind but like an insurance plan against rising rates, one needs to pay a premium.  This premium (over floating rate) is usually justifiable in an hawkish interest rate environment (rates going up) when the gap between fixed and floating is within 20 basis points or 0.20%.  There are times when this gap might even be zero when a few smaller banks may be slower in revising their fixed rate up when prevailing floating rate interest trends up.  Working with a good mortgage broker will ensure homeowners could capitalize on such opportunities to track down the best fixed rate home loans at any point in time.

Updated as at 2-Apr-2019
Loan Type	DBS Fixed Rate	OCBC Fixed Rate	UOB Fixed Rate	HSBC Fixed Rate	MAYBANK Fixed	BANK OF CHINA Fixed	STATE BANK INDIA Fixed	CITIBANK Fixed
Loan Peg	FHR8 = 0.95%	MBR = 1.55%	1M SIBOR	1M SIBOR	FDMR36 = 2.05%	3M SIBOR	BOARD = 6.00%	1M SIBOR
2-Year Fixed	Y1: 2.38% (Fixed)	Y1: 2.68% (Fixed)	Y1: 2.58% (Fixed)	Y1: 2.80% (Fixed)	Y1: 2.68% (Fixed)	Y1: 2.50% (Fixed)	Y1: 2.50% (Fixed)	Y1: 2.53% (Fixed)
	Y2: 2.38% (Fixed)	Y2: 2.68% (Fixed)	Y2: 2.58% (Fixed)	Y2: 2.80% (Fixed)	Y2: 2.68% (Fixed)	Y2: 2.50% (Fixed)	Y2: 2.50% (Fixed)	Y2: 2.53% (Fixed)
3-Year Fixed	Y1: 2.88% (Fixed)	nil	Y1: 2.58% (Fixed)	Y1: 3.00% (Fixed)	nil	Y1: 2.65% (Fixed)	nil	Y1: 2.70% (Fixed)
	Y2: 2.88% (Fixed)	nil	Y2: 2.58% (Fixed)	Y2: 3.00% (Fixed)	nil	Y2: 2.65% (Fixed)	nil	Y2: 2.70% (Fixed)
	Y3: 2.88% (Fixed)	nil	Y3: 2.88% (Fixed)	Y3: 3.00% (Fixed)	nil	Y3: 2.65% (Fixed)	nil	Y3: 2.70% (Fixed)
Lock-In Period	2/3 years	2 years	2/3 years	2/3 years	2 years	2/3 years	2/3 years	2/3 years
Partial Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.75%	1.50%	1.50%
Full Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.75%	1.50%	1.50%
Legal Subsidy/Rebate	Yes	Yes	0.40% of loan	Yes	0.40% of loan	Yes	0.40% of loan	0.20% of loan
Subsidy Cap At	$1,800	$2,000	$1,800	$2,000	$2,000	$1,800	$1,000	$2,500
Min. Loan (for subsidy)	$500,000	$500,000	$600,000	$800,000	$100,000	$500,000	$250,000	$100,000

E. Best Home Loans For Private Property BUC (Building Under Construction)

As there many new launch residential condominium projects in Singapore, home buyers need to know that during the construction phase banks will not be able to offer any fixed rate home loan.

The good news is however most lenders do offer a slightly more attractive floating rate home loan package for such BUC or building-under-construction loan with lower spreads.  This is so because the competition for the best BUC home loans for private property is extremely intense as all major lenders do not want to miss out on booking huge portfolios in the shortest time, and building up a pipeline of progressive drawdowns later when the interest rate rises.  Most of these BUC loans would also include a one-time free conversion to any prevailing fixed or floating package upon key collection, or more precisely within 3 to 6 months of T.O.P. (temporary occupation permit) date.

Updated as at 2-Apr-2019
Loan Type	DBS Floating FDR	OCBC Floating BOARD	UOB Floating BOARD	SCB Floating FDR	MAYBANK Floating BOARD
Loan Peg	FHR8 = 0.95%	MBR = 1.55%	MR = 0.85%	36FDR = 1.22%	FDMR36 = 2.05%
Year 1	FHR8 + 1.20% = 2.15%	MBR + 0.60% = 2.15%	MR + 1.30% = 2.15%	36FDR + 0.93% = 2.15%	FDMR36 + 0.25% = 2.30%
Year 2	FHR8 + 1.20% = 2.15%	MBR + 0.60% = 2.15%	MR + 1.30% = 2.15%	36FDR + 0.93% = 2.15%	FDMR36 + 0.25% = 2.30%
Year 3	FHR8 + 1.20% = 2.15%	MBR + 0.60% = 2.15%	MR + 1.30% = 2.15%	36FDR + 0.93% = 2.15%	FDMR36 + 0.25% = 2.30%
Year 4 & Thereafter	FHR8 + 1.20% = 2.15%	MBR + 0.95% = 2.50%	MR + 1.30% = 2.15%	36FDR + 0.93% = 2.15%	FDMR36 + 0.43% = 2.48%
Lock-In Period	Nil	Nil	Nil	Nil	Nil
Partial Redemption Penalty	Nil	Nil	Nil	Nil	Nil
Full Redemption Penalty	Nil	Nil	Nil	Nil	Nil
Cancellation Fee	0.75%	0.75%	0.75%	1.50%	1.50%
Legal Subsidy/Rebate	Nil	Nil	Nil	Nil	Nil
Subsidy Cap At	Nil	Nil	Nil	Nil	Nil
Min. Loan	$100,000	$200,000	$100,000	$100,000	$100,000

F. Best Floating Rate (FDR/BOARD) Home Loans For HDB

In general banks would not differentiate interest rates between the property type and hence the best floating rate home loans for HDB would more or less be identical to the best floating rate home loans for private property covered in part B.  Again, we favour the best home loans pegged to FDR or BOARD, instead of SIBOR home loans at this moment.

One key consideration for HDB homeowners doing refinancing would be the transaction costs involved – it is harder to justify paying almost $1,800 to refinance from Bank A to Bank B when the interest savings might not be substantial enough given the smaller loan size.  For this reason we tend to recommend repricing instead for those with loans below $300,000 and in fact that is the minimum loan amount for us here at MortgageWise.  You may like to read why.

Updated as at 2-Apr-2019
Loan Type	DBS Floating FDR	OCBC Floating BOARD	UOB Floating BOARD	HSBC Floating FDR	SCB Floating FDR	MAYBANK Floating BOARD
Loan Peg	FHR8 = 0.95%	MBR = 1.55%	MR = 0.85%	TDMR24 = 0.65%	36FDR = 1.22%	FDMR36 = 2.05%
Year 1	FHR8 + 1.33% = 2.28%	MBR + 0.75% = 2.30%	MR + 1.53% = 2.38%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.25% = 2.30%
Year 2	FHR8 + 1.33% = 2.28%	MBR + 0.75% = 2.30%	MR + 1.53% = 2.38%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.25% = 2.30%
Year 3	FHR8 + 1.33% = 2.28%	MBR + 0.75% = 2.30%	MR + 1.53% = 2.38%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.25% = 2.30%
Year 4 & Thereafter	FHR8 + 1.33% = 2.28%	MBR + 0.95% = 2.50%	MR + 1.65% = 2.50%	TDMR24 + 2.13% = 2.78%	36FDR + 1.03% = 2.25%	FDMR36 + 0.53% = 2.58%
Lock-In Period	2 years	2 years	2 years	2 years	2 years	2 years
Partial Redemption Penalty	1.50%	Nil (up to 50%)	Nil (left $200K)	1.50%	1.50%	1.50%
Full Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%
Legal Subsidy/Rebate	Yes	Yes	0.40% of loan	Yes	Yes	0.40% of loan
Subsidy Cap At	$1,800	$1,800	$1,800	$1,000	$1,800	$2,000
Min. Loan (for subsidy)	$200,000	$300,000	$80,000	$200,000	$400,000	$100,000

G. Best Floating Rate (SIBOR) Home Loans For HDB

As average HDB home loan sizes are small where often the transaction costs involved doing refinancing outweighs the savings in interest costs, it does make sense to consider a floating rate home loan based on the transparent SIBOR peg with a constant spread throughout the tenure.

Some of the best SIBOR-based home loans for HDB are summarised here:

Updated as at 2-Apr-2019
Loan Type	OCBC Floating SIBOR	UOB Floating SIBOR	CITIBANK Floating SIBOR	HSBC Floating SIBOR	SCB Floating SIBOR	CIMB Floating SIBOR
Loan Peg	1-month SIBOR	3-Month SIBOR	1-Month SIBOR	1-Month SIBOR	1-Month SIBOR	1-Month SIBOR
Year 1	1-month SIBOR + 0.35%	3-month SIBOR + 0.63%	1-month SIBOR + 0.25%	1-month SIBOR + 0.35%	1-month SIBOR + 0.30%	1-month SIBOR + 0.25%
Year 2	1-month SIBOR + 0.45%	3-month SIBOR + 0.63%	1-month SIBOR + 0.25%	1-month SIBOR + 0.35%	1-month SIBOR + 0.30%	1-month SIBOR + 0.25%
Year 3	1-month SIBOR + 0.50%	3-month SIBOR + 0.63%	1-month SIBOR + 0.40%	1-month SIBOR + 0.35%	1-month SIBOR + 0.35%	1-month SIBOR + 0.25%
Year 4	1-month SIBOR + 0.60%	3-month SIBOR + 0.63%	1-month SIBOR + 0.60%	1-month SIBOR + 0.75%	1-month SIBOR + 0.45%	1-month SIBOR + 0.60%
Year 5	1-month SIBOR + 0.60%	3-month SIBOR + 0.63%	1-month SIBOR + 0.60%	1-month SIBOR + 0.75%	1-month SIBOR + 0.45%	1-month SIBOR + 0.60%
Year 6 & Thereafter	1-month SIBOR + 0.60%	3-month SIBOR + 0.63%	1-month SIBOR + 0.60%	1-month SIBOR + 0.75%	1-month SIBOR + 0.45%	1-month SIBOR + 0.60%
Lock-In Period	2 years	1 year	2 years	2 years	2 years	2 years
Partial Redemption Penalty	Nil (up to 50%)	Nil (left $200K)	Nil (left $200K)	1.50%	1.50%	1.50%
Full Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%
Legal Subsidy/Rebate	Yes	0.40% of loan	0.40% of loan	Yes	Yes	0.40% of loan
Subsidy Cap At	$2,000	$1,800	$1,800	$2,000	$1,800	$2,000
Min. Loan (for subsidy)	$500,000	$100,000	$100,000	$500,000	$500,000	$100,000

H. Best Fixed Rate Home Loans For HDB

There are some lenders with special focus on HDB asset class hence they tend to offer the best fixed rate home loans for HDB.  One good example would be Hong Leong Finance who usually has very competitive fixed rates for HDB.  They also provide free valuation report for all HDB homeowners.  The draw back though is they do not offer legal subsidy albeit homeowners could opt to pay for that via CPF instead of using cash.

The best fixed rate home loans for HDB may differ significantly from the best fixed rate home loans for private property, as there are quite a number of lenders who only offer attractive fixed rates only for loan amounts in excess of $500,000.

Updated as at 2-Apr-2019
Loan Type	DBS Fixed Rate	OCBC Fixed Rate	UOB Fixed Rate	HSBC Fixed Rate	MAYBANK Fixed	HONG LEONG FINANCE	STATE BANK INDIA Fixed	CITIBANK Fixed
Loan Peg	FHR8 = 0.95%	MBR = 1.55%	1M SIBOR	1M SIBOR	FDMR36 = 2.05%	BOARD = 4.65%	BOARD = 6.00%	1M SIBOR
2-Year Fixed	Y1: 2.38% (Fixed)	Y1: 2.68% (Fixed)	Y1: 2.58% (Fixed)	Y1: 2.80% (Fixed)	Y1: 2.68% (Fixed)	Y1: 2.18% (Fixed)	Y1: 2.50% (Fixed)	Y1: 2.53% (Fixed)
	Y2: 2.38% (Fixed)	Y2: 2.68% (Fixed)	Y2: 2.58% (Fixed)	Y2: 2.80% (Fixed)	Y2: 2.68% (Fixed)	Y1: 2.38% (Fixed)	Y2: 2.50% (Fixed)	Y2: 2.53% (Fixed)
3-Year Fixed	Y1: 2.88% (Fixed)	nil	Y1: 2.58% (Fixed)	Y1: 3.00% (Fixed)	nil	Y1: 2.5% (Fixed)	nil	Y1: 2.75% (Fixed)
	Y2: 2.88% (Fixed)	nil	Y2: 2.58% (Fixed)	Y2: 3.00% (Fixed)	nil	Y1: 2.60% (Fixed)	nil	Y2: 2.75% (Fixed)
	Y3: 2.88% (Fixed)	nil	Y3: 2.88% (Fixed)	Y3: 3.00% (Fixed)	nil	Y1: 2.75% (Fixed)	nil	Y3: 2.75% (Fixed)
Lock-In Period	2/3 years	2 years	2/3 years	2/3 years	2 years	2/3 years	2/3 years	2/3 years
Partial Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%
Full Redemption Penalty	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%
Legal Subsidy/Rebate	Yes	Yes	0.40% of loan	Yes	0.40% of loan	Nil	0.40% of loan	0.20% of loan
Subsidy Cap At	$1,800	$1,800	$1,800	$1,000	$2,000	Nil	$1,000	$2,500
Min. Loan (for subsidy)	$200,000	$300,000	$200,000	$200,000	$100,000	$100,000	$250,000	$500,000

I. Overview Of All Best Home Loans Across The Board

To summarize all the best home loan rates and data points we have presented so far, below is an overview for what one may consider when seeking a new purchase home loan or refinancing this month.

J. Six Considerations To Choose Between The Best Fixed Or Floating Rate Home Loan

This is the perennial question we get and the answer is not always down to interest rate per se.  We always cover at least six other considerations to this question which will set one to think hard:

1. Gap Between Fixed And Floating

The No.1 factor we look at is the general interest rate environment and the gap between the lowest fixed rate and the lowest floating rate home loan in the market.  And the general rule-of-thumb we employ is that if this gap is no more than 0.50% then it justifies locking down the higher fixed rates in an interest rate upswing cycle as the floating rate would have caught up in simply just two rounds of rate hikes within a year.

2. Investment Vs Owner-Occupied Property

Generally, an investor would stay more open to a floating rate that tracks the prevailing cost of funds like SIBOR as that represents an equitable borrowing cost. Plus, an investor would have rental income to cover the cashflow for servicing a monthly repayment that fluctuates based on the borrowing costs of the day.  In good economic climate when interest rates are rising, it also implies though not always that the property market is vibrant and rents are also going up.

On the other hand, homeowners paying a mortgage on the “roof-over-their-head” would need to service the monthly repayment from their hard-earned working income and if rates are rising, it is better to lock down a fixed rate mortgage in order for this cost not to overrun.

3. Flexibility For Sale Or Partial Pay Down

Similar to the preceding point, there is another difference when it comes to investment vs own-use properties.  Investors may not like the idea of a lock-in period that typically comes with a fixed rate home loan.  A lock-in or commitment period is an important commercial term in a mortgage contract where the borrower agrees not to redeem the loan in parts or in full in any circumstances including sale of property for a specified period in exchange for a lower interest rate or fixed rate offered by the lender.  In event this term is breached and they do need to redeem the loan, they would have to pay typically 1.50% of the amount redeemed as a lock-in penalty.  Investors want to be able to sell whenever an offer that is too good to be refused comes around, whereas home occupiers will usually have no qualms to tie themselves down to lock-in periods of three years or longer.

Increasingly we also detected when rates are rising, more people will want to retain the flexibility of being able to do partial redemption or repayment.  This is especially true for those who have built-up substantial CPF funds earning compounding interest at 2.50% p.a. while servicing their mortgage using cash in the last decade when interest rates languish in doldrums of 1%.  Should interest now head north of 2.50%, it would make perfect sense to deploy that huge CPF reserves and deleverage as the cost of borrowing now exceeds the CPF returns.

4. Size Of Outstanding Loan

This is the next biggest factor to consider after looking at the interest differential between fixed and floating.  We have covered this point earlier.  Many do not realize for smaller loans like below $300,000, the costs of refinancing outweigh any interest savings from the exercise.  We do have a case study which you may like to read here.

5. Stability Of Income

As we enter the age of technological disruptions which can only gather pace and reach deeper into more areas of our lives and hence impacting more industries, income instability takes on more significance when it comes to leverage.  The last thing you want is to suffer a temporary drop in income due a change in job situations while at the same time receiving a letter from the bank at the same time that they are adjusting your mortgage repayment up the following month.

In Singapore, with TDSR (Total Debt Servicing Ratio) stipulated at 60% by MAS, one may not be able to refinance easily when income drops hence causing TDSR to go above this ratio.  Take note even though the central bank has given exemptions from TDSR for owner-occupied properties, most lenders would still apply their own internal credit policy of ensuring not extending loans to those with exceedingly high TDSR usually set at not more than 80%-100%.

6. Outlook On Interest Rate (And Peace-Of-Mind)

Although no one has a crystal ball, it is possible to make certain calculated assessment on the direction of interest rate movements from looking at macro events especially economic outlook in the US.  This is because there is a close correlation between SIBOR in Singapore and the Federal funds rate which is determined by US Federal Reserve and adjusted quarterly usually in their FOMC (Federal Open Market Committee) for March, June, September and December where there will be a press conference that follows.  See our chart to understand this correlation.

Singapore central bank MAS does not control domestic interest rate but opt to tighten or loosen monetary policy through a control of exchange rate on a basket of currencies against its major trading partners.  SIBOR which represents the rate at which banks lend to one another is determined primarily by the abundance or lack of liquidity in the banking system which in turn is affected by interest rates in the US and the strength of the dollar.

For those who do not have a strong view on how interest rates would move, it is advisable to work with a professional mortgage consultant who is better able to monitor financial market events and track any resultant movements.

If you are a first-time homeowner or you are refinancing for the first time, we hope this Special Guide has benefited you in giving an overview of the mortgage industry and how you should approach it.  Check out the latest mortgage interest rates below and work with the one of the most trusted team of mortgage advisors in town with the most reliable rates. Contact us today!