How many of you would like to receive a bank notification letter that looks like this:

This is not a gimmick.  It’s an actual shot of a local bank’s notification letter, just received by one of our clients.  In fact, many are reporting back to us happily now that they were glad they went with our advice in switching to floating rate SIBOR home loans.  And that was back at the start of 2019 last year, when rates were still rising.  We started advocating going on SIBOR floating rate home loans as fixed rates went above 2.1% which were simply too high in our opinion.

It amazes me how we still see ads from other brokers advocating to go fixed now which is lower than floating rate?  It can only be lower than floating rate when these were floating rate home loans pegged to banks’ internal BOARD rate.  For SIBOR-pegged home loans most are now trading at 1.40-1.50% which are below prevailing fixed rates at 1.65-1.75%.  We talked about the classic question of fixed versus floating rate home loan in our last article.  But when fixed drop to a certain level, there might be new perspective which we will discuss in our next article. Stay tuned to this blog.

With free-falling SIBOR (latest 1-month at 0.75334 as at 24-Apr), I simply do not see how fixed rates can go below floating rate SIBOR home loans.  However, what’s bound to happen is that as the benchmark SIBOR continues to slide down as a result of demand and supply forces in money market, banks will continue to adjust their spreads up as their net interest margins are squeezed.  The lowest spread now is at 50 bps (basis points) or 0.50% and that’s not the level it will settle at yet.  We think spread will eventually rise back up to 0.80% once SIBOR hits rock bottom levels last seen during the last trough that lasted 6 years (2009 to 2014).

Before we go on, let me just explain that it’s not that we are so clever and that we can predict everything that’s about to happen.  The closest we get to in predicting this downturn is when we highlighted the theory that typically a recession would follow roughly one year after the yield curve inverts (first happened on 22 Mar 2019).  No one including the Fed itself could foresee the super black swan event of covid-19 that single-handedly brought global economies to its knees.  And caused Fed funds rate to crash to zero almost overnight.  At the start of 2019 we simply do not believe that Fed could continue to hike rates at the same pace as before – so we argue the merit of taking a calculated bet on floating rate.  By end of 2019, after Fed’s three “insurance rate cuts” due largely to the tariffs trade war between US and China, our view is that SIBOR would trade range-bound at 1.60-1.80% for much of this year.  We based this on the assumption there would not be any further cuts by Fed this year.  What happened after that was history.

In fact, 1.08% is not the lowest point yet for those who got in early on SIBOR home loans.  We are expecting SIBOR to drop to 0.50% range at some point with Fed funds rate near zero right now.  

Most of our clients who switched to SIBOR home loans earlier in the past 12 months would end up with interest rates below 1%, soon.  And of course, we hope that SIBOR would stay down for a protracted period which is looking very likely I must say.  I am not surprised with the unprecedented trillions (not billions) of dollars of cash being splashed out to rescue global economies, we might soon find ourselves in a major debt crisis of sort.

So, is it then too late to switch to SIBOR home loans?  Not quite we think.  For one, the spreads are not yet at 0.80%, at least not for the initial promotional first three years of the loan tenure.  If you lock down the spreads now at 0.50-0.60%, and if we are right in our forecast of SIBOR for the next few years, you still have the bragging right to a 1.20% interest rate for your mortgage!  But you must act quickly.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, seeking to build trust with clients over the longer term rather than product-peddling for quick one-time deals.  So, be it to refinance home loan, or to buy your next Singapore property, speak to our dedicated team of mortgage consultants here for the best home loan rates.