Dice showing interest rate can go either way up or down

Falling Fixed Rates – Who’s Right?

Fixed rate mortgages in Singapore have seen quite a drop in rates since the beginning of the year when most banks offer 2-year fixed at 2.58%.  Of late banks have been trying to match and outdo one another with lower headline rates for fixed rate mortgages – from 2.38% to 2.35% to the latest at 2.28% (deviated basis only available when you speak to us)! That was a steep fall of almost 0.30% within a span of 5 months!

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Isn’t it good news for homeowners when interest rate falls?  Well, not when one just repriced and started a new loan contract on a fixed rate mortgage at 2.48-2.58% with a new lock-in for two more years at those rates, all that barely three months ago.

For one thing I know, writing this article is not going to go down well with everyone.  Those who have chosen to take a bet on floating rates with SIBOR home loans at the start of year as fixed rates were simply too high (that’s our general recommendation this year) will now be thankful; but those who signed on the higher fixed rates earlier on the advice of their own repricing banks or other brokers alike would now be feeling the blues and worry if interest rate would slide down further from here.

This is the problem when one speaks only to existing bank when they seek to refinance their mortgage, believing that it is effortless to just reprice with the existing bank and not shop around to see what else is out there.  Another scenario when one speaks directly to bankers trusting in their advice and wrongly concluding that they will get a better deal when they go directly to banks instead of through a mortgage broker as there must be loading on their package when a third party is involved.

In both of those situations above, what homeowners miss out is the fact that bankers are really sales representatives of their respective financial institutions selling specifically mortgages and charged with sales target to meet where they also earn commissions paid out by the banks.  It is funny how people are generally guarded when they talk to bankers on investment or insurance products like unit trusts, endowment plans, etc but let their guard down when they speak to mortgage specialists from the banks.

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Now don’t get me wrong here.  We are not discrediting mortgage bankers, afterall we do work with them too.  What we simply want to point out is that – though there are many good professional mortgage bankers who give good advice, they are still restricted to selling what is offered by only one bank.  And banks often do not offer the same kind or the full range of mortgage loan pegs in the market ranging from SIBOR, BOARD to FDR (fixed deposit rate).  Some do not even offer fixed rate mortgages.  And when their own bank is not offering what is popular or what homeowners are asking for, being sales-focused, bankers will peddle the next best option from their repertoire.  And for the first quarter of 2019, that next best option seems to be fixed rate mortgages that every repricing bank is peddling and feeding on the fear of runaway interest rates, until suddenly US Fed reversed its stance in March.

Contrast that with the advice one gets when working with brokers, who are independent third-party distributors of mortgage products from all lenders in Singapore.  We take a more objective view as we are not restricted to selling products from just one single lender.  That means we will be able to offer the full range of mortgage solutions in the market or recommend mortgage loan pegs based on what is most suitable at different points in the interest rate cycle – for example we have always said (since we started in 2014) that when the cycle reverses down and interest falls, SIBOR would the most preferred mortgage peg as it is the most elastic and hence the first to fall.  Remember, another significant difference between the advice of a broker versus that from a banker – we are in this for long-haul and we need to make sure we give the right advice, failing which we will have no repeat business every two to three years come renewal.

Finally, back to that all-important question – is it really true one gets a lousier deal when going through a broker for a mortgage as the bank would need to pay a third-party referral fee?  Not true.  The best example I like to give is when one buys an Macbook.  One can buy it from the Apple Store at Orchard and get supposedly better service, or buy it from a third-party distributor like Challenger store. Same item, same controlled-price, but you get more promotional freebies buying from third-party stores.  We have already explained this, bankers are sales representatives who earn commissions on the transactions, on top of basic salary. When there is a third-party broker involved, the banker just earns less commission on the deal, in exchange for bigger volume of business from the broker.  The home loan package and the final interest rate would be the same for homeowners but he or she gets much better information and more impartial advisory from the broker whose business interest is aligned with that of the client’s long-term interest.

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To end, we come back to the question of falling fixed rates: Will 2-year fixed rates continue to slide down below 2.28%?  As I have forewarned at the beginning of the year, 2019 is going to be most difficult year to do interest rate forecast no thanks to the trade war.  All eyes will be on the actions of US Fed.  The market is now expecting up to two rate cuts with one coming as early as July next month.  We will listen for clues on Fed’s FOMC meeting for June coming right up next week so say tuned to this blog. If US Fed indeed cut rates before the end of the year, there will be downward bias for SIBOR and we will not be surprised fixed rates may go all the way back down to 2% or sub-2% level. Still, this is not a done deal.  A lot still depends on the outcome of US-China trade negotiations which has stalled for now.  If we do get some kind of resolutions soon enough, sentiments will change. In this current environment it is all the more important to stay nimble when choosing the right mortgage package and we think free conversion becomes an indispensable mortgage loan feature to this end.

Not convinced yet that it is better to take your home loan through a broker?  Refinance home loan with MortgageWise and you will receive a $150 Refinancing Valuation Fee Offset, subject to min loan of $500,000.  New purchase home loans will also enjoy a Special $1,800 Purchase Legal Fee (includes mortgage stamp duty, gst) from our partner law firms.  Other terms and conditions apply.  So, speak to us today.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.

Compare All Latest Rates 2020