With fixed mortgage rates in Singapore today markedly lower at 2.9 to 3 per cent as opposed to floating rates still hovering above 4 per cent, which one will you choose when Fed is widely expected to cut three times in the second half of the year?

Fixed mortgage rate had dropped significantly at the start of 2024 versus this time last year, from 4 per cent down to 3 per cent.  However, no one can be certain that it will not drop a further 100 basis points (1 basis point = 0.01%) to 2 per cent by the start of 2025 should Fed start dialling back its hikes from the middle of this year.  The extent of drop is determined by how fast Fed cuts which is in turn dependent on whether we get to a soft or hard landing in the U.S.  Even if the drop is not 100 basis points but half, where fixed rate go to 2.5 per cent, that’s 0.50 per cent which translates to a dollar sum savings of $3,500 in a year for a typical mortgage of $700,000.  Much more if your loan is substantial.

Caught between a rock and hard place, it’s no wonder we see more clients now opting to wait on the side lines for an extra few months after the expiry of the lock-in period.   That’s certainly one option, if you pin your hopes of SORA rolling over soon and if you don’t mind paying above market “thereafter” rates for a while longer. That’s typically SORA plus 1.00 to 1.50 per cent, which means a final rate close to 5 per cent or higher. However, with the goalpost of Fed’s first cut being shifted further and further back with the release of each economic and inflation data point in the U.S., you wonder how long more do you have to continue overpaying on interest costs?  What started as expectation for seven cuts in 2024 has been withered down to just three, from what’s expected to begin in March which gets pushed back to May, then June and now maybe even July.  Some people, including one Fed official, are looking at the possibility of not just zero cuts, but perhaps another hike! It all depends on the data coming up in the next few months.

Whilst I do not have a crystal ball just like everyone else, we do have something that guides us in our mortgage advisory to clients here at MortgageWise.sg.  It’s like a compass we use when unsure of which way to go.  That’s the interest rate cycle per se.  If you study it closely, it can tell you a few things.  First, against all analysts’ predictions, forecasts and the narratives of the day which can swing from month to month (for example a Fed pivot in November last year turned into a Fed pushback this year), the cycle continues to behave like a cycle.  Which means what goes up always come down after staying at the top for brief periods.  Second, it can come down just as fast as it goes up.  Some people will counter that with some of most dangerous phrases in finance: “This time is different.”  Let me remind you that it was just mere six months ago that the narrative then was rates will stay “higher for longer” alluding to years at above 5 per cent for interest rates.  Turns out, inflation is not different and is indeed “transitory”, but that transitory period had lasted two years long and it’s now coming down fast.

Of course, we could still end up being wrong. So, the best course of action advocated by our firm is to go for the lowest fixed rate with the shortest commitment period and keep that optionality of a review after 12 months.  That could make the biggest difference between saving $700 (0.1%) or $7,000 (1%), on a typical $700,000 mortgage over one year.  Not all banks offer that optionality now.  As homeowners who led busy lives, you won’t know when the banks might get aggressive again.  So, the best thing you can do is to work closely with mortgage brokers who are often first-to-know of any sporadic promotions as and when it happens and ends.

Need more personalised advice?  Not only do we help clients navigate through the myriad of mortgage rates quick and fuss-free and get you the best home loan Singapore, we show you how to become Mortgage-Free in 6 Years! So, be it for residential or commercial property loan, work with us today and you’ll also be helping to support our social cause!

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