The latest 1-month and 3-month SIBOR as of 11-May is 0.37800% and 0.68567% respectively. The 1-month SIBOR has officially broken below 0.50%! We expect the 3-month to reach 0.50% or below as well.
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In our article last month, we showed a screenshot of one of our client’s notification letter from the bank on how her mortgage rate has dropped to 1.08%. Since then, there are more reports from clients telling us they received the same letters informing them of mortgage rates in the range of 0.80-0.90%! That’s how much they’ll be paying on their home loan interests likely for the next few years. And the best part – it’s not the lowest yet. With the latest drop below 0.50%, they will soon receive notification letters by next month (for those on 1-month SIBOR) that their mortgage rates would further drop to a ridiculous 0.60%!
Now I call that the first-mover advantage. These are clients who refinanced through us in the past 12 months when we started advocating “it’s time to switch back to SIBOR home loans” since Jan 2019. They have moved swiftly to lock down super-thin spreads on SIBOR home loans from as low as 0.15-0.25%. Of course, at that point no one saw covid-19 situation coming and no one could possibly foretell US Fed crashing the rates back to zero in one fell swoop by March 2020. Remember at the end of 2019 – the general consensus was for Fed to hold the rates this year, after making three insurance rate cuts in 2019 due to trade war.
Still, we give credit to these group of clients for bucking the general trend of going for fixed rates and seizing that first mover advantage when spreads were still low last year and up until March this year.
For those who are are new to SIBOR (Singapore Interbank Offer Rate) home loans. Know that spreads are the margin banks would add on top of the interbank rates like 1-month or 3-month SIBOR which is how we derive the final effective rate charged to borrowers. Take that as profit margin for the banks although strictly speaking that’s not the true margin as there’s a “blended” or average internal cost of funds for the banks who source for sing dollar funds not merely in the money market. Local banks especially derive their main souce of funds from low-cost retail deposits in CASA (current account savings account) and fixed deposit accounts. With SIBOR dropping, what it means is that the final effective rate charged on lending the funds out needs to be raised. No bank is going to charge only 0.6% or even 1% effective interest rate as they need to cover all their overheads and risks, plus seek a high return on equity for their shareholders. Even if they can cover all their overheads, it will be silly to give away this “producer’s surplus” when the market will gladly pay 1.20-1.40% interest rate for home loan financing.
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What’s second mover advantage then? That’s the small window for you now since last month April where you could still lock down SIBOR spreads of 0.50 to 0.80%.
This window is closing fast now because SIBOR is simply dropping too fast. Unlike the first mover advantage group whose rates now start to drop below 1%, yours may not go as low. But if you act fast within the next two weeks, you could still receive notification letter later in the year to pay mortgage rates of between 1.00 to 1.20%! Perhaps with a bit of luck it could still go to 0.90 for some! You have to contact us now if your home loan is up for renewal within the next 6 months.
Is there a third mover advantage? Perhaps. But the savings will not be as significant as we do expect prevailing floating and fixed rates to settle close to 1.20-1.40% level. We will discuss more about this equilibrium level in our next article – what happens as banks keep adjusting their spreads up? So, stay tuned to this blog.
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.