The Bureau of Labor Statistics released a strong set of job creation figures for February where the economy added 295,00 new jobs blasting past most economist’s expectations and further raising the likelihood of an interest rate “lift off” in June. Unemployment rate fell from 5.7% in January to the lowest level of 5.5% just a tad above the recent low of 5.4% registered in May 2008. Wages though rose only a slight 0.1% in February (from the previous month’s 0.5% increase) which is the last remaining  hurdle for US Fed to watch as they ponder on the timing of rate hike when they meet for policy meeting this month.  Still with galloping economy, most expect wages to show uptrend soon as payroll increase and companies begin to compete more aggressively for talent.

Remember we are talking about the harsh cold winter months of January and February. With the arrival of spring, economic activities and job creation will be expected to pick up further, aided greatly by continued decline in energy and oil prices.

It seems the combination of US recovery gaining traction this year, start of QE by ECB this Monday to the tune of €60b per month until September 2016 a significantly long time, and monetary easing by China with an outlook for more measures to spur sluggish growth have come together at the right time to boost confidence in the market. Our earlier prediction that such feel-good factor will feed itself and lead to more sustainable recovery is holding out. We also think that the oil industry is going through some structural change with shale production and oil price will not recover anywhere near to its previous high too soon if at all. At some point Chinese companies might also acquire the same hydraulic fracking technologies that US firms boasted.

US Federal Reserve is widely expected to remove the word “patient” from its policy meeting statements coming up this month, paving the way for the first lift off in federal funds rate by June.

At MortgageWise, we have since November last year shifted our view to advocate fixed rates with the crash of oil prices. The 3-year fixed rates were at 1.4% p.a. level back then but with the persistent rise of 3-month sibor since from 0.41 to the current 0.81 (as at 6 March 2015), banks have been revising their fixed rates by the week and currently we are about to break above the 2% p.a. psychological level (Maybank latest to revise to 1.95%, UOB home loan 1.88%, CIMB 1.88%, DBS home loan 1.78%). Indeed rates have been hovering below 2% p.a. for the longest time since 2008 and most in Singapore have forgotten about historical average being 4% p.a. in the last 25 years!

For those looking for mortgage loans in Singapore, we now estimate a small window of between 1 to 3 months before prevailing fixed rates will all rise up above 2% p.a. in Singapore and we urge all our clients still on floating but past the lock-in period to take action now. We are of the view as long rates are below 2% p.a., at half the historical level, it will make perfect sense to lock down fixed rates for as long as possible, and for that reason we started advocating CIMB’s 4-year fixed rate at 2% p.a., especially for sizeable loans above $1m. You should do this even if you past the lock-in period for the loan, but still need to pay back legal fee subsidy if you refinance out within 3 years. We re-iterate again, for loans above $1m the savings will be huge when you lock down up to 4-5 years, many times more than the legal fee clawback you have to pay.

The harder decision comes for some who has been given exceptionally low and long term (commonly referred to as thereafter rate) spreads for their floating rate loans during the 2009-2011 period, eg. 3-month sibor + 0.75 throughout the entire tenure of the loan. If you are on this rate, the risk to refinancing to fixed rate home loans now is that you will not be able to get back the same kind of low perennial spreads later on when interest rate comes down.   But still with sibor likely rising to 1.5% p.a. by end of the year, even with such low spreads you will be paying 2.25% p.a. within 6-9 months and going higher every year from now. It still warrants a second look to lock in 2% p.a. for next 4 years I am sure you will agree with us.

Speak to us today and let us help with your mortgage planning. At MortgageWise.sg, we take pride in being able to give truly independent advice sometimes asking clients to re-price and stay with their existing bank if it doesn’t make sense for them to refinance home loan. We may not get to do business with you the first time around, but we would try again when your lock-in expires down the road. We strive to be your first choice mortgage partner in Singapore. Do sign up for our newsletter on our website and stay tuned to this blog as we bring you purposeful and proprietary news summary & insights.