The answer is likely yes.  In fact, fixed mortgage rates has already crashed from its peak of 4 per cent down to the current 2.6 per cent effective rate by one lender.

The question now is how low can fixed home loan rates drop to?  Which is in turn dependent on how fast short-term rates like SORA (Singapore Overnight Rate Average) dips and at what level it will settle at?  That hasn’t quite happened yet but seems impending the moment U.S. Fed starts to cut rates, widely believed to be September as the market has priced in almost a 100% chance of a first cut.

This is an opinion piece and no one can say for sure how the trajectory of SORA will go.  However, going by the volatility of its swings in the past, it is highly likely that when the reverse happens, compounded SORA can come down by more than 100 basis points fairly quickly within one to two months.  Otherwise, you won’t see all the peak and trough cycles in the first place.  In other words, it has to fall off a cliff on its way down in order for you to get to a mountain or a valley in terms of the shape of the interest rate cycle.

Going by the cycle, if past patterns were to repeat and with Fed expected to cut by 100 basis points before the end of year, we are projecting 3-month SORA to end the year slightly above 2.5 per cent level.  In fact, it could even go lower as it’s conceivable that upcoming economic data over the next few months might reflect a faster deterioration in the U.S. economy as the long and variable lags of monetary tightening starts to bite.

What should do if you are a homeowner with a mortgage loan that’s up for renewal soon?  This means your lock-in will expire within the next few months.

The answer to that question depends on how high is your new mortgage rate once your lock-in expires, or the thereafter rate of your loan.  For most, that’s likely a rate that’s pegged to SORA with a high spread which means you’re staring at a rate close to 5 per cent, or 4.5 per cent at the least.  That’s almost a 2 per cent per annum in savings (based on the lowest prevailing fixed rate at 2.6 per cent)!  On an average $750,000 outstanding mortgage loan, it translates to a savings of about $1,250 for each month that you hold out on committing to a new contract.

It might be hard to do this calculus right down to the cents.  So, the best time for homeowners to act is at the point of two months, plus another week or so for all the to-and-fro in application and approval, prior to the expiry of your lock-in.  That’s provided you can refinance out without any clawback of legal subsidy or cash rebate given to you earlier.  In case you’re wondering why, you’ll need to give a minimum of two months’ notice to your existing bank in order to redeem the loan.

In the current interest rate cycle where rates are expected to head south, it might not pay to do a mortgage review and commit to a new rate too early, unless the expected drop in interest is front-loaded as savings for you in a way.  Speak to us to find out more.

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Disclaimer: MortgageWise Pte Ltd is not in the business of providing financial advice nor are we licensed or regulated by MAS under the Financial Advisory Act (FAA) in Singapore. All information presented are opinions and any representations given, whether by way of example, illustration or otherwise, are purely portfolio allocation advice and not recommendations or inducements to buy, sell or hold any particular investment product or class of investment product.  All opinions are generic in nature and are not tailored to the particular circumstances of any reader.  Seek advice from a qualified financial advisor before making any investment decision.

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