It is like a rude shock to a sweet dream. Singapore homeowners are given a reality check since the start of the year when the key interest shot up like nobody business. Perhaps it is a sign of things to come but the trend is expected for a long time since the last financial crisis in 2008, which led to many countries to adopt loose monetary policies in the form of quantitative easing, notably from United States, Europe, Japan and China.
According to the Association of Banks in Singapore’s website, the latest three-month Singapore interbank offered rate, SIBOR, was 0.972% as of 20th March 2015. This was the highest level since 2008 amid expectations that United States Federal Reserve would possibly raise the lending rates mid of this year.
Obviously the above information is bad news for home-owners who borrowed a lot from the banks to finance their properties. Any slight incremental increase in the lending rate would affect their spending abilities.
I can relate to homeowners’ fear as I have home mortgage loan as well. Any form of market uncertainty is bad from a homeowner’s point of view because of budgeting concerns. Incidentally, in a few months’ time, the tenure of my mortgage loan will expire and I am looking to refinance my mortgage loan. The amount is not significant and I can choose to repay in full with my savings and CPF monies. However, doing so would reduce my cash flow and affect my ability to upgrade to a bigger house to cater to my growing family size. So my wife and I decided to go for refinancing after weighing the opportunity costs.
For HDB owners who have sizeable outstanding loans and choose to repay in 25 years, the best option is always to opt for HDB concessionary loan as it is probably one of the most affordable loans in town. If your loan is less than $150,000, you may want to consider repaying the amount in 10 years so as to incur lesser interest fees. In this case, it make sense to opt for bank loans because the shorter the tenure, the lower the risk of swelling interest rates. Do note that there is always a market cycle and this applies to interest rates as well. The era of hot money and low rate interest environment may be coming to an end.
The market for housing loans is very competitive in Singapore, with many banks offering a variety of loans pegging to SIBOR, SOR and Board rates. There are some like DBS and POSB which offer interest-cap rates to protect homeowners from unexpected rise in interest rate.
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