Lowest Interest Rate Mortgage Refinancing

Lowest Interest Rate Mortgage Refinancing – SINGAPORE – Average mortgage rates in Singapore have roughly doubled in the past six months as global central bank efforts to fight inflation with higher interest rates hit domestic homebuyers.

Real estate experts believe further increases in mortgage rates are on the way, especially after the US Federal Reserve announced its biggest rate hike since 2000 on Wednesday (May 4).

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The relatively sudden rise in the cost of borrowing money has prompted analysts and banks to warn homebuyers to leave enough savings “as a buffer” and seek a new loan package or deal if needed.

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According to Redbrick Mortgage Advisory, a mortgage broker that compares rates between banks, Singapore’s average bank interest rate for two-year fixed-rate mortgages rose from 1.15 percent in December last year to 2.25 percent in May.

For 3-year fixed rate mortgages, the rate was 1.15% in December and more than doubled to 2.5% in May.

Variable rate mortgages linked to benchmarks such as the 3-month Singapore Interbank Rate (Sibor) and the Singapore Average Rate (Sora) also rose, according to Redbrick.

The three-month Sibor rose from 0.43% to 1.05% and the three-month Sora rose from 0.15% to 0.30% between quarters.

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Sibor and Sora are reference rates that banks here use, for example, to determine mortgage rates for property buyers.

The increase in mortgages has been steeper in the past two months compared to the previous four months. Two-year fixed mortgage rates rose 0.25 percentage points from 1.15 percent in December 2021 to 1.4 percent in March, while they rose 0.85 percentage points to the current 2.25 percent in May.

Nicholas Mak, head of research and consultancy at real estate firm ERA Realty, said mortgage rates have been rising since six months ago as interest rates in Singapore fluctuate in line with global rates.

This is because Singapore’s central bank, the Monetary Authority of Singapore, manages exchange rates with major trading partners to keep inflation under control and does not set interest rates directly.

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Mak said interest rates in Singapore and globally were relatively low at the end of last year as they largely remained that way during the pandemic.

“When COVID-19 started two years ago, it was predicted that there would be an economic downturn, so central banks kept interest rates low to save the global economy. But as inflation began to rise, interest rates were expected to continue rising. Nicholas Mak, Head of Research and Consulting at the real estate agency ERA Realty”

“When COVID-19 started two years ago, economic recession was expected, so central banks kept interest rates low to save the global economy,” Mak said. “But as inflation started to rise, interest rates were expected to rise.”

But earlier this year, as economies around the world opened up and people started spending more money, central banks raised interest rates to dampen demand and ease price pressures.

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As Singapore’s economy, including the money market, is closely linked to global developments, banks in Singapore have raised interest rates, including mortgage rates.

The sharp rise in mortgage rates over the past two months can be attributed in part to worsening global inflation, in part to the energy crisis caused by Russia’s invasion of Ukraine, and to the central bank’s response to interest rate hikes.

The US Federal Reserve’s 0.5 percentage point hike on Wednesday was closely watched because the US is the world’s largest economy and the US dollar is the world’s “book currency”.

“Some banks are raising interest rates after the central bank’s announcement,” said Steven Tan, CEO of real estate firm OrangeTee & Tie. “Sustained inflation will likely keep interest rates up.”

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For example, Tan predicts that fixed interest rates on two-year mortgages will rise from the current 2.25% to a maximum of 2.75%.

Jo’An Tan, deputy director of Redbrick Mortgage Advisory, expects the 3-month Sora rate to rise from 0.3% to around 1% in the coming months and the 3-month Sibor rate to rise from 1.05%. at 1.6 percent.

Banks and real estate experts said today that homeowners must first have enough savings to withstand changes in mortgage rates.

One of the main reasons is that some banks have changed their package terms. For example, Tan said many foreign banks have recently stopped offering fixed interest rates.

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“It is always recommended to go back to the cashier to assess the current package status,” he said.

Mr Nelson Neo, head of home finance solutions at DBS Consumer Banking Group, said borrowers should set aside sufficient funds as a “buffer against further interest rate hikes or unforeseen circumstances”.

Maryanne Phua, Head of Home Loans at OCBC Bank, said borrowers should review their home loan plans regularly.

“For consumers with existing mortgages, it is beneficial to periodically review existing mortgages with a holistic approach to pricing, servicing and loan terms,” ​​she said.

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Homeowners may consider refinancing their mortgage after reviewing their current loan. That means paying off your old loan and replacing it with a new one.

In response to TODAY, a Maybank Singapore spokesperson said customers could also approach the bank if they wanted to re-evaluate their loans after the closure period.

DBS’s Neo said homeowners looking to refinance their home loans are advised to “contact a conventional bank to check the terms and conditions of their home loan and to see if they charge fees such as early repayment.”

Christine Sun, senior vice president of research and analytics at real estate firm OrangeTee & Tie, said refinancing can be punishing, but if the interest rate difference is large enough, it could be worth it in the long run.

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“They have to figure out if the penalty is worth paying compared to the increase in the monthly mortgage they’re paying,” she said.

Mak, ERA Realty, added that assuming homeowners have enough savings, paying off an existing loan may be worth it.

“That way they won’t have large outstanding loans,” Mak said. “Because interest is charged on outstanding loans.”

For example, a savings account where a borrower keeps their savings might pay 0.5% interest per month, while mortgage interest rates can rise much higher.

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“If you are paying a higher mortgage (interest rate) and the interest rate on your savings account is too low, you can consider paying off part of the loan.

Paul Wee, Vice President of FinTech at PropertyGuru Group, said borrowers may consider restructuring their loans, such as extending their loan tenure or using more Central Provident Fund (CPF) funds to service home loans.

“They can also consider future plans, for example, planned retirement, family planning and incorporate these requirements into their mortgage plans,” he added.

For home buyers, whether to choose a fixed rate or variable rate mortgage depends on their risk appetite, as both packages have their pros and cons.

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Mak said fixed mortgage rates are traditionally more stable for borrowers, but they are generally set at higher interest rates than floating rates.

“It really depends on the borrower’s risk appetite. To say that the borrower is sticking with floating rates and betting on it believing it won’t go up that much… that’s not the right answer.”

Redbrick’s Tan said borrowers should look at the long term, not short-term interest rates. This is because during that two-year period, the floating rate can exceed the two-year fixed rate.

“At this point, you can still choose between a 0.95% floating rate or a 2.25% fixed rate,” she said. “The question to ask before making a decision is how high will interest rates go?”

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OrangeTee & Tie’s Tan said: “The bank offers customers a choice of both fixed and floating rates in the package to ‘average out the risk’.”

For example, DBS Bank has a package that allows borrowers to keep part of their loan amount in a fixed rate package and the rest in a variable rate package.

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