Rates For Refinancing Home Loan

Rates For Refinancing Home Loan – SINGAPORE — Median mortgage interest rates have nearly doubled in the past six months as global central bank efforts to fight inflation through higher interest rates have hurt local homebuyers.

Real estate analysts believe mortgage rates will rise further, especially after the US Federal Reserve on Wednesday (May 4) announced its biggest rate hike since 2000.

Rates For Refinancing Home Loan

Rates For Refinancing Home Loan

With the costs of borrowing money increasing relatively sharply, analysts and banks are warning home buyers to have sufficient savings as a “buffer” and seek out new loan packages and schemes if necessary.

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For a two-year fixed mortgage, the median interest rate across Singapore’s banks rose from 1.15% in December to 2.25 in May, according to mortgage broker Red Brick Mortgage Advisory, which compares interest rates across banks, increased to %.

For 3-year fixed mortgages, interest rates were 1.15% in December and more than doubled to 2.5% in May.

Variable rate mortgages pegged to benchmarks such as the 3-month Singapore Interbank Rate (Sibor) and the Singapore Overnight Rate Average (Sora) are also rising, according to Red Brick.

Compared to the previous quarter, 3M Sibor increased from 0.43% to 1.05% and 3M Sora increased from 0.15% to 0.30%.

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Sibor and Sora are reference rates used by the banks here, for example to set mortgage rates for property buyers.

Interest rate increases on mortgages have been steeper in the last two months than in the last four months. Two-year fixed mortgage rates rose 0.25 percentage points from 1.15% in December 2021 to 1.4% in March, but rose 0.85 percentage points to the current 2.25% in May.

Nicholas Mak, head of research and advisory at property firm ERA Realty, said mortgage rates have risen in the past six months as interest rates in Singapore fluctuate in line with global interest rates.

Rates For Refinancing Home Loan

This is because Singapore’s central bank, the Monetary Authority of Singapore, controls inflation by controlling the country’s exchange rates against its main trading partners and does not directly set interest rates.

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Interest rates in Singapore and globally were relatively low at the end of last year as they remained largely unchanged throughout the pandemic, Mack said.

“When Covid started two years ago, an economic slowdown was expected, so central banks kept interest rates low to save economies around the world. was expected to rise,” said Nicholas Mak, head of research and advisory at real estate firm ERA Realty.

“When Covid started two years ago, an economic slowdown was expected, so central banks kept interest rates low to save economies around the world,” Mak said. But ever since inflation started to rise, there has been hope that interest rates will rise.”

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

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As Singapore’s economy, including financial markets, is closely linked to global developments, this means that Singapore’s banks have pushed up interest rates, including mortgage rates.

The sharp rise in mortgage rates over the past two months is due to worsening global inflation triggered by the energy crisis sparked by Russia’s aggression in Ukraine and the central bank’s response to interest rate hikes.

Since the US is the world’s largest economy and the US dollar is the world’s ‘reserve currency’, Wednesday’s 0.5 percentage point rise in the US central bank was watched closely.

Rates For Refinancing Home Loan

“Some banks have revised their interest rates upwards following the Fed’s announcement,” said Steven Tan, managing director of real estate firm OrangeTee & Tie. “Interest rates are likely to continue to rise as inflation continues,” he said.

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For example, Tan predicts that two-year fixed mortgage rates will rise from the current 2.25% to a high of 2.75%.

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

Banks and property analysts said homeowners today should make sure they have enough savings to cope with changes in mortgage rates.

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

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“I always recommend going back to your bank to assess the current package situation,” he said.

Nelson Neo, head of housing solutions at DBS Consumer Banking Group, said borrowers should have enough cash “in case of further interest rate hikes or contingencies”.

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

Rates For Refinancing Home Loan

“For consumers with existing mortgages, it is beneficial to review their existing mortgage from time to time and take a holistic approach when it comes to loan rates, servicing and terms,” ​​she said.

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Homeowners can assess current loans and consider refinancing their mortgage. This means paying off your existing loan and replacing it with a new one.

A spokeswoman for Maybank Singapore said today that customers can also contact the bank if they wish to change the price of the loan after the lock-in period.

DBS’s Neo said homeowners looking to refinance their mortgage should “contact their existing bank to check the terms of the mortgage and see if there are any fees, such as early repayment. I recommend you do that,” he said.

Christine Sun, senior vice president of research and analysis at real estate firm OrangeTee & Thailand, said refinancing can come with penalties, but if the difference in interest rates is large enough, the long-term payout is likely to continue. said it might be worth it.

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“They have to figure out if it’s worth paying the penalty for the monthly mortgage increase they’re paying,” she said.

ERA Realty’s Mak added that assuming homeowners have enough savings, it’s also worth paying off a portion of the loan at this point.

“Then they won’t have a large outstanding loan,” Mack said. “Because the interest will be charged on the outstanding loan.”

Rates For Refinancing Home Loan

For example, a savings account where a borrower puts their savings may pay 0.5% a month, but mortgage interest rates can rise much higher.

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“If you are paying a higher mortgage (interest rate) and your savings account has a very low interest rate, you may consider paying off part of the loan.

Borrowers want to extend the tenure of their loans or use more money from the Central Provident Fund (CPF) in mortgage services, said Paul Wee, vice president of fintech at PropertyGuru Group. Etc., said he could also consider restructuring the loan.

“They can also take into account future plans such as planned retirement, family planning and incorporate these requirements into their (mortgage) plans,” he added.

For potential home buyers, the choice between a fixed-rate or adjustable-rate mortgage depends on the willingness to take risks, since both packages have their advantages and disadvantages.

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Mack said that traditionally, fixed-rate mortgage rates have been more stable for borrowers, but they are typically set at higher interest rates than variable rate mortgages.

“It depends a lot on the risk appetite of the borrower. If the borrower bets and sticks to the floating rate and says it won’t go up much … there is no right answer.”

Redbrick’s Tan said borrowers need to look at long-term rather than immediate interest rates. This is because the floating interest rate can exceed the two-year fixed interest rate in these two years.

Rates For Refinancing Home Loan

“At the moment you can choose between a floating rate of 0.95% and a fixed rate of 2.25%,” she said. “The question you have to ask before you decide is how high will interest rates go?”

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OrangeTee & Tee’s Tan said banks also offer customers the option to include both fixed and floating interest rates in their packages to “average the risk.”

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

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