Mortgage interest rates are headed to a high not seen in decades and it may be a good time for home owners to reprice or refinance.
The Federal Reserve raised its benchmark interest rates three-quarters of a percentage point in its most aggressive hike since 1994. And with it, the home mortgage rates are seeing an almost all time high.
Median mortgage rates have roughly doubled here over the last six months as the global effort by central banks to combat inflation through higher interest rates takes a toll on local home-buyers. Property analysts believe that further increases in mortgage rates are on the way.
The relatively sudden spike in the cost of borrowing money has led analysts and banks to warn home-buyers to set aside sufficient savings as a “buffer” and to seek new loan packages or arrangements if necessary.
This is because rate hikes by the Fed will translates into upward pressure on interest rates here, as Singapore is an “interest-rate taker” This means that the costs of all types of borrowing, from mortgages to credit cards and car loans will increase.
Mortgage interest rates has increased by more than 100 percent since early this year
Already, the Singapore Overnight Rate Average (SORA) – one of the benchmark rates used by banks here to determine rates for their floating-rate home loans – has increased by more than 100 per cent since early this year.
This in turn has increased the mortgage rate for home owners using loan packages pegged to SORA rates.
Meanwhile, fixed-rate packages have also seen higher rates, with some banks having revised their rates by more than three times. The fixed-rate home loan packages offered by most banks now has a rate which is nearing he HDB’s concessionary interest rate.
When you take a housing loan from HDB, you will enjoy a concessionary interest rate. This concessionary interest rate is pegged at 0.10% above the prevailing CPF Ordinary Account (OA) interest rate, and may be adjusted in January, April, July, and October, in line with CPF interest rate revisions.
These are the concessionary interest rates for 2 quarters:
| Quarter | Concessionary Interest Rate |
|---|---|
| 1 April 2022 to 30 June 2022 | 2.60% p.a. |
| 1 July 2022 to 30 September 2022 | 2.60% p.a. |
With Fed determined to tame inflation, mortgage interest rates are expected to increase further. This will have an impact (on) our mortgage packages – both SORA-pegged and fixed rates. The fixed-rate now is about 2.5 per cent but some banks may stop offering fixed rates until the situation is stabilised.
Fixed rate packages are usually more expensive, but provide the most stability as rates are kept fixed for up to the first 3 to 5 years of the loan tenure. There is no perpetual fixed rate being offered by banks in Singapore at the current moment. This is where a refinancing guide can be useful to home owners to read-up on remortgage and be knowledgeable about the entire process.
The floating-rate home loans would also rise but at a slower pace. “I anticipate that the floating home loan rate will increase by 1.5 per cent to above 2 per cent by the end of the year,” said Mr Paul Ho, chief officer at iCompareLoan.
“Keeping in mind the rising mortgage interest rates, home owners have to review their mortgages and go for repricing or refinancing to better manage their home loans,” added Mr Ho.
Home owners who do not have the time to shop for a good refinancing package should speak to mortgage brokers. Mortgage brokers are specialists who are well versed with the banking loan process and have access to hundreds of mortgage and loan packages across many banks. Mortgage brokers help property buyers to get the best home loans and home owners to refinance home loans.
Today, consumers have a wide range of home loan packages to choose from compared to several years ago. Home loans could also be tied up with other programmes which rewards customers with a higher interest rate on their deposits if they transact more with the bank, such as getting a home loan and crediting their salary with the same bank.
Typically, with mortgage loans you are offered attractive rates for the first three years when you refinance – following which the interest rates are adjusted upwards. This usually coincides with the end of the lock in period, offering borrowers a good opportunity to relook their loans.
But is there such a thing as a bad time to refinance your mortgage loan?
If home owners are planning to sell their home within a few months, it is usually unwise to refinance. This is because it takes some time before the savings exceed the costs of refinancing. Secondly, they may incur the penalty of the clawback period or lock-in period of the refinanced loan or legal conveyancing fees, valuation fees and other incidental fees.
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