Fixed Deposit Home Loan Rates (FHR), not to be confused with fixed-rate home loans, are generally preferred for competitive stability.
In current market conditions, an HDB loan, at its 2.6% interest rate, is by no means the most affordable option available.
If you’ve been considering refinancing or refinancing your home loan, or are looking to get a new home, you’re doing so in the best possible time for Fixed Home Loan Rates (FHR). With the way FHRs is doing in the market, you’re never going to see rates this good again.
As a mortgage broker in Singapore, we’re here to tell you that we think you should snap current FHRs up. And of course, we wouldn’t tell you that without good reason.
But before we get into the nitty-gritty, let’s have a quick look at the basis of what exactly FHR means.
What is a Fixed Deposit Home Loan Rate (FHR)?
Well, when it comes to getting a home loan in Singapore, it’s widely known that there are generally two different types of interest rates. Fixed rates and floating rates.
When you pick a fixed interest rate, it means you’re locking in a certain fixed interest rate for a stipulated period (typically called a lock-in period).
On the other hand, floating rates are when the interest rates in your home loan package vary based on a reference rate that has been pegged to some market indicators. These market indicators are transparent and allow banks to manipulate floating rates less.
Sometimes, floating rates are also pegged to the fixed deposit rate or board rate of a bank. This, in turn, would make the process less transparent because banks can alter this information to their will.
So, if you have a floating rate, it means that you’re subject to market volatility. However, floating-rate loans are a good choice if you’re good at spotting trends, allowing you to obtain the best rates in the market, even lower than fixed interest rates.
If interest rates are low when you’re repricing, refinancing, or taking up a new home loan in Singapore, locking in a fixed interest rate can be a dream come true. Moreover, you’ll get to enjoy this low-interest rate for several years till the rate becomes variable again.
But for the time that you have your fixed-rate loan locked in, you’re going to enjoy that rate no matter how high-interest rates get in the market. Well, for a while, at least. And added up, it’ll make a substantial difference in savings.
Additional benefits for Fixed Deposit Home Loan Rate (FHR)
While technically a floating home loan rate, FHR home loans are somewhat like a fixed rate home loan, but for a shorter term.
With FHR, you might also be able to exercise some additional flexibility. For example, you might come across the term FHR with a number tied to it. For instance, FHR9 means the loan package is pegged to a 9-month fixed deposit rate, while FHR36 might mean the same for a 36-month fixed deposit rate.
So when interest rates are at an all-time low, it’s the best possible time to cash in on FHR to guarantee yourself that minimal amount of payment in the years to come. There is no sweeter deal.
Why is FHR such a big deal in the market right now, you ask?
As a mortgage broker in Singapore, we’re going to come all out and say that it will be impossible to see FHR capped at 1.4% again if the market picks up.
And if that sounded like a bunch of garbled jargon, don’t worry. We’re about to explain it to you.
FHRs with a 1.4% cap
When an interest rate is capped at a certain percentage, it means that there’s a limit to how high the interest rate can go.
So, if you sign an FHR package with a bank with a 1.4% cap, it might mean that you get to enjoy floating rates that never exceed 1.4% for the duration of your lock-in period.
In a recessionary market environment like the one we’re currently facing, the only way to go from this low is up.
Where interest rates are concerned, this natural ebb and flow are called the Interest Rate Cycle.
The Interest Rate Cycle depicts how central banks use interest rates to control economic activity, increasing and slowing it to their advantage. You can read more about the Interest Rate Cycle here.
As mentioned earlier, Fixed Deposite Home Loans (FHR) allow you to enjoy the benefits of floating rates with the sense of security fixed rates provide.
DBS Bank, which first pioneered the use of FHR in 2014, has offered numerous FHR options across the years, such as FHR18, FHR9, FHR8, FHR24, right up to the current FHR6.
Remember, FHR isn’t to be confused with fixed-rate home loans.
Let’s look at the current FHR prospects for a bank loan in Singapore, with a minimum loan amount of S$100,000.
|Bank Package||Bank Package||Bank Package|
|Loan Type||New Purchase or Refinance||New Purchase or Refinance||New Purchase or Refinance|
|Interest Rate Cap||Interest capped at 1.60% for first 3 years||Interest capped at 1.40% for first 2 years||Interest capped at 2% for first 5 years|
|Year 1||FHR6 + 0.800% = 1.000%||FHR6 + 0.800% = 1.000%||FHR6 + 0.800% = 1.000%|
|Year 2||FHR6 + 0.850% = 1.050%||FHR6 + 0.900% = 1.100%||FHR6 + 1.000% = 1.200%|
|Year 3||FHR6 + 0.900% = 1.100%||FHR6 + 1.000% = 1.200%||FHR6 + 1.000% = 1.200%|
|Year 4||FHR6 + 1.000% = 1.200%||FHR6 + 1.000% = 1.200%||FHR6 + 1.000% = 1.200%|
|Year 5||FHR6 + 1.000% = 1.200%||FHR6 + 1.000% = 1.200%||FHR6 + 1.000% = 1.200%|
|After Year 5||FHR6 + 1.000% = 1.200%||FHR6 + 1.000% = 1.200%||FHR6 + 1.000% = 1.200%|
|Lock-in period||2 years||2 years||5 years|
|Minimum loan amount||S$100,000||S$100,000||S$100,000|
If you’d consider taking a bank loan instead of an HDB loan, consider a Fixed Deposit Home Loan Rates (FHR) package for the opportunity to enjoy the best rates in the market.
In the short term, you’ll see how much you’re saving and make excellent use of market conditions as they are.
Need help deciding whether to go with Fixed Deposit Home Loan Rates (FHR)?
When deciding what sort of loan package to choose, you’ll need to have a handle on your finances in the short term.
It’ll also be beneficial to have a rough idea of your life’s plans in the years to come. If you’ve got no idea where your financial situation might head in the years to come, that’s also fine. A mortgage broker in Singapore could help you decide what might, by making sure you’re aware of all the aspects of taking a home loan in Singapore, whether you’re looking at a bank loan or an HDB loan.
At FinanceGuru, we want to share our experiences and help you make a home loan choice that betters the rest of your life. Home loans don’t have to be a source of added stress.
With the right home loan plan, you’ll be able to feel carefree while living your life in a new home that works well for you.