By this time, most of us would’ve already known that mortgage rates in Singapore are at a historic low and that it’s an opportune time for homeowners to review their mortgage loans. Those on the hunt for a new property will also have heard of mortgage terms such as SIBOR, SOR and how SORA will soon replace SIBOR. We previously discussed what these mortgage rates are in this article.
With recent whispers that the wheels are turning and banks may soon begin converting consumers from existing SIBOR packages, now may be the best time to look at your current home loan package and plan your next step.
First, let’s take a quick recap on why mortgage rates are at an all-time low and how SIBOR is being phased out.
Recap on all-time low mortgage loan interest rates
Governments around the world have reduced their interest rates to deal with the economic fall-out caused by COVID-19.
With lower interest rates, banks have fewer reasons to hold onto their reserves and are encouraged to lend more. With more capital available for borrowing, interest rates naturally fall.
Moreover, governments have also erected initiatives to help stimulate the economy, playing a direct part in interest rates falling across the world. For example, Singapore tapped into the reserves to introduce several financial support schemes for Singaporeans and businesses in 2020.
Recap on SIBOR being phased out
SIBOR, or Singapore Interbank Offered Rate, is based on projected interbank lending rates. However, the practice of banks borrowing from each other declined due to regulatory changes after the 2008 – 2009 financial crisis.
Since then, transitional testing for an enhanced SIBOR was in the works as ABS sought to tie the benchmark as closely to market transactions as possible.
However, the enhanced SIBOR was more volatile and did not track as well as anticipated. It was concluded that the enhanced SIBOR could not directly replace SIBOR without extensive, complicated and resource-intensive amendments.
Singapore Overnight Rate Average (SORA) was then introduced to be used as the primary interest rate benchmark for SGD financial markets going forward.
What are the options for your home loan now?
Given SIBOR’s impending discontinuation, we would advise that you look into reviewing your existing mortgage loan.
If your current loan is on a fixed-rate mortgage package and the expiry of the lock-in period is near, you can consider to lock in to a cheaper package. Likewise, if your current loan is on a variable rates such as SIBOR, fixed deposit pegged or bank managed rates.
Now that home loan interest rates are at a record low, there’s almost no chance you’ll find a cheaper loan package to refinance into within the next few years.
If you’re on an HDB loan, it might make financial sense to consider taking a bank loan over an HDB loan, given that bank loans are offering much lower interest rates now.
If you wait to switch your home loan when the time comes eventually,, the mortgage rate would have increased by then.
What we can do for you
Choosing a mortgage rate that will fit your current budget and supporting your future financial plans can be confusing.
But a house may be the most significant investment you’ll make in your lifetime, so you shouldn’t feel intimidated by the home loan process. While securing and understanding the terms of your home loan may sound like a daunting task, it’s an essential part of the process.
At FinanceGuru, we seek to help homeowners find the best home loan and help them achieve their financial goals. Learn more about how you can optimise your home loan and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today.