Different Types of Home Loan Interest Rates and Why it Matters to You?

Rate Type Description Singapore Interbank Offered Rate (SIBOR) Interest rate at which banks borrow from a group of banks. Fixed Deposit Home Rate (FHR) is a prime rate linked to the bank’s deposit rate. The prime rate is controlled and set by the banks. It is tied to movements in the US Federal Reserve. 

It is linked to the Interbank Offered Rate (SIBOR), Board Rate and the Fixed Deposit Home Rate (FHR) of the Monetary Authority of Singapore (MAS). MAS Overnight Rate Average (SORA): SORA is the average interest rate based on past lending transactions. These changes are transparent as they are overseen by MAS. The SORAs rate can be checked on the website MAS. 

When comparing home loans, it is critical to consider affordability, monthly payments, the total interest cost, and the lock-in period, determining when you can refinance your loan. An adjustable-rate mortgage is advantageous in a market where interest rates are high and likely to fall in the coming years. The variable rate is tied to a benchmark interest rate. SIBOR (SOR), the Bank of England’s interest rate, can rise or fall over time. 

Property loans in Singapore were at a record low in 2008 after the US stimulus package, and the global financial crisis lowered interest rates. However, we have no clear indication of when this period will end. With interest rates set to rise again this year, homeowners are likely to face higher mortgage repayments. Singaporeans buying a home, including condo owners who opt for a bank loan or a low-interest HDB loan for their home, should opt for a fixed or floating-rate loan. In the case of fixed-rate home mortgages, the monthly instalment will not change for the duration of the fixed period. 

Flexible home loans with all their benefits are also called floating rate home loans as they are linked to the lender’s ‘benchmark interest rate’, which moves in sync with the market rate. The interest rate upon such loans is reset at a fixed interval. When the base rate changes, the interest rate on loan also changes. 

For example, certain home mortgages enable you to refinance after one year, while others have a lock-in period during which you cannot renegotiate your terms or refinance with the bank. Most fixed-rate loans in Singapore have a fixed interest rate for 3-5 years, which then fluctuates freely. 

In short, there are two main categories of fixed-rate and floating rate home loans. Bank loans with fixed interest rate have higher interest rate than those with floating interest rate. SIBOR, SOR and other unusual looking names belong to the variable rate category. 

The table below shows the fixed interest rates for the current period. We zoom in on the best interest rates for different types of properties and homeowners. Fixed-rate home loans are popular because they offer stability, security and protection from other financial risks we carry. The five banks that emerged as winners include Standard Chartered Bank, Bank of China, DBS, Hong Leong Finance and HSBC. Overall, interest rates are higher in uncertain economic times. 

The interest rate for the third year of the mortgage is as important as it is considered that you are being repriced by the bank. The reason for the two-year freeze is that most home loans have three years of statutory subsidies, such as cash rebates and repayments. What most people think is that a good home loan means a low-interest rate in the market. However, they forget that the trade-off between a low interest rate during the subsidy period (two years) and a high-interest rate after that are over. 

Home loan refinancing is an excellent tool for homeowners. In fact, most people in Singapore refinance their mortgage every 2-4 years. If you refinance your home loan, the bank will ask for the interest rate you are currently paying on your home loan, and you can get an interest rate lower than that to win and keep your business. 

In summary, this does not mean that one type of loan is better than the other; choosing a fixed option or variable rate home loan depends on your needs, preferences, and financial profile. Your choice of loan can significantly impact the ultimate cost of the home, and you have the flexibility to change the interest rates on your home loan, depending on the circumstances. You’ll need to consider all of the factors discussed above before choosing the best option for you. 

When it comes to financing your property purchase, HDB and private property contrast in down payment, cash requirements and loan size. For personal property, the following banks appear to offer fixed-rate home loan packages to borrowers. 

Here’s how hybrid ARMs work: the 5% 1% ARM, for example, has a fixed interest rate for the first five years.