Average Mortgage Interest Rate For First Time Buyers

Average Mortgage Interest Rate For First Time Buyers – SINGAPORE – Median mortgage rates here have roughly doubled in the past six months as central banks’ global efforts to fight inflation through higher interest rates take a toll on local homebuyers.

Real estate analysts believe more mortgage rate hikes are on the way, especially after the US Federal Reserve announced its biggest rate hike since 2000 on Wednesday (May 4).

Average Mortgage Interest Rate For First Time Buyers

The relatively sharp jump in the cost of borrowing money has prompted analysts and banks to warn homebuyers to set aside enough savings as a “buffer” and seek new loan packages or arrangements if needed.

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For a fixed two-year mortgage, the median rate at banks in Singapore rose from 1.15 percent in December last year to 2.25 percent in May, according to Redbrick Mortgage Advisor, a mortgage broker that compares interest rates from different banks.

When fixing a mortgage for 3 years, the rate was 1.15 percent in December, in May it more than doubled to 2.5 percent.

Floating-rate mortgages linked to benchmarks such as the three-month Singapore Interbank Offered Rate (Sibor) and the Singapore Average Overnight Rate (Sora) also rose, according to Redbrick.

Compared to the previous quarter, the three-month Sibor increased from 0.43 percent to 1.05 percent, and the three-month Sora from 0.15 percent to 0.30 percent.

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Sibor and Sora are reference rates used, for example, by local banks to determine some mortgage rates for property buyers.

The increase in mortgage rates has been sharper in the last two months than in the previous four months. While the fixed two-year mortgage rate rose 0.25 percentage point from 1.15 percent in December 2021 to 1.4 percent in March, it rose 0.85 percentage point in May to the current 2.25 percent.

Mr. Nicholas Mak, head of research and advisory at ERA Realty, said mortgage rates have been rising for six months as interest rates in Singapore fluctuate in tandem with global interest rates.

This is because the Central Bank of Singapore, Singapore’s monetary authority, controls inflation by managing the country’s exchange rate against its major trading partners and does not set interest rates directly.

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Interest rates in Singapore, as well as globally, were relatively low at the end of last year because they had mostly remained so during the pandemic, Mak said.

“When Covid started two years ago, it was expected to slow down the economy, so central banks kept interest rates low to save the economy around the world. However, interest rates (expected) will rise as inflation has started to rise. Nicholas Mak, Head of Research and Consulting at ERA Realty”

“When Covid started two years ago, it was expected that there would be a slowdown in the economy, so central banks, to save the economy around the world, kept interest rates low,” Mak said. “But there have been expectations that interest rates will rise since inflation started to rise.”

But earlier this year, as economies around the world opened up and people started spending more money, central banks raised interest rates to slow demand and lower prices.

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As Singapore’s economy, including the money market, is closely linked to global trends, this has meant that Singaporean banks have raised their interest rates, including mortgage rates.

The sharp increase in mortgage interest rates over the past two months is partly due to worsening inflation in the world, partly due to the energy crisis caused by the Russian invasion of Ukraine and the reaction of central banks to increase interest rates.

Wednesday’s half-percentage point hike by the US Fed was closely watched because the US is the world’s largest economy and the US dollar is the world’s “reserve currency”.

“Some banks adjusted the interest rate upwards after the Fed’s announcement,” said Steven Tan, managing director of real estate agency OrangeTee & Tie. “Interest rates are likely to continue to rise due to persistent inflation.”

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For example, Mr Tan predicts that two-year fixed mortgage rates will rise from the current 2.25 per cent to a peak of 2.75 per cent.

Ms Jo’Ann Tan, deputy director of Redbrick Mortgage Advisors, expects the three-month Sora rate to rise from 0.3 per cent to around 1 per cent and the three-month Sibor rate to jump from 1.05 per cent to 1.6 per cent in the coming months.

Banks and property analysts told TODAY that homeowners first need to make sure they have enough savings to see them through any change in mortgage rates.

One important reason is that some banks have changed the terms of their packages. For example, Mr Tan said many foreign banks had recently stopped offering fixed rates.

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“It’s always a good idea to go back to their banker to assess their current package status,” he said.

Mr. Nelson Neo, head of household finance at DBS Consumer Banking Group, said borrowers should set aside enough funds as a “buffer in case interest rates rise further or any unforeseen circumstances”.

Ms Marianne Phua, Head of Home Loans at OCBC Bank, agrees that borrowers should review their mortgage plans regularly.

“It is good for consumers with existing mortgages to review their existing credit from time to time and take a holistic approach to the pricing, service and terms of their loan,” she said.

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When reviewing their current loans, homeowners may consider refinancing their mortgage, which means paying off the existing loan and replacing it with a new one.

In response to TODAY, a Maibank Singapore spokesperson said its customers can also approach the bank if they want to renew their loans after the lock-in period.

DBS’s Mr Neo said home owners looking to refinance their home loans were “encouraged to contact their existing banks to check the terms of their home loans as well as whether any charges have been imposed such as early repayment”.

Ms. Christine Sun, senior vice president of research and analysis at real estate agency OrangeTee & Tie, said that although refinancing comes with a late fee, it will pay off in the long run if the interest differential is large enough.

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“They have to calculate whether it’s worth it to them to pay the penalty for increasing the monthly loan payments,” she said.

Mr. ERA Realty’s Mak added that assuming the homeowner has enough savings, it may be worth paying off part of the loan now.

“That way they won’t have a huge outstanding loan,” Mr Mak said. “Because the interest is calculated from the unpaid loan, i.e.

For example, a savings account where a borrower deposits their savings could pay 0.5 percent per month, while the interest rate on a mortgage loan could increase by a much higher percentage.

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“If you’re paying a higher mortgage (interest) and the interest on the savings account is so low, you might consider paying off part of the loan.”

Mr. Paul Wee, vice president of FinTech at PropertyGuru Group, said borrowers could also restructure their loans, for example by extending the loan term or considering using more of the Central Provident Fund (CPF) for home loans.

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

Whether they choose a fixed or variable mortgage for potential property buyers depends on their risk appetite, as both packages have their pros and cons.

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Mr. Mak said traditional fixed-rate mortgage interest rates, while more stable for the borrower, are typically set at a higher rate than an adjustable-rate mortgage.

“It really comes down to the borrower’s risk appetite, the borrower says they’re going to take a bet and stay with the variable rate with the belief that it won’t go up that much… there’s no real answer. .” “

Redbrick’s Ms Tan said borrowers needed to look at the long term, not the rates in front of them. This is because variable rates can rise and exceed two-year fixed rates during this two-year period.

“At this point you could still choose between a variable interest rate of 0.95 percent or a fixed interest rate of 2.25 percent,” she said. “The question you have to ask yourself before you make a decision is how high are the interest rates going to be.”

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Banks are also offering customers the option of having both fixed and variable rates in their packages to “average out the risk”, said OrangeTee & Tie’s Tan.

For example, DBS Bank has a package where borrowers can park a portion of their loan amount under a fixed rate package while the rest is under a variable rate package.

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