First Time Home Buyer Loan Interest Rates

First Time Home Buyer Loan Interest Rates – SINGAPORE – Mortgage rates have nearly doubled in the past six months, as efforts by central banks around the world to fight deflation with higher interest rates weigh on local consumers.

Property analysts expect another rise in mortgage rates, especially after the United States Federal Reserve announced its biggest hike since 2000 on Wednesday (May 4).

First Time Home Buyer Loan Interest Rates

The sudden rise in borrowing costs has prompted analysts and banks to warn homebuyers to set aside enough savings as a “buffer” and look for new loan packages or arrangements if necessary.

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For two-year fixed-rate loans, the average interest rate at Singapore banks rose from 1.15 percent in December last year to 2.25 percent in May, according to Redbrick Mortgage Advisory, a mortgage brokerage that compares interest rates.

For three-year fixed credit, the rate in December was 1.15 percent, while in May, it was more than twice the rate of 2.5 percent.

Mortgages with floating interest rates based on benchmarks such as the three-month Singapore Interbank Rate (Sibor) and the Singapore Average Overnight Rate (Sora), are also rising, according to Redbrick.

The three-month Sibor increased from 0.43 percent to 1.05 percent while the three-month Sora increased from 0.15 percent to 0.30 percent compared to the previous quarter.

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Sibor and Sora are benchmarks used, for example, by banks here to set different credit ratings for property buyers.

Mortgage rate increases were higher in the past two months compared to the previous four months. While the two-year mortgage rate rose 0.25 percent from 1.15 percent in January 2021 to 1.4 percent in March, it rose 0.85 percent to the current rate of 2.25 percent in May.

Nicholas Mak, head of research and consultancy at property agency ERA Realty, said mortgage rates have risen over the past six months as Singapore interest rates have fluctuated with global profits.

This is because Singapore’s central bank, the Monetary Authority of Singapore, controls inflation by controlling the country’s exchange rate against its main trading partners, and does not set interest rates precisely.

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Interest rates in Singapore, and around the world, were low at the end of last year because most were still affected by the outbreak, Mr Mak said.

“When Covid started two years ago, it was expected that there would be a recession, so in order to save the economy around the world, the central bank kept interest rates low. But the interest rate (expected) increased from inflation. Mr. Nicholas Mak, head of research and consulting at a real estate agency ERA Realty”

“When Covid started two years ago, it was expected that there would be a recession, so in order to save the economy around the world, the central bank kept interest rates low,” Pak said. said Mak. “But there is an expectation that interest rates will rise since inflation has started to rise.”

But earlier this year, as economies around the world opened up and people started spending more, central banks raised interest rates to dampen demand and ease price pressures.

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Since Singapore’s economy, including the stock market, is closely linked to the global economy, this means that Singaporean banks raise interest rates, including mortgage rates.

The sharp rise in mortgage rates over the past two months has been fueled by worsening global inflation, partly due to the energy crisis caused by Russia’s attack on Ukraine and the central bank’s response to raising interest rates.

The half-percent rise in the US on Wednesday was closely watched because the US is the world’s largest economy and the US dollar is the world’s “reserve currency”.

“Some banks have set interest rates up after the Fed’s announcement,” said Mr Steven Tan, managing director of OrangeTee & Tie’s real estate division. “Interest rates may continue to rise due to price persistence.”

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For example, Mr Tan predicted that the two-year mortgage rate would rise from 2.25 per cent to 2.75 per cent at the peak.

Ms Jo’An Tan, deputy director of Redbrick Mortgage Advisory, expects the three-month Sora rate to rise from 0.3 percent to 1 percent in the coming months, and the three-month Sibor rate to rise from 1.05 percent. up to 1.6 percent.

Banking and property analysts told TODAY homeowners should make sure they have enough cash to cover changes in mortgage rates.

Another important reason is that some banks have changed the conditions of the package. For example, Mr Tan said many foreign banks had recently stopped offering fixed rates.

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“You should probably go back to the bank to check the status of the package now,” he said.

Mr Nelson Neo, head of housing finance solutions at DBS Consumer Banking Group, said borrowers should set aside enough money as a “buffer in case of interest rate hikes or unforeseen circumstances”.

In agreement with him, Mrs. Maryanne Phua, head of Home Loans at OCBC Bank, said borrowers should check their housing plans regularly.

“For mortgage buyers, it is best to review the mortgage from time to time, taking a holistic approach to pricing, service and credit quality,” he said.

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

Responding to TODAY, a Maybank Singapore spokesperson said customers can also approach the bank if they want to renew their loan after the lock-in period.

DBS’s Mr Neo said home owners looking to refinance their mortgages “are advised to approach their existing banks to check the terms of their mortgages, and whether there are any charges, such as early redemption”.

Mrs. Christine Sun, senior vice president for research and analytics at property agency OrangeTee & Tie, said that although refinancing can be charged a penalty, it can be in the long term if the difference in interest is sufficient.

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“They have to calculate whether they have to pay the fee, compared to the increase in monthly debt they pay,” he said.

Mr. Mak from ERA Realty adds that it’s best to pay off the loan now, assuming the homeowner has enough money to save.

That way, there will be no remaining loans,” said Mr. Mak.

For example, a savings account in which the borrower saves money may pay 0.5 percent per month, while the mortgage interest rate may increase by a larger percentage.

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“If you’re paying a high (interest rate) loan and your savings rate is very low, you might want to consider paying off a portion of the loan.”

Mr Paul Wee, vice president of FinTech at PropertyGuru Group, said borrowers could also look at loan restructuring, such as extending the loan tenure or considering using more of the Central Provident Fund (CPF) to provide home loan services.

“They can also consider future plans, such as retirement plans, family plans, for example, and build these needs into the (debt) plan,” he said.

For prospective home buyers, whether they choose to get a fixed rate or floating rate mortgage depends on their appetite for risk, as both packages have their pros and cons.

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Mr. Mak said that usually, fixed rate loans, although fixed for the borrower, are often set at a higher rate than floating loans.

“Depending on the borrower’s risk appetite, lenders say they’ll take their bet and stick with a floating rate in the belief that it won’t go up much … there’s no right answer.”

Redbrick’s Ms Tan said borrowers should look at the long term and not the price in front of them. This is because the floating rate can rise above the two-year fixed rate for two years.

“At this stage, it is still possible to choose between a floating interest rate of 0.95% or a fixed rate of 2.25%,” he said. “Questions to ask before deciding how to raise interest rates.”

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The bank also offers customers the option to have fixed and floating rates on packages to “share risk”, said OrangeTee & Tie’s Mr Tan.

For example, DBS Bank has a package where the borrower can park part of the loan amount in the fixed rate package and the rest will be in the floating package.

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