First Time Home Buyer Mortgage Interest Rates

First Time Home Buyer Mortgage Interest Rates – SINGAPORE – Average mortgage rates in Singapore have nearly doubled over the past six months as efforts by major global banks to combat inflation with high interest rates hurt local homebuyers.

Housing analysts believe an increase in mortgage rates is coming, especially after the Federal Reserve announced the biggest increase since 2000 on Wednesday (May 4).

First Time Home Buyer Mortgage Interest Rates

The sudden rise in borrowing costs has led analysts and banks to warn homebuyers to set aside enough savings as a “cushion” and seek new loan options or arrangements if needed.

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For two-year loans, the average Singapore bank rate rose to 2.25% in May from 1.15% in December, according to data from mortgage broker Redbrick Mortgage Advisory, which compares interest rates from different banks.

The interest rate on a three-year loan was 1.15% in December and doubled to 2.5% in May.

Redbrick said floating rate loans linked to benchmarks such as the three-month Singapore Interbank Offered Rate (Sibor) and the Singapore Overnight Average (Sora) also increased.

Compared with the previous quarter, the three-month Sibor rose to 1.05% from 0.43% and the three-month Sora rose to 0.30% from 0.15%.

Home Buyers’ Plan

Sibor and Sora are the benchmark rates used by banks to set other loan rates for homebuyers.

Compared with the previous four months, mortgage interest rates have increased significantly in the past two months. While the two-year mortgage rate rose 0.25% from 1.15% in December 2021 to 1.4% in March, it rose another 0.85% in May to the current 2.25%.

Nicholas Mak, head of research and advisory at ERA Realty, said mortgage rates have been rising over the past six months as Singapore interest rates fluctuate with global rates.

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

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Mr Mak said interest rates were very low in Singapore and around the world at the end of last year, just as they were during the violence.

“When COVID-19 hit two years ago, people expected a recession, so central banks kept interest rates low to save economies around the world. But as inflation starts to rise, interest rates (are expected) to rise. Mr. Nicholas Mak, ERA Head of Research and Consulting, Realty”

“When COVID-19 hit two years ago, people expected a recession, so central banks kept interest rates low to save economies around the world,” Mai said. “But as inflation started to rise, interest rates were expected to rise as well.”

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

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Because Singapore’s economy, including its capital markets, is closely tied to global trends, this means the Bank of Singapore has raised interest rates, including property taxes.

Mortgage rates have risen sharply over the past two months, partly due to worsening global inflation, partly due to the energy crisis triggered by Russia’s invasion of Ukraine and central bankers’ responses to higher interest rates.

The Federal Reserve’s half-percent rate hike on Wednesday is closely watched because the United States is the world’s largest economy and the dollar is the world’s reserve currency.

“After the Fed’s announcement, some banks raised interest rates,” said Steven Tan, managing director of property firm OrangeTee & Tie. “Interest rates are likely to continue to rise due to ongoing inflation.”

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For example, Mr. Chen predicts that two-year mortgage rates will rise from the current 2.25% to a maximum of 2.75%.

Redbrick Mortgage Advisory associate director Jo’An Tan expects the three-month Sora rate to rise to around 1% from 0.3% and the three-month Sibor rate to around 1% from 1.05% in the coming months. to 1.6%.

Banks and property analysts told TODAY that homeowners must first ensure they have enough cash to cover any changes in mortgage rates.

One of the main reasons is that some banks are changing the terms of their packages. For example, Mr. Chen said many foreign banks have recently stopped offering fixed interest rates.

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“It’s always good for them to go back to the bank and check the current status of the package,” he said.

Nelson Neo, head of home finance solutions at DBS Consumer Banking Group, said borrowers should set aside sufficient funds “as a buffer against rising interest rates or any other unforeseen circumstances”.

Ms Maryanne Phua, head of home loans at OCBC Bank, agreed and said borrowers must review their home loan plans regularly.

“It’s helpful for consumers with existing mortgages to review their existing mortgage regularly and take a holistic approach to the pricing, servicing and terms of the loan,” she said.

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After reviewing their existing loan, a homeowner may consider refinancing, which means paying off the existing loan and replacing it with a new one.

In response to TODAY, a Maybank Singapore spokesperson said customers can also visit the bank if they wish to have their loans re-evaluated after the deadline.

DBS’s Mr Neo said homeowners looking to refinance their home loans are “encouraged to check with their existing bank about the terms of their home loan and whether there will be any charges, such as prepayment”.

Ms. Christine Sun, senior vice president of research and analysis at real estate company OrangeTee & Tie, said that although there may be penalties for refinancing, if the spread is large enough, it may pay off in the long run.

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“They have to calculate whether it’s worth paying the penalty for the increase in their monthly mortgage payment,” he said.

Gentlemen. ERA Realty’s Mak added that if the homeowner has enough savings, some of the loan may need to be repaid at this time.

“That way they won’t have a big debt,” Mr. said. wheat. “Because any loan will charge interest.

For example, a savings account where a borrower deposits their savings may pay 0.5% per month, while interest on a payday loan may add a higher percentage.

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“If you’re paying a high loan (interest) and the interest on your savings account is low, you might consider paying off some of the loan.”

Paul Wee, vice-president of fintech at PropertyGuru Group, said borrowers could also consider restructuring their loans, such as extending the loan tenor or considering using more of their Central Provident Fund (CPF) to get a home loan.

“They can also think about future plans, such as planning for retirement, family planning, and incorporate those needs into their (estate) plan,” he added.

For potential homebuyers, the choice between a fixed rate loan or an adjustable rate loan depends on whether they are willing to take on risk, as both loan options have their own pros and cons.

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Mr Mak said traditional mortgage rates, while stable for borrowers, were usually set higher than the average loan amount.

“It really depends on the borrower’s risk appetite, if a borrower says they’re going to bet on and maintain floating rates and believe that floating rates won’t go up that much… there’s no right answer.”

Redbrick’s Ms Tan said borrowers should look at the long term rather than future interest rates. This is because during that two-year period, the floating rate is likely to be higher than the two-year fixed rate.

“You can still choose a floating interest rate of 0.95% or a fixed interest rate of 2.25%,” he said. “The question that has to be asked before making a decision is how much will interest rates rise.”

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OrangeTee & Tie’s Mr Tan said banks also offer variable and floating interest rates to customers to “reduce risk”.

For example, DBS Bank has a scheme where the borrower can put part of the loan amount under a fixed-rate scheme and the rest on a floating-rate scheme.

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