Have you noticed that almost everything has been increasing in price lately? And it’s not just the goods, but also, the ever-rising interest rates. It’s one of the biggest questions homeowners like you and me are asking.
What will this look like in a few months? If you’re feeling concerned about this, you are not alone.
If you are a homeowner, you may have received a letter from your bank recently informing you that your mortgage rate is going up. But why is this happening? Mortgage rates in Singapore are rising as global central banks increase interest rates to fight inflation. While some of us have braced ourselves for the impact, the follow-up question is:
“How much higher will mortgage rates be? And for homeowners, what can you do about it?”
Mortgage Rates
Let’s do a run-through of a mortgage. First of all, mortgages are loans taken out to buy a property. As you apply for one, the property you’re buying serves as collateral for your loan. There are many types of mortgages, ranging from a fixed interest rate to adjustable ones.
Globally, central banks have been trying to keep people from the rapid rise of inflation by tightening monetary policies. In particular, the US federal reserve has hiked interest rates three times this year. With more rate hikes on the table, a more hawkish FED will mean that Singapore’s interest rates will go up over time. But why should this affect Singapore’s interest rates? Simply because the United States is the world’s largest economy and therefore influences the global market movements.
As of today, the local interest rates have gone up. For example, the Singapore Overnight Rate Average or SORA three-month compounded SORA has gone up to 0.74% in June compared to 0.19% at the start of the year.
Then there is SIBOR, or the Singapore Interbank Offered Rate. This one is highly correlated with the US interest rates and has increased even more. Did you know that the three-month SIBOR increased to 1.56% in June compared to 0.44% in January? That is quite a leap!
How much have mortgage loans changed?
Look at the prevailing floating interest rates—this type of interest changes throughout your loan. Many floating rate home loans here are pegged to the SIBOR and the SORA, so homeowners on these loan packages would have already felt the impact. Fixed-rate mortgages have also seen significant adjustments.
In general, two-year and three-year fixed-rate mortgages have seen their rates go up from just above 1% at the start of the year to nearly 3% in June. The three local banks, DBS, OCBC, and UOB, said they constantly adjust their price packages in line with market conditions
How much higher can mortgage rates go?
Analysts have said that mortgage rates will climb up even more as the FED plans to keep raising interest rates to fight inflation. Last June, the Federal Reserve rolled out an increase in short-term interest rates by “three-quarters of a percentage point Wednesday – its largest hike since 1994 – to a range of 1.5% to 1.75%.” According to USA Today.
FED forecasts that the federal funds rate will conclude 2022 at a range of 3.25% to 3.5%. In 2023, it is estimated to further increase to 4%.
As for Singapore, at least two analysts have told me that they expect fixed rate and floating rate home loans to cross 3% by the end of the year. It is also possible that more fixed-rate plans (especially those over a longer duration could) even be scrapped if interest rates become too volatile.
There’s also a forecast from Maybank’s economists who expect mortgage rates to hit 4% by the end of the year. If true, this will be a level unseen in almost two decades.
What should Homeowners do?
What should we do, then? Every homeowner’s situation is different. We have a world of varying objectives, and more so, we manage our home loans differently.
The first order of business is to review your mortgages. Consider a few factors: the duration of your loan, administrative costs, and actual savings you enjoy.
Second, as interest rates continue to increase, switch to one that provides you more security and stability.
Third, the best time to switch to a different loan is now.
Sometimes, looking at data and deciding things for yourself can be intimidating. If you feel unsure about what is best for you, reach out to my team and me so we can design a personalized solution. Since the start of the year, we have helped many homeowners shift into a better loan package to achieve their property plans.
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Disclaimer: All information presented is based on personal opinions. Singapore Real Estate Insider is not liable for any losses and expenses whatsoever related to investment decisions made by the audience. The ideas presented are here for reference and educational purposes only.
