Singapore Home Loan Interest Rate

Hi Guys, understand that some of us are confused with our home loan package so please allow me to introduce myself, provide a brief explanation and hope it will clear your doubts. My name is Ben Teo, like many of you here I am one of the proud owner of Riverparc Residence EC. I worked as a mortgage banker in one of the local bank in Singapore. I don't represent any bank and the information I am going to share is based on the best of my knowledge as a mortgage banker and solely for the benefit of everyone in this group.

In layman term, bank offer 2 different type of packages.

1) Fixed rate

Very straight forward. Interest will not change at all. In this regards, it is always much higher compare to floating rate. In low interest environment, no one will opt for this unless you are very very conservative and expect interest to head north any time.

2) Floating rate

Floating rate means interest can change any time after at least 1 month notice period given by the bank. In Singapore, Bank offer floating packages that is pegged to either of these two variable component (Board rate (BR) or Sibor/Sor). Most of us opt for floating rate packages in todays market because of the low interest environment.

FAQ:

Why is there suddenly such changes to my interest rate? Eg from 0.68 to 0.98?

This is probably due to..

 

1) You are crossing into your second year in your package. To confirm, go dig out your Bank LO and look at the first or second page of the contract. It is normally written as..

Year 1: 0.68%
Year 2: 0.98%
Year 3: 1.38%

Be it BR or SIBOR.. Interest over the years will only goes up and not down so don't be alarm.

 

2) There might be changes in the variable component. Let me explain to you what is the variable component.

For BR:

Year 1: 0.68% (4.5% - 3.82%)
Year 2: 0.98% (4.5% - 3.52%)
Year 3: 1.38% (4.5% - 3.12%)

In this regards, the variable component is 4.5% which is the bank prevailing mortgage rate or known as board rate (BR). So unless BR changes, the interest you are paying will always be 4.5 - 3.82 = 0.68% for the first year. Thus it is more stable.

For SIBOR:

Year 1: 1M or 3M SIBOR + 0.5%
Year 2: 1M or 3M SIBOR + 0.6%
Year 3: 1M or 3M SIBOR + 0.8%

In this regards, the variable component is the 1M or 3M SIBOR rate which changes every 1 monthly or 3 monthly. Therefore for SIBOR package user, you will notice the interest is more volatile and changes all the time. It can goes up and down.

Eg in Year 1: If 3M SIBOR is at 0.36%, the interest payable will be 0.86% (0.36 + 0.5)
                      If 3M SIBOR increase to 0.50%, the interest payable will be 1% (0.5 + 0.5)

Why others Interest rate increase but mine decrease?

As explained above, if the decrease is not much like more then 0.3%. You are probably still in your current year and there's a slight decrease in the 1M or 3M variable component.


To conclude as a general rule of thumb, no one type of rate is the best. It all depend on individual risk assessment and take on the market environment. BR is less volatile and less transparent while SIBOR is more volatile and more transparent. Important point to note is, be it BR or SIBOR. Your interest will confirm head north going forward from year 1 to year 3. So remember to request for a conversion of rate or refinance once you are nearing the end of year 3 or one year after TOP once full loan is disburse. Hope this help guys. Cheers!!