Should You Refinance Now That the SIBOR Is Rising?
After two years of hovering around 0.5%, the SIBOR is now rising fast – thanks to expectation that the US Fed will increase interest rates this year.
In fact, some experts speculate that interest rates will grow to 2.5% in a matter of months – nearly on par with the HDB Concessionary Loan interest rate of 2.6%.
If you’re currently servicing a floating-rate home loan that is pegged to the 3-month SIBOR and you’re worried about an increase in your mortgage repayments, you should definitely keep on reading!
Should You Switch to a Fixed Rate with Interest Rates Set to Rise?
When it comes to choosing between a fixed or floating rate home loan, the choice often comes down to two factors:
- You can choose a fixed rate because you want financial predictability and security.
- You can select a floating rate because you want to a lower interest to save money.
There’s really no right or wrong when it comes to fixed or floating rates – as both can be a smart choice depending on the fluctuation of SIBOR rates.
But with interest rates rising this year, taking a fixed rate home loan package is looking like a smart choice if you want to save money by riding out the rate hike for the next couple of years.
And that brings up the $1 million question – should you switch to a fixed rate?
The answer to that question is YES if you’re in the following situations:
- Your current home loan package’s lock-in period is set to expire and you want to refinance to a fixed rate to nullify the coming rate hike.
- Your floating rate home loan is driving your mortgage repayments higher and you don’t have the financial capacity to deal with rising interest rates.
- Your want to extend your loan tenor to reduce your mortgage repayments and not worry about interest rates driving them higher (the maximum tenor is 35 years for private properties).
What Fixed Rate Home Loan Packages Are Currently Available?
You can expect the banks to start raising interest rates across the board for both fixed and floating rate home loan packages, creating the urgency to refinance before that happens.
Currently, these are some of the best fixed rate home loan packages available.
Though, don’t count on these rates remaining that way for long:
On a final note, bear in mind that refinancing isn’t free! You’ll still be obliged to pay for legal fees, conveyancing fees, valuation, etc. And paying such fees can easily cost you more than S$2,000. Do not worry too much because some banks will subsidise the fees to help consumers to save on moving costs, making your refinancing plan wiser and more affordable.
However, it is an expense that worths paying for if it could save you more in the long run. Plus, you can use your Central Provident Fund (CPF) account to pay these expenses.
There’s really no way that we can predict how high the interest rates will rise up to, but if they do rise above 2.5% and you refinance a $600,000 mortgage for a fixed rate of 1.88% over the next 2 years, chances are good that the savings from refinancing will outweigh the cost of your fees.
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