SIBOR has weakened. Should you still make the home loan switch?
You may have seen the news that SIBOR rates have fallen. This follows the weakened USD and a recent comment by US Federal Reserve chair Janet Yellen, who emphasized the need for the US Central Bank to raise interest rates at a cautious pace. This shouldn’t come as a surprise though, as the US faces a slower than expected growth in consumer spending and inflation rate.
So, should you still refinance or hold on to hopes of a lower SIBOR?
The current 3-month SIBOR of 1.06% is a significant dip from the year-high of 1.25%. Homeowners who haven’t made the switch from a SIBOR-based home loan may heave sigh of relief, especially since the topic of rising SIBOR was everywhere on the news. But, what’s crucial to think about is whether or not the weakened SIBOR will be sustained throughout the year, or just a temporary blip.
A significant factor that determines the SIBOR is the US interest rate. At this moment, the Fed itself is split with differing opinions about whether rates should be increased quicker, or more cautiously. How the US economy fares in the coming months will be a large determinant as to what the magnitude and frequency of interest rate hikes are.
So, what this means is that if you are still within your lock-in period with your current SIBOR home loan, you could still take a breather. There’s probably no need to go into panic mode to pay the penalty fees (if any) to refinance in a hurry. However, unless a catastrophe happens, there seems to be no running away from an eventual interest rate hike, so if you want to refinance, here are some attractive options.
What are your alternatives?
There are two main alternatives that you could look into this year that could shave a huge chunk off your monthly mortgage payments.
i. Fixed Rate Loans
Fixed rate loan packages haven’t been popular in the past, as SIBOR rates were so low that it almost made no sense. However, the gap is definitely closing and there are a number of attractive fixed rate loans in the market that are offering fixed rates at 1.99%.
Typically, fixed rate packages eventually move to the SIBOR or internal board rate after the lock-in period of two or three years.
- UOB 2-years Fixed Rate
- Maybank 2-years Fixed Rate with subsidy for refinancing
- Bank of China 3-years Fixed Rate
- DBS 3-years Fixed Rate
Apart from attractive rates, there are other good reasons why you should consider taking on a fixed rate package.
Interest rate fluctuations can significantly increase your expenses over time, and make your monthly budgeting a little trickier than it should be. A fixed rate package helps you to plan for your expenses in advance without any rude surprises down the road.
You may not be able to handle an interest rate hike.
It may sound counter-intuitive to choose a fixed rate package when your finances are looking tight, especially when floating rate packages look cheaper. But, if you are comfortable with the fixed rates that are available in the market, then locking them in for a few years help to ensure that your debts don’t spiral out of your control in the event that rates increase dramatically.
Peace of mind
Some people just prefer to pay a little premium for having a peace of mind. Think of it as a home loan insurance of sorts. A peace of mind is also great for those who really don’t like keeping tabs on news about the economy all the time.
ii. Fixed Deposit Rate Home Loans
Fixed Deposit Rate home loans are the newest kids on the block and have a mortgage rate that is pegged to the Fixed Deposit interest rate that the bank offers.
Like SIBOR, Fixed Deposit rates are transparent and published. One of the greatest plus points of fixed deposit home loans is that banks will be slower to raise their Fixed Deposit Rates than SIBOR, as that will incur a higher cost of funds for them.
At present, there are two banks that offer this type of home loans- OCBC and DBS, with competitive rates. In addition, as a perk, OCBC allows for one free conversion to any other loan packages should the fixed deposit rate increase.
If you are ready to refinance, do remember to look into the fine print of your current package and find out if your bank would be willing to subsidize some of your refinancing fees. Also, take more time to look into the details of your potential loan packages as some may offer a very low rate for the first two years, and you’d find yourself slapped with high rates thereafter.
If you’re still wondering which home loan package would suit your needs best, let iMoney’s comparison tool and consultants help you find the best deal of them all.