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HOW THE RISE OF MORTGAGE RATES AFFECTS SINGAPOREAN

As you may know, Fed has been hiking interest rates over the last few months to combat inflation. How the biggest US Federal Reserve rate hike in 22 years may affect Singapore households and businesses?

https://www.channelnewsasia.com/singapore/us-federal-reserve-interest-rate-hike-singapore-households-businesses-2666201

In line with the interest rate hikes, banks have been hiking their mortgage rates since January. For example, the average 2-year fixed rate increased from 1.15% (December) to 2.25% (May). Similarly, mortgage loan with floating interest rates have also risen, given that SIBOR and SORA have correspondingly increased. See charts

For homeowners and property investors with mortgage loans, this increase in interest rates may affect you in some ways:

  • Need to cater for increased monthly installments which affect cashflow
  • More emergency funds need to be set aside for mortgage servicing in the event of job insecurity
  • May reduce rental yield for investment properties

What can new homebuyers do?

  • Always leave a buffer when doing mortgage planning, and work out monthly installments based on a higher assumed mortgage rate of say, 3%.
  • For joint owners, if possible use 1 person’s income for mortgage affordability, so that the other owner can save up to buffer for increased mortgage rates or job insecurity

What can homeowners with existing mortgage loans do?

  • Keep track of when your current loan package expires, as there may be a huge jump in interest rates after your lock-in period
  • Speak to your existing bank about whether they are able to offer a lower interest rate package compare to alternative banks’ mortgage package
  • Consider paying down part of your loan if interest rates increase beyond CPF OA interest rates.
  • To reduce monthly installments for better cashflow, you can request for an extension of loan tenor (charges apply, subject to the bank’s approval)

Mortgage planning / re-financing

At Financial Alliance, we do work with most of the banks in Singapore, so we will be able to advise on their loan packages and find one that meets your needs.

To enable us to do a mortgage loan cost analysis for you, please provide us with the following info:
– Outstanding loan amount
– Current bank & interest rate
– Lock-in period (if any)

Do speak to us if you’d like to review your mortgage loan or cashflow planning, and we’ll be most happy to assist.

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