Many people are wondering what to do in response to the mortgage rates increasing. This can be frustrating and worrisome, especially if you were counting on the low-interest rate on your mortgage to cover inflation and other expenses.
It's the Spirit of planning, not fear
We aren’t here to play Chicken Little and scream “the sky is falling, the sky is falling.”
No, it’s not time to be fearful. Quite the opposite. It’s time to instill confidence in yourself and take charge of your finance. If you're having trouble coping with higher interest rates now, there are a few things you can do that might help:
1) Don't get shortchanged, be proactive
Revisit your current loan package and very important note the expiration of the current package as banks usually automatically convert to higher rates at the expiration without notifications. Your mortgage specialist from the bank will not call you if you are not a big customer, you will have to take charge of your finances by being proactive.
2) Refinance to fixed-rate loan packages
Anticipate the hikes in SIBOR or SORA reference rates by refinancing. You can switch to a lower interest package when at another point in time when the rates ease. Do look out for lock-in and refinance penalties when offered attractive rates to avoid being cornered. Alternatively split the loan to spread out the risk between fixed or variable loans to further spread risk.
Generally, there are two types of home loan interest rates
Fixed rates
Fixed-rate packages give you a specific rate for an agreed lock-in period. Fixed rates are also more stable but you’ll only be guaranteed the same interest rate for a few years.
Floating rates
Floating rates are highly dependent on market conditions, as they fluctuate with the benchmark rate.
3) Mobilise available CPF funds
You can utilize partial or full repayment once your loan interest rates go above 2.6% since CPF charges the latter. Otherwise, increase the use of CPF for monthly loan servicing. Click to access CPF OA Usage
4) Switching from SIBOR to SORA pegged package
Unlike the Singapore Interbank Offered Rate (SIBOR) and the Swap Offered Rate (SOR) that is set by either local banks or foreign banks, SORA is administered by MAS and based on actual transacted rates that have taken place. This makes SORA more predictable compared to SIBOR or SOR.
5) Being Prepared by Calculating Ahead
Using our loan calculator, set interest ahead of the hikes to 3.5% (MAS set this parameter to banks when assessing your debt servicing ratios) or 4.5% to anticipate your affordability.
6) Get a HEALTHIER WAY of making your monthly mortgage payments.
This can be hard to do if, for instance, you are buried under "all" your debts. But if you can manage it, consider finding a way to refinance your mortgage or downsizing to a new home and get a new mortgage. This might take some time, but the result will be you paying less interest on your loan and you have one less thing to worry about managing during your monthly cash flow period.
By knowing the different loan packages and finer details you can make well and informed decisions in this market. Property investment in Singapore has always been a safe haven as compared to other countries. And this was proved a reality as the property market continued to be supported despite the fact that interest rate hikes took place and it also helps that various cooling measures were introduced to prevent speculations and reinforced buyers' affordability. Singapore is one of the few countries where property prices were accompanied by recent high rental yields that will cushion rising interest rates in this unprecedented time.
Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.
theSGrealtor by David Lim will endeavor to update the website as needed. However, information can change without notice and we do not guarantee the accuracy of the information on the website, including information provided by third parties, at any particular time. Whilst every effort has been made to ensure that the information provided is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner or your bank to take into account your particular financial situation and individual needs. thesgrealtor by David Lim does not give any warranty as to the accuracy, reliability, or completeness of information which is contained on this website. Except insofar as any liability under statute cannot be excluded, theSGrealtor by David Lim, its employees do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. This article was written by David Lim. A highly experienced real estate agent, he writes about property and personal finance and marketing strategies
