Photo: The Straits Times
askST: With fine-tuning of Total Debt Servicing Ratio rules, is it wiser to refinance home loans pegged to Sibor?
After the Monetary Authority of Singapore moved to fine tune the Total Debt Servicing Ratio (TDSR), reader Scott Driscoll wanted to know if now would be a good time to refinance home loans pegged to Sibor.
Assistant Business Editor Yasmine Yahya found the answer.
The Monetary Authority of Singapore (MAS) made a few changes to the TDSR framework on Sept 1 so that it would be easier for home owners to refinance now and take advantage of the low interest rates being offered in the market today.
According to Ms Grace Cheng, co-founder and editor-in-chief of lifestyle and personal finance website GET.com, floating rate loans which are pegged to the Singapore Interbank Offer Rate (Sibor) and Swap Offer Rate (SOR) have largely maintained their popularity among home owners as these rates have remained subdued ever since plunging to near-zero levels in 2011.
These rates are expected to stay low in the near-term amid the weak global economic environment, and any increase in the near-to-medium term is anticipated to be gradual, she added.
"You should refinance your home loan as long as there are interest savings, after taking into consideration any redemption penalties," she advised.
"Typically after the lock-in period, it would be a good time to compare the different home loan rates in the market and see if there are any packages that are better for you. If there are cheaper home loan alternatives available, refinancing could save you from paying more interest on your loan in the long run," she said.
You can check out the latest fixed and floating rates using the Home Loan Genius comparison tool on GET.com.
If you are interested in refinancing to another floating rate home loan but would like to mitigate the risks or uncertainty in interest rates movement, you could consider a loan that comes with the flexibility to switch across different Sibor tenures, Ms Cheng noted.
Alternatively, a fixed-deposit home loan would provide more transparency in the annual interest rates since these are pegged to the bank's fixed deposit rate which is publicly available, rather than the mysterious board rate or more volatile Sibor and SOR.
This article was first featured on The Straits Times