More home owners are refinancing their mortgage, as banks’ interest rates for floating home loans are at their lowest in recent years.
Banks here have lowered their interest rates on loans that are pegged to the Singapore inter-bank offered rate (Sibor), providing home owners the opportunity to secure more favourable interest rates.
Sibor, which is the rate banks borrow from one another, has been trending downwards in recent months as the coronavirus pandemic disrupts economic activity globally.
The three-month Sibor – a key benchmark for pricing most home loans – is around 0.56 this month, down from 2 per cent in May last year, the highest point since the 2008 global financial crisis.
This comes after the US Federal Reserve cut its benchmark interest rates to near zero in March to help soften the economic impact caused by the Covid-19 pandemic.
Historically, the Sibor and the US Fed rates have been closely correlated.
Mr Paul Wee, managing director of Fintech at PropertyGuru Group, said the lowered interest rates could help home owners alleviate what is likely to be their biggest recurring monthly expense, as well as shorten their mortgage repayment term and increase the rate of home equity loans built.
“As a general rule of thumb, floating rate loans are the go-to in a declining interest rate environment, while fixed rate loans are more suited for the opposite,” he said.
Standard Chartered Singapore, UOB and DBS Bank told The Straits Times that they have received more refinancing inquiries over the past few months.
A StanChart spokesman said the bank has seen an increase in refinancing applications, with a “balanced mix” of customers choosing either fixed or Sibor-pegged packages.
A Maybank spokesman said the bank has lowered its interest rate between 0.25 and 0.35 per cent within the past three months as part of its regular reviews to stay competitive.
The spokesman added that “a high percentage” of its existing loan customers reprice with the bank, by switching their mortgage loan within Maybank.
DBS, which holds the biggest market share of mortgages here, at almost a third, offers several floating rate packages pegged to its prevailing Singapore dollar fixed deposit interest rate, with rates that start at 1.60 per annum.
Its head of secured lending, Ms Tok Geok Peng, said the bank is still getting many inquiries about fixed rate loans, due to the “much-needed stability it brings, especially in the current uncertain interest rate environment”.
All the banks interviewed declined to disclose refinancing application figures.
Monetary Authority of Singapore (MAS) board member Ong Ye Kung pointed out that current rates for new housing loans are between 1.4 per cent and 1.8 per cent for the first year, which are lower than the range of 1.8 per cent to 2.3 per cent last year, when he spoke in Parliament on May 26.
While MAS does not intervene directly in housing loan pricing as interest rates are determined by the market, Mr Ong, who is also the Education Minister, said: “But (the central bank) expects housing loan interest rates to be revised downwards in a fair manner, where this is consistent with sustained trends in banks’ cost of funding for such loans.”
On Wednesday, CIMB Bank scrapped its plan to hike rates for mortgages pegged to Sibor and swap offer rate (SOR) after push-back from a group of customers.
The bank had originally wanted to implement the hike on May 18, then postponed it to Jan 1 next year, before eventually scraping it.
MortgageWise.sg executive director Darren Goh said while some risk-averse Singaporeans are wary of floating rates that could escalate quickly, now is the optimal time to review their loans.
“Home owners, especially those who are now paying over 2 per cent interest rate, should take advantage of the current rates to cut it by almost half,” he said.
Account manager Aizat Taha, 29, shopped around for the best rates and eventually settled on refinancing to a three-month Sibor loan package with UOB.
He was paying around $1,580 under the Housing Board’s current interest loan rate of 2.6 per cent, but he will now be able to save around $160 a month under his new bank loan.
On top of his monthly payment, he plans to pay off at least $10,000 each year by making lump sum payments.
“The motivation (to switch) is definitely cost savings. If I add up the savings over the years, it can amount to $20,000 to $25,000.”
However, PropertyGuru’s Mr Wee cautioned that home owners should take into account their personal cash flow, current financial situation and life plans before jumping on the refinancing bandwagon.
“For example, shorter-term mortgage plans often do not allow financial flexibility to accommodate any life changes, such as job loss or illness, as borrowers have committed to higher monthly instalments,” he said.’
“It’s important to first assess if refinancing will outweigh any possible costs.”
Originally published in The Straits Times.