More home owners may be considering refinancing their mortgages, 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), giving home owners the opportunity to secure more favourable rates.
Sibor, which is the rate at which 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 about 0.56 per cent this month, well down from 2 per cent in May last year, its 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.
“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 Bank Singapore, United Overseas Bank and DBS Bank told The Straits Times 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 by between 0.25 per cent and 0.35 per cent in the past three months.
The spokesman added that a high percentage of its existing loan customers reprice with the bank, by switching their mortgage loan within Maybank.
DBS head of secured lending Tok Geok Peng said the bank is still getting many inquiries about fixed-rate loans, due to the “much-needed stability” they offer in uncertain times.
All the banks interviewed declined to disclose refinancing application figures.
Monetary Authority of Singapore board member Ong Ye Kung pointed out in Parliament on May 26 that current rates for new housing loans are between 1.4 per cent and 1.8 per cent for the first year, lower than the range of 1.8 per cent to 2.3 per cent last year.
MortgageWise.sg executive director Darren Goh said that while some risk-averse Singaporeans are wary of floating rates that could escalate quickly, now is the optimum time to review their loans.
Account manager Aizat Taha, 29, was paying around $1,580 under the Housing Board’s current interest loan rate of 2.6 per cent, but will save about $160 a month after refinancing to a new three-month Sibor loan package with UOB.
“If I add up the savings over the years, they can amount to $25,000.”
However, 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, so it’s important to assess if refinancing will outweigh any possible costs.”
Updated from : The Straits Times, 6 June 2020