Home buyers fixing sights on fixed home loan rates

Home loans are tricky vehicles to maneuver. And also largely dependent on global interest rates and economy. As the price-increase gains momentum, more buyers are veering towards fixed home loan rates. The price index has leaped 4.6% from a year ago and is now 3.1% higher in Q1 alone.

Melrose Park. Picture: iProperty

Home buyers favoring fixed home loan rates

The take-up rate of fixed-rate loans has increased 10% quicker than floating rate loans. Banks have also been seeing an increased demand for fixed-rate loans.

This is despite the fact that floating home loan rates are 20 basis points higher than that of fixed-rate loans.

Why? Certainty could be one of the reasons. Fixed rates loans are locked in during the first few years. Most owner-occupiers will prefer this option as the certainty allows them to plan for other aspects of their lives.

Investors who are looking for longer-term investments may also favor this option as they are not in a hurry to pay off their mortgage and thus will be less affected by the restrictions or penalty placed on early repayments.

Packages with shorter locked-in periods popular option

Perhaps the issue is not so much that there is a locked-in period, but rather, the duration of the locked-in period. DBS, for example, offers a new package which offers a fixed rate of 1.85% in the first 2 years and then a flexible fixed rate which currently stands at 1.88% in the third year.

With this option, buyers can switch back to a lower rate package when rates drop.

Singapore’s interest rates have been on the rise, following the rise of global interest rates. 2 to 3 more hikes are expected of short-term interest rates at the US Federal Reserve.