Home Loans – Fixed or Fluctuating?

There has been talk about home loan rates rising, but without concrete rise or fall, home owners are not yet basing property purchase decisions on mortage-linked rates. Loan rate fluctuations for the past few years have not also resulted in a rush for refinancing, which analysts have originally expected of home buyers.

Property graphMost home loans taken out within the past few years have been pegged to the SIBOR (Singapore Interbank Offered Rate) rather than the SOR (Swap Offer Rate), the former being less prone to wild fluctuations. The SOR increased by 50 percent to reach 1.56409 per cent in September whereas the SIBOR reached a high of 1.13958 in the same month, the highest in 7 years. By the end of last week, the SOR has fallen to 0.88223 per cent while SIBOR was at 1.00906 per cent.

As home loans are a crucial part of home owners’ cash flow management, fluctuating home loan rates are not to their benefit, though some banks have been actively reaching out to home-owners who have taken out loans pegged to the SOR to refinance and better manage their finances.

Early next year is expected to bring a sharp increase in both the SIBOR and SOR, thus fixed-rate or fixed-deposit home loan rates might be a better idea for now. Fixed-deposit home loan rates are pegged to fixed deposit rates. Some banks even offer an loan option which is partially pegged to fixed-interest rates and partially to floating rates to take the edge off the more expensive fixed-rate loans but with only partial risk of fluctuating-rate loans. DBS and OCBC both offer such loan packages.

2016 might be the watershed year, when things begin to actually happen and effects become more obvious. As more new properties reach completion, more public housing is rolled out, interest rates begin to solidify, market sentiments might actually head towards a more specific direction.