Home loans are easily one of the largest part of any home owner’s monthly outlays. On the average, homeowners spend 35% of their monthly income on financing their property or properties.
How do you decide on which loan to take and whether or not to refinance, or when to refinance for that matter?
Interest rates for home loans commonly rise in the 3rd or 4th year
For more home loan packages, interest rates tend to rise after the 3rd or 4th year. Hence, analysts advice homeowners to review their household finances on a regular basis and to seriously consider refinancing options when interest rates do rise.
What homeowners need to look at are monthly cash outflow and whether they need to consistently set funds aside for when interest rates spike. Floating rate loan packages may be more susceptible to sudden changes and thus putting aside a bit more for rainy days might be wise.
A recent study by HSBC has shown that 62% of home loan holders switch packages because rates went up. Banks have recently raised interest rates by 10 to 30 basis points.
The United States Federal Reserve raised interest rates last year and 3 or 4 more hikes are expected this year. Combined with increased stamp duty rates and rising home prices, buyers will need to fork out more as the market recovers.
Fixed rate loans more stable but comes with premium
Compared to floating rate loans, fixed-rate loans are more stable. But they do come often with a premium and have more restrictions pertaining to repayments. Analysts advice for home occupiers taking up these loan packages are to keep to a long-term financing plan.
Loan packages that are pegged to the Sibor or fixed-deposit rates may allow buyers to enjoy the lower interest rates in the beginning but the rates will change along with interest rate movements.
Depending on the inflation rates in Singapore, interest rates may increase accordingly. A quicker pace of inflation may bring about a quicker rise in interest rates.