Interest in floating loans in S'pore picking up amid falling rates, say mortgage brokers
SINGAPORE – More home owners are considering floating rate mortgages as the benchmark rate for such loans in Singapore continues to fall, say mortgage brokers.
The uptick is not across the board, however, as many people are still keen on fixed rate loans for greater financial certainty, they told The Straits Times.
Mr Clive Chng of Redbrick Mortgage Advisory said that in the past, nearly all his clients chose fixed-rate loans. Now , he estimated that one out of every 10 clients are open to consider floating-rate packages.
Similarly, chief executive of Mortgage Master David Baey said about 40 per cent of his clients now go for floating-rate packages, up from 5 per cent last month.
Redbrick and Mortgage Master are among the larger mortgage advisory firms in Singapore.
Over the past three years, when interest rates were high, it was a clear-cut decision to take a fixed-rate home loan to lock in the loan rates a home owner has to pay.
Now, as interest rates creep lower, the conversation of whether to take variable rates or fixed rates has resurfaced again.
The Singapore Overnight Rate Average (Sora), which is used for floating-rate home loans, has been falling since it hit the 3.6 per cent to 3.7 per cent range in late 2023.
The rate slipped further to the 3.4 per cent to 3.5 per cent range on September 18, 2024, after the US Federal Reserve started on its rate cut cycle.
Sora rates were between 2.2 per cent and 2.3 per cent as at June 2, a drop of at least 1.2 percentage points. That represents a bigger decline than US interest rates which have come down by 1 percentage point since September 18, 2024.
Unlike fixed-rate packages, the interest rates on floating-rate loans vary according to whether they are pegged to the one-month compounded Sora (1M Sora) or the three-month compounded Sora (3M Sora).
Banks typically charge the Sora rate plus a spread, which is the profit the bank earns. So when Sora rates fall, the overall interest rate on the home loan falls as well.
Sora rates here have also dropped more compared with historical levels.
Ms Karen Wu, senior analyst of financials at credit research firm CreditSights, said the 3M Sora historically drops by 0.5 to 0.6 percentage points when US rates fall by 1 percentage point. In this instance, Sora has already dropped by 1.2 percentage points.
Mr Sani Hamid, director of wealth management at Financial Alliance, said that the steady decline in the Sora rates suggests that interest rates may have already reached their cyclical highs.
Mr Sani added that the Monetary Authority of Singapore (MAS) and other global central banks are now more focused on supporting their economies instead of reining in inflation as inflationary pressures and growth expectations moderate.
What all this means is that interest rates should go lower from here. That is why Mr David Baey, chief executive of Mortgage Master, said this is an opportune time to consider floating-rate packages.
Mr Baey, who also switched to a floating-rate package for his own property, said that home owners can consider taking a Sora package today because the spread – or the extra interest that the bank charges – is still relatively low.
Currently, the spreads go as low as 0.28 per cent, according to what ST has learnt.
If home owners wait until Sora drops further before they look at a floating-rate package, they will likely get 'normal spreads of 0.8 per cent', Mr Baey added.
That said, a dose of caution may still be needed as there are concerns about the global economic outlook.
That is perhaps why many home owners, such as Mr Eugene Tay, 36, still prefer fixed rate loans because their monthly payments remain the same throughout and they know how much they have to pay each month.
The associate senior district director with real estate firm Huttons was paying as much as $4,648 a month for his mortgage payments in December 2024, after the interest rates on his floating-rate package reached around 4.44 per cent.
The interest rates on his home loan have since dropped, but Mr Tay said his monthly instalments are still in the $4,000 range.
He noted that trade tensions and geopolitical conflicts, such as that between Israel and the Palestinians, add to the economic uncertainties.
This prompted him to take up another loan package with his bank OCBC in April; his lock-in period had ended, so Mr Tay was eligible for a new package.
He chose a two-year fixed-rate package at 2.48 per cent a year and his monthly instalments will come down to $3,736 from July.
Mr Tay said the rental income of $4,000 a month that he gets from his property will cover his monthly instalments.
'This will reduce my monthly financial obligations, which helps with my cash flow,' he added.
Fixed-rate home loan packages hit a high of 4.5 per cent a year in November 2022 but have now come down to the 2 per cent range.
The Straits Times understands that the lowest rate in the market for a two-year fixed-rate package is 2.3 per cent, while for a three-year fixed-rate package, it is 2.4 per cent. The rates apply for a loan of $1.5 million.
Mr Chng said there are fixed-rate packages from foreign banks such as HSBC, Standard Chartered Bank, Maybank and Bank of China, which allow home owners a free conversion to another loan package after one year.
These packages allow the best of both worlds – the certainty of interest rates that a fixed-rate package affords and the option to capture lower floating rates if they want to.
For example, DBS has a fixed rate package – the DBS Easy Switch Loan – that gives home owners the flexibility to convert it into a variable rate package at a pre-determined spread of 0.35 per cent.
The three-year package has a fixed rate of 2.5 per cent a year, and borrowers can switch to a Sora package anytime after loan disbursement.
Mr Chng said that if home owners go into a fixed-rate package now and try to reprice later, they might not get a variable interest rate package with a low spread.
This is because the banks will start raising their spreads again when Sora rates start coming down.
Most clients are willing to give up the low spread because they really do not know what is going to happen, he added.
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