Monday, October 12, 2015

Prepare To Pay Higher For Your Home Loans If You Do Nothing

Two days ago, there was an article on Channel News Asia that reported: "Home owners should prepare for higher mortgage rates: Analysts". In the article, it reported that analysts have said home owners should brace themselves for further increases in mortgage rates. Singapore has one of the highest percentage of home owners which means most of us also have mortgage loans. It is impossible to buy a house without a mortgage loan nowadays.

How increase in mortgage rates affect home owners? 

Those of us who have mortgage loans from the bank would already have felt the increase in the monthly instalments we pay for our housing loans if we did not refinance it to a fixed rate package. Some of us have small increases below $100 per month while others who have larger mortgage loans have bigger increases of a few hundred dollars per month. This increase is not going to stop there.

I've been working as a mortgage consultant for the past 2 months and have seen mortgage rates rise significantly. I work closely with the banks in Singapore and am always updated on new rates changes. Many people have emailed me to refinance their housing loans to fixed rate packages so they have a greater piece of mind. This is a free service I provide to all readers of my blog as I feel it really helps people to save more money and get the best rates for their loans. You can read more about the service I provide here: Home Loans (New/Refinance). One of the greatest expense we have is certainly our monthly mortgage instalment which we have to pay for average 25-30 years. Just refinancing to save a few hundred dollars per month will go a long way.

The rise in SIBOR

If you've taken a home loan from a bank and have not done any refinancing for the past 3-5 years, you will definitely be on a variable rate package which means you will be affected by the rise in mortgage rates.

SIBOR is the most common variable rate package. Some may ask what exactly is SIBOR? In its original form, it is called Singapore Interbank Offer Rate. This is a rate which Singapore banks lend to each other. You may have heard of the London Interbank Offer rate (LIBOR) which is used in the UK.

One year ago I wrote an article on "Housing loans - What to choose and what happens to your loans when interest rates goes up?". I warned of a impending interest rate increase and how it will affect home owners. The SIBOR rate was only 0.40% at that time. Now SIBOR rate is at 1.13%. This is an increase of 3 times now in just one year. DBS expects the three-month Singapore Interbank Offered Rate to rise from the current 1.13 per cent to 1.22 per cent by the end of this year, and 1.75 per cent in about a year's time.

I've managed to plot the 3 month and 1 month SIBOR rates from 1987. The data is from MAS website. Unfortunately, MAS discontinued the data from 1 January 2014 so I can only plot one more single point for the current October 2015. From previous trends, when rates rise, it does not just stop there. There is a significant spike in the rates and I believe it will continue to rise too.

How much increase in our housing loan instalment if mortgage rates rise by 1%?

To cut the long story short, most of us will be affected if we still have mortgage loans on variable rate packages. How much will be the increase in our housing loan instalment if mortgage rates rise by 1%? This will be what most of us are interested to know. 

I've calculated the values based on a remaining loan tenure of 20 years and increase of rates by 1%. as seen on the table below:

Loan Amount ($)Monthly Increase
$300,000 $138
$1 Million$460
$1.5 Million$690
$2 Million$920
$3 Million$1,380

Do note that the increase is on a monthly basis. Fortunately, we can do something about our loans and limit the effect we have on rising mortgage rates.

How To Refinance to lower our monthly mortgage payments?

With mortgage rates increasing, it is time to look at refinancing our home loans so we get a piece of mind for it. Refinancing is simply changing your loan package to another loan package so you get savings on your mortgage instalments. 

I have seen banks revising up their rates over the past few months while doing mortgage consultancy work. I've also helped people lock in good rates for their mortgage loans through refinancing to fixed rate packages. I would not recommend anyone to take up or remain on floating/variable rate packages at the current moment. 

Refinancing is easy and I provide free consultancy service for your refinancing needs. Simply email me at and I'll settle your refinancing for you. I compare the rates of many different banks in Singapore to give you the best rates you can get for your home loans. Thereafter, I'll link up with the bank to provide personalised service for your refinancing. 

If you're planning to buy a property or have already bought your property and looking for home loans, I can assist you on applying for your new mortgage loans too. Feel free to take a look at the other complimentary services I provide here too: Home Loans (New/Refinance)

Its time to take some action and save some money in the process! Share this with your friends and family members who have mortgage loans too. 

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