Home owners should prepare for higher mortgage rates: Analysts

Mortgage rates have risen since the start of the year, and analysts have said home owners should brace themselves for further increases.

At the beginning of 2015, home buyers in Singapore could get loans that start at 1.6 per cent in the first year. That rate has been creeping up, and the figure is now around 2 per cent, for rates pegged to three-month Singapore Interbank Offered Rate (SIBOR), said CEO of financial advisory firm SingCapital, Alfred Chia.

Mortgage brokers also said rates are likely to go up further, as recent increases in the three-month SIBOR – a key benchmark used by banks when setting mortgages – have not been fully reflected in the interest rates homeowners are currently paying.

Said Mr Chia: “With an impending rise of the US Federal Reserve rates, SIBOR is definitely set to rise. Banks have used SIBOR or Swap Offer Rate (SOR) as a reference when they do the mortgage interest rates. Meaning to say, they peg it to a public rate, and if the rates go up or down, it will affect the mortgage interest rates the borrowers will serve.”

DBS said it expects SIBOR 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.

Should mortgages increase by the same amount, a family with an outstanding S$500,000 mortgage spread over 20 years will have to pay an additional S$137.71 a month to service the loan.

Assuming variable interest rate rises from the current 2 per cent now to 2.6 per cent next year, the monthly instalment will rise from S$2,529.42 to S$2,667.13, using DBS’s online mortgage calculator.

Analysts have said most home owners can shoulder the burden as banks must ensure borrowers can still service their home loans if interest rates rise to 3.5 per cent, according to Monetary Authority of Singapore (MAS) requirements.

As for home owners concerned about rising rates, one analyst said they should consider fixed-rate packages.

Ms Grace Cheng, co-founder of Get.com, said: “I think that really still boils down to your risk appetite, and whether you think interest rates are going to go higher.

“There are people who think interest rates are going to shoot up over the next few months because of the expectation of the Fed raising the interest rate, so in that case it will be better for them to go for a fixed loan package instead.”

Financial markets have been volatile in recent months because of uncertainty about interest rates.

Source : Channel NewsAsia – 9 Oct 2015

Join The Discussion

Compare listings

Compare