A "low interest" loan shouldn't mean you have very little interest in paying it back!

    The Effect That SIBOR Can Have On Your Home Loans

    Unless the plan is to buy an international football club, buying a house is one of the largest financial commitment that a Singaporean can ever make in his life. Understanding your monthly installments and the rate of interest is extremely important as they could be fluctuating too. Everyone wants to hear praises about their newly purchased home. We must realize that along with us, our homes have evolved too. It is not just a shelter anymore. It is much more than that. Owning a house adds to a lot of honor and pride to your life and also proves to be very good financial investment in the long run.

    In case you purchased your home after the year 2008, you must have enjoyed lower monthly installment payments for your home loan.The rates of interest were way too low during that time. All though the rates have been low for quite some time, you must understand that the rates can go up again anytime. So, you will have to cope with that situation if you have variable rates of interest. Your monthly payments will increase if the rates go up.

    Understanding SIBOR better

    There are several banks in Singapore that peg their rates of interest to SIBOR or Singapore Interbank Offered Rate. This is a reference rate and it is based on the rates of interest that are used by the Singaporean banks while giving out unsecured funding to one another. In short, the Singapore Interbank Offered Rate would actually give a clear idea about the total cost to borrowing funds from one another. MAS depends on the international exchange rates. Both Singapore USD exchange rate and US Federal Fund Rate influences the SIBOR. Thus, it has remained pretty low for all the ten years. As a part of the monetary policy, the United States has maintained almost 0 rates of interest after the global financial crisis.

    SIBOR is rising. Why?

    We all know that the good things never last for a long time. Singapore Interbank Offered Rate has gone up to 0.64 percent from 0.41 percent in January, 2015. The SIBOR has risen, emphasizing on the fall of the value of Singapore dollar and the rise of the US dollars.

    How exactly are you affected in this process?

    A rise in the value of US dollar is not always a bad situation. Unless you are planning to spend a huge amount on online shopping using the US dollars. The monthly payments that you make for your mortgage should not spike up to a great extent even if the SIBOR goes up. Let us consider that you took a home loan of SGD 500,000 with a 1.9 rate of interest in March, 2015. Then your present monthly instalment amount would be SGD 2095. A loan from the bank would cost you SGD 1907 every month with an interest rate of 1.10 percent. With SIBOR you can repay the loan much faster without any substantial difference the monthly installment payments. As per the media reports the Singapore Interbank Offered Rate will rise by 1% by the end of the current year.

    It is no reason to panic as the SIBOR rates are going up. Ensure that you study all your refinancing options, calculate how your home loan has been affected and finally opt for a solution that you be beneficial in this situation.

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