When you apply for a home loan in Singapore, you can either go for a fixed rate home loan or a floating rate home loan. As an applicant, making this choice will be quite a tedious task if you are unaware of how each of these loan types work. Let’s do a quick comparison between a fixed rate package and floating rate package.
For a specific period of time, your rate of interest will be fixed. The term for your fixed home loan can range from 1 to 5 years. During this lock-in period, your rate of interest will not change irrespective of market conditions. In case you want to refinance your housing loan in between the lock-in period, you will face heavy penalties.
Your rate of interest will change on a daily basis depending on how the Singapore Interbank Offered Rate (SIBOR) or Singapore Swap Offer Rate (SOR) rates vary. You can opt for a floating rate package with or without a lock-in period.
A few scenarios mentioned below are favourable when you want to opt for a fixed rate loan:
Choosing floating rate package is favourable during scenarios such as:
It is always better to do your research on interest rates before you finalise on a housing loan. When interest rates are at its peak, it is better you go for a fixed rate housing loan. When the rates are declining, you can opt for a floating rate mortgage loan.