Most of us apply for home loans when purchasing a house. Buying a house is one of the most important milestones in life and also one of the most expensive. When shopping for home loans from different banks and financial institutions, have you noticed how different loans have different mortgage rate types? It can get confusing to keep track of various mortgage rate packages when deciding which home loan rate package to apply for.
Here are the various types of mortgage loan rates offered in Singapore:
With a fixed rate mortgage, your home loan interest rate will be fixed for a certain period of time, usually up to 5 years. During this time you will be paying a fixed monthly instalment month-on-month. The interest rate movements and fluctuations in the market will not affect your monthly payments until the elapse of the fixed rate on your loan. The advantage of a fixed rate mortgage is that it will offer certainty and predictability on the amount you will have to pay every month. However, the disadvantage of this rate type is that most home loans will have a lock-in period for the tenure that your interest rate is fixed.
Under this type of a home loan you will make payments towards the principal amount and the interest amount. Although every monthly payment will be equal, in the beginning of the loan tenure, a larger portion of your payment will go towards paying off the interest on the loan. The principal amount will gradually increase as the loan tenure progresses. But, once the interest component of the loan has been paid off, by the end of the loan tenure, your principal amount will also be repaid fully.
SOR or Swap Offer Rate is based on the US Dollar funding which involves swapping the S$ to US$ for a certain cost and tenure. SOR rates come in the following tenures – 1 month, 3 months, 6 months and 12 months. The US FED Fund rate (Federal Reserve) ranges between 0% and 0.25%. For home loans and mortgage loans, banks usually charge a certain percentage over the prevailing SOR rate – e.g. SOR+1%.
SIBOR or the Singapore Interbank Borrowing Offer Rate is a transparent rate that tells you exactly what the interbank cost of borrowing and market rate is. SIBOR rates have been made publicly available to ensure transparency. SIBOR rates come in the following tenures – 1 month, 3 months, 6 months and 12 months. Most banks in Singapore offer home loans that are pegged to either 1 month SIBOR or 3 month SIBOR. However, you will be paying a higher interest rate if you choose a long loan tenure. Certain banks may allow you to switch freely between the different tenures while others will charge an administrative fee every time you switch between the SIBOR tenures. For home loans and mortgage loans, banks usually charge a certain percentage over the prevailing SIBOR rate – e.g. SIBOR+1%.
A board rate refers to the bank’s internal interest rate. This interest rate is less transparent when compared to SOR and SIBOR rates i.e. it is not always clear how the bank came to an understanding in determining the interest rate for your home loan. However, many banks are now switching to a standard universal board rate system which is more transparent when compared to home loans pegged to internal board rates.
Certain banks offer a combination of SOR and SIBOR interest rates. Depending on the bank, they may take an average of the value of both rates plus a certain percentage over the combined rate or even offer free switching between the 2 rates.
Some banks may offer a combination of fixed and variable interest rate package for your home loan. For such loans, a percentage of your home loan will be pegged to a fixed rate of interest while the remaining portion will be pegged to a variable rate of interest (SOR, SIBOR, Board Rate). Also, both the portions of your home loan will have different terms and conditions. The advantage of such home loan packages are that you will enjoy the consistency offered under a fixed rate as well as the flexibility offered under a variable rate.
This interest rate is offered to customers who have liquid funds deposited in a current or savings account. The account will earn a similar rate of interest as your home/mortgage loan and the interest that is earned from this account will be used to offset the interest on your loan and any excess will be used to reduce the principal loan amount.
This refers to the interest rate offered by the Housing & Development Board of Singapore. This is a concessionary interest rate that is pegged 0.10% over the prevailing CPF-OA (Ordinary Account) interest rate. The rate is usually adjusted according to revisions made on the CPF interest rates in January, April, July and October. The current concessionary interest rate offered by the HDB is 2.60% p.a.
An FHR mortgage rate is offered when a bank usually pegs its home loan interest rate to the mean average of a 12 month and 24 month Singapore Dollar Fixed Deposit Account. FHR is usually considered a type of board rate because it is determined internally by the bank. The bank can also revise or amend how they compute their FHR at any point in time.
Under this type of home loan package, you will make monthly interest payments on the loan first for a part or the whole loan amount. Upon completing the interest payments, you can pay the full principal outstanding loan amount or refinance your loan.
Under this type of home loan, you will make partial payment on your loan + the interest payment. This will reduce your monthly payment and help improve your cash flow.
This home loan option is available to customers applying for overseas property loans. Under this loan, you can either pay your loan in a currency other than the Singapore Dollar or switch between a foreign currency (of the country where you are buying the property) and the Singapore Dollar.
It is also referred to as a combo mortgage wherein you can split your total mortgage loan amount into different portions and apply a different interest rate package for each of the portions.
Under this type of mortgage loan, the bank will give you a certain portion of your loan back in cash. However, lock-in periods will be applicable on cash back mortgages.
This is feature of a home loan and not a home loan type wherein banks may allow you take a break from your monthly repayments on the loan for a specific period of time during your loan tenure. The payment holiday period will be determined by the bank offering this feature.
Now that you are aware of the various types of mortgage loan rates offered in Singapore, you can make a better informed decision regarding which mortgage loan rate will be more suitable for you according to your financial needs and requirements.