The writing was on the wall when the Fed signaled their intention to cut rates.
Now that it has returned to near-zero, mirroring the state of interest rates during the 2008 crisis, Singapore banks have reacted quickly to adjust their consumer home loan packages as SIBOR plunged.
The short term trend seems to be that spreads are increasing to offset the decrease in SIBOR. This is because most banks offer mortgages with interest rates consisting of the SIBOR index and a spread.
In addition, fixed rate mortgages appear to be falling ever so slightly as well. The logic being that interest rates in the near term is forecast to stay low. Thus, giving lenders enough peace of mind to adjust their fixed rate housing loans downwards.
The group that is cheering are homeowners who have been on SIBOR pegged home loans. They are suddenly finding that their SIBOR linked mortgages have a lower interest rate.
Depending on how loans are structured, this could either mean a lower monthly payment, or a higher portion of thier monthly payment going towards reducing the principal amount, potentially enabling them to fully pay off the debt before the scheduled tenure.
Another group that would find the current cirumstance appealing enough to act are homeowners who have been sitting on the fence with regards to refinancing.
They might be on expensive board rate loans or even the prime rate, but never felt enough pain to review and refinance their loans.
Now it’s the pleasure of refinancing to a cheaper home loan that would motivate them to act.
However, home owners who have suddenly felt a strong urge to refinance should try to remain calm and choose wisely.
“If you chose a teaser rate loan, you are going to pay a low interest only on the initial years of the loan. After which, you could be back to square one.” said veteran mortgage broker, Elmer Ho.
Homeowners are still reminded to be cautious when seeking new loans to replace their old ones, and avoid rushing it as the mortgage is possibly the biggest single financial commitment that one undertakes in life.
“I don’t think I will ever buy anything more expensive than my house. So it would be nice to have low interest rates” expresses Michelle Tan, a resident in Sembawang.
And it’s not all about just the interest rates. Borrowers of current loans might incur redemption fees, clawback of subsidies, legal fees, etc, during the process of refinancing their home loans.
It might be financially worthwhile for those on huge loans. But for smaller loan amounts of $200,000 and below, the “savings” from refinancing might actually not be worth the time and effort.
Saying that those who are not on SIBOR linked loans should definitely review their current debt commitments and make a calculated decision based on real numbers to determine whether they can really take advantage of the suddenly cheaper home loans.