Mortgage refinancing increases as interest rates fall

The interest rates for floating home loans have reached the lowest this year and as a result of which, more and more homeowners are considering the recourse of refinancing their mortgage.

Several banks in Singapore have decided to slash down their interest rates on loans that correspond to the Singapore interbank offered rate thereby, furnishing homeowners with a chance to subscribe to more advantageous rates. For the uninitiated, the rate at which all banks borrow from one another is known as Sibor rates and presently, they are declining; courtesy, the disruption caused by the coronavirus pandemic.

In May 2019, the Sibor rates stood at its highest (2%) since the 2008 global financial crisis. However, the three-month Sibor which happens to be the most reliable benchmark for pricing most home loans is around 0.56% this month.

From the historical standpoint, the US Fed rates and Sibor rates have always been parallel to one another. Thus, when the US Federal Reserve reduced its benchmark interest rates to zero in March to ease the catastrophic economic impact caused by COVID-19, the Sibor rates too, fell.

The managing director of fintech at PropertyGuru Group, Mr. Paul Wee affirmed that if these low-interest rates are capitalized on proficiently, they can help homeowners to relieve themselves of their biggest monthly expense and shorten the mortgage repayment term. He further added that floating interest rates are inevitably the go-to whenever the interest rates are declining; whereas, in the case of fixed-rate loans, it is just the opposite.
A spokesman from Standard Chartered Bank, Singapore claimed that since the reduction of the floating interest rates, the bank has witnessed a surge in refinancing applications along with a “balanced mix” of customers who are either opting for Sibor-pegged or fixed packages.

Besides, a Maybank spokesman also revealed that the bank has decreased its interest rate by 0.25-0.35% during the last 3 months. He also clarified that a lot of their existing loan customers switched their mortgage loan within Maybank itself.

The head of second lending, DBS, Tok Geok Peng clarified that the bank is still receiving innumerable inquiries from its borrowers about fixed-rate loans as they are rendering them with the “much-needed” stability in such ambiguous times.

Ong Ye Kung, a board member from the Monetary Authority of Singapore confirmed that the current rates for new housing loans are treading within the window of 1.4% and 1.8% for the first year. This rate is principally lesser than the average range of 1.8%-2.3% last year.

Aizat Taha, an account manager was paying about $1,580 under the regulations of the contemporary 2.6% loan rate of the Housing Board. Nonetheless, after refinancing the three-month Sibor loan package, he would be saving a whopping $160 every month.

Amidst all this, Mr. Wee requested homeowners to take into account their present-day financial status, personal cash flow, and life plans before jumping into these tempting schemes right away. For instance, short-term mortgage plans hardly permit the borrowers to access financial stability with which they can otherwise adapt to life changes, if any, and correspondingly calculate all the possible costs.



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