Fixed vs Floating Rate Home Loans in Singapore: How to Pick the Right One (2023)

PropertyGuru Editorial Team
Fixed vs Floating Rate Home Loans in Singapore: How to Pick the Right One (2023)
One of the first things property buyers must decide on is the type of home loan to take. In Singapore, these are the two major types of property loans that banks offer: fixed rate loans and floating rate loans.
There’s no better loan per se, but depending on your personal circumstances one or the other might be a better choice (hint: it’s not just about considering interest rate percentages).
As interest rates continue to rise, choosing the right mortgage for your financial needs is more important than ever. That’s where this handy guide comes in!

Brief Background about Home Loans in Singapore

There are more than 20 bank and non-bank institutions offering property loans in Singapore, and each one tries to convince you that theirs is the best deal. Before committing to a type of home loan (and the lock-in period that comes with it), it’s worth knowing how each type of loan works and the pros and cons of each.
Think of it as buying a durian; home loans might all look the same to the uninitiated, but prise them apart and you’ll see big differences, and some might not be to your taste. So you have to do your homework to make sure you’re getting a loan that’s good for you.
Not sure how? Start by comparing interest rates on the PropertyGuru website. Browse available mortgage packages across major banks here:

What Is a Fixed Rate Home Loan?

Contrary to what its name may suggest, fixed rate home loans in Singapore typically only remain fixed for the duration of their lock-in period. This is typically between two or five years, depending on the mortgage package you choose (we’ll explain what lock-in periods are later in the article).
After the fixed interest rate period is over, the interest rates for the fixed rate home loan will be changed to a floating interest rate, pegged to the Singapore Overnight Rate Average (SORA), FDR or other reference rates, as determined by the bank.
Depending on the bank spread, this interest rate may be equal to or higher than existing floating rate mortgage packages on the market. The bank spread is the additional percentage that the bank earns from you in addition to the cost of lending you the principal.

Fixed Rate Home Loan: Who Is It For?

  • Homeowners with low-risk appetite in the near term
  • Homeowners who want certainty in a volatile interest rate environment
  • Homeowners with a tight fixed budget for a mortgage in the near term
  • Homeowners who are willing to go to the effort and expense (about $3,000 worth in legal fees) to refinance their property after the fixed rate period is over
  • Landlords who want to keep mortgage repayments constant for ease of financing

What Is a Floating Rate Home Loan?

A floating rate home loan implies that the interest rates of the loan are subject to periodic adjustment, the frequency of which depends on the type of floating rate home loan you take. When the interest rate changes, your monthly instalment amount is likely to change in tandem.
In Singapore, a floating rate home loan can be either a Singapore Interbank Offered Rate (SIBOR)-pegged loan, SORA-pegged loan, or a Fixed Deposit Based Rate (FDR) loan. The lock-in period for floating rate loans is typically two years. Floating rate home loans may have more relaxed rules on partial repayment during the lock-in period.

Floating Rate Home Loan: Who Is It For?

  • Homeowners who have factored in a buffer in their housing budget for interest rate increases
  • Homeowners who expect interest rates to trend down instead of up
  • Homeowners who have some appetite for risk
  • Homeowners who want to take advantage of interest rate fluctuations to get a competitive mortgage package
Now, let’s talk about the types of floating rate home loans: SIBOR, SORA, and FDR home loans.

What Is a SIBOR Home Loan?

This is a floating rate home loan that is pegged to the SIBOR. When banks lend each other money in Singapore, they do it at the SIBOR-defined interest rate, which is set by a panel of 20 banks (minimum 12) in Singapore under The Association of Banks in Singapore (ABS) using a trimmed arithmetic mean (bell curve) method.
It may sound complicated, but such a process is certainly seen as a fairer way of determining home loans, as SIBOR is collectively set by multiple banks and typically highly correlated to interest rates set by the US Federal Reserve, which is seen as the global benchmark of interest rates.
For the property buyer, SIBOR-pegged home loans are a formula comprising of the SIBOR rates and bank spread. There are typically two types of SIBOR-pegged loans:

1M SIBOR Home Loan

  • Bank spread + one-month SIBOR rate
  • Rate changes every month

3M SIBOR Home Loan

  • Bank spread + three-month SIBOR rate
  • Rate changes every three months

What Are SORA Home Loans?

In 2020, banks began to offer SORA-pegged housing loans. SORA rates are backwards-looking overnight rates. As compared to SIBOR and SOR (which are both forward-looking rates), SORA rates are considered more stable. Eventually, SIBOR and SOR will be phased out.

What Is a Fixed Deposit Based Rate (FDR) Home Loan?

Another type of floating rate home loan is the FDR home loan. This loan is pegged to the lender bank’s fixed deposit rates with a bank spread. Interest rates for FDR loans may change at any time at the lender bank’s discretion (with a 30-day advance notice period).
Homeowners who want a sense of control may be suited for FDR home loans, as such home loans let them undertake a hedging strategy to minimise interest rate volatility.

What Is a Lock-in Period?

The lock-in period restricts you from the partial or full prepayment of your home loan. Refinancing (see next point) is considered a full prepayment of your existing home loan.
If you choose to refinance your home loan within the lock-in period, you may have to pay a hefty partial/full prepayment penalty, which is typically 1.5% of your outstanding principal.
If you’ve received legal subsidies for taking the home loan, the bank will also likely require you to refund the amount if you refinance your home loan during the lock-in period.

Understanding What Is Home Loan Refinancing

Simply put, home loan refinancing is moving your loan to a competitor lender (e.g. switching your home loan from Bank A to Bank B). Homeowners typically refinance their home loan when they are out of their lock-in period and the other lender offers a better interest rate.
Lenders may entice homeowners with legal fee subsidies, subject to the borrower fulfilling the new loan’s lock-in period, or a promotional home loan interest rate. A promotional home loan interest rate is a limited-time rate that is lower than the rate for the remaining tenure of the loan. If you are taking a home loan with a promotional rate, ensure you know how much your monthly repayments will increase when the promotional period is over.
However, don’t count on home loan refinancing to reduce your interest rates and monthly mortgage instalment costs immediately, for the following reasons:
  • You have to pay legal conveyancing fees when refinancing your loan (about $1,650 to $2,250)
  • Refinancing is subject to approval based on financing rules that could change over time (e.g. loan-to-value ratio)
  • Refinancing is subject to approval based on the borrower’s financial status at the time of refinancing
  • Refinancing is subject to approval based on the refinancing amount
Not sure when to refinance your home loan? Use our SmartRefi tool to track your existing home loan against the mortgage packages available on the market.

Other Factors to Consider When Picking the Right Home Loan

So now you know what types of home loans are available on the market. Aside from looking at the interest rates and loan type, you should also know:
  • How the reference rate is derived
  • How often the interest rate may be reset
  • Under what circumstances the rate is changed
  • What special features, if any, apply and if these will be removed or amended later
Need personalised advice on home loans? Get in touch with one of PropertyGuru’s Mortgage Experts and find the best home loan for you. They can provide you with tailored financial advice and cross-compare the latest interest rates to recommend you a home loan that is best suited to your financial needs. The best part? It’s free!
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Disclaimer: The information is provided for general information only. PropertyGuru Pte Ltd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

More FAQs About Fixed vs Floating Rate Home Loans And Home Loan Refinancing

Pick a loan based on your current financial needs and ability to tolerate floating interest rate fluctuations. And even after you've made your choice, you can refinance!

Floating rate loans have interest rates pegged to a reference rate such as SIBOR or SORA. Fixed rates remain unchanging for a set period.

Home loan interest rates more than doubled in 2022. As the US Fed continues to adjust interest rates to combat inflation, it is likely home loan interest rates will fluctuate in tandem.

No. This will be called repricing. Home loan refinancing is when you switch to another bank.

You can refinance HDB loans any time, but most HDB homeowners refinance after 4 to 5 years. This is after they have paid off at least 25% of the property's value/price so that they would not need to pay any more cash.

Unlike bank loans, HDB loans do not have any lock-in period. You are free to redeem it or refinance your loan at any time.

How long HDB refinancing takes may depend on the volume of applications received by the bank, as well as their individual processing times. However, it generally takes 4 to 6 weeks to complete.