Should I Refinance Now or Hope Mortgage Rates in Singapore Drop in 2025?

Mortgage rates in Singapore have come down since the highs of end-2022, when we saw fixed rate home loan interest rates hit 4.0%. Borrowing costs will likely come down further if the US Fed cuts rates. Four cuts are expected in 2025, with the benchmark rate expected at 4.1% at the end of 2025.

So the question remains: should you refinance to a lower interest rate package now or wait till 2025 when rates are predicted to expected to drop? Read on to find out more.

As predicted by the PropertyGuru Singapore Property Market Outlook 2024, interest rates and mortgage rates remain elevated this year. Despite the initial optimism, there has been news the US Fed will probably cut rates just once in 2024.

The current Fed rate is 5.25% to 5.50%, the highest it has been in 23 years. Amid stubborn inflation concerns and a high cost-of-living situation, interest rates have been held steady in the latest Federal Open Market Committee (FOMC) June 2024 meeting. With the Federal funds rate has not changed since June 2023, reference rates have flattened out. In turn, we have seen mortgage rates moving sideways for a while now.

While we remain in a high interest rate environment, the good news is those who are on a floating rate home loan have some respite from continuous mortgage interest rate spikes. The even better news is it is likely the US Fed will cut interest rates and we will subsequently see lower mortgage rates in the coming year.

The question for existing homeowners looking to refinance is: should you wait for rates to drop in 2025 before refinancing your home loan? Or should you secure immediate savings by refinancing now?

If you’re a homeowner who had to reprice or refinance and take on a home loan when mortgage rates were at a high in end-2022 and early-2023, you might want to look into switching your home loan now. It’s likely the current mortgage interest rates are lower than your current home loan.

Should the current offered interest rates be lower than your existing rates, refinancing your home loan now can result in immediate savings. This way, you don’t miss out as you are eliminating risk and securing savings.

While you can take a gamble and adopt a wait-and-see approach, holding out for potentially lower rates in the coming year remains a speculative risk as economic conditions are volatile. In turn, rate cuts may not be as aggressive as what was initially forecasted and mortgage interest rates might not decrease as much as expected.

Repricing or refinancing your home loan and ensuring you have the most competitive mortgage package on the market is one way to save costs. But repricing or refinancing your home loan every few years is also an exercise in ensuring your mortgage is aligned with your financial goals.

If you’re looking to pay off your home loan sooner, you could shorten your loan tenure and pay higher monthly instalments. In the long run, you are saving on interest costs.

To aid you in coming to a decision, you can calculate the break-even future interest rate.

Let’s say: the current offered rate is 2.8% and you have a $1.5 million loan with a current interest rate of 3.85%. If you refinance now, you will enjoy 1.05% of savings for 6 months and save $7,500 (assuming for rate adjustment in January 2025).

If the interest rate in 2025 is more than 2.55%, it would have meant you would have ‘lost out’ on the savings if you had refinanced in 2024.

Even the smallest mortgage interest rate reduction can mean significant savings for those with substantial loan amounts. Hence, if your goal is to save money on your home loan, there is good reason to reprice or refinance in 2024 instead of waiting for lower rates in 2025.

Savings from refinancing now could outweigh the potential savings from the slightly lower rates expected next year. Ultimately, the future is uncertain. You won’t perceive perfect clarity on when mortgage rates will drop.

But you can enjoy immediate savings by repricing or refinancing now. For those who have paid high interest rates for the whole of last year and are tired of waiting for rates to fall further, take advantage of the current lower interest rates being offered.

For those who prefer some flexibility and remain hopeful of lower rates in 2025, you could refinance to a home loan with a shorter lock-in period (i.e. 1-year lock in). This way, you are poised to take advantage of interest rate fluctuations should the rates dip next year.

If you’re leaning towards repricing or refinancing your home loan now, the next step is to consider whether you want a fixed rate or floating rate home loan. With most fixed rate packages on the market offering much more attractive rates than floating rate home loans, you may think it’s a no-brainer to go for a fixed rate package.

However, it’s good to assess your risk appetite. If you believe the floating mortgage rates will dip lower than the current offered fixed rates, then maybe a floating rate home loan might be better.

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