Homeowners to benefit from cheaper mortgages

Romesh Navaratnarajah30 Jun 2016

Residential District in Singapore

View of high-rise apartments in Singapore.

The steady increase in interest rates is starting to taper off given the slower economic growth, benefitting homeowners in the form of cheaper mortgages, reported The Straits Times.

The decline follows the decision of the US Federal Reserve to keep interest rate hikes on hold while slowing the pace of future hikes.

“Overall, interest hike expectations have cooled off a bit, given the slowing economy, and I would view the recent fall-back as a normalisation of the uptrend interest cycle,” said Keff Hui, a broker at Mortgage Supermart Singapore.

The US central bank has indicated that rate hikes would be more gradual than expected, given concerns on Britain leaving the European Union and the slow job growth.

In fact, Fed Chairman Janet Yellen said Britain’s exit may “negatively affect financial conditions and the US economic outlook”.

As such, the Fed has kept the target range for the benchmark federal funds rate at 0.25 to 0.5 percent.

In Singapore, the three-month Sibor (Singapore interbank offered rate), which is used as a benchmark to set many home loans, dropped from its peak of around 1.25 percent to about one percent, said Hui.

The three-month swap offer rate or SOR, used to price commercial loans, stood at 1.36 percent in March, 0.9 percent in May and is now hovering at around 0.94 percent, added Hui.

Influenced by foreign exchange rates, SOR tends to be more volatile than Sibor. While they are affected by different factors, SOR and Sibor usually trend in the same direction.

Sibor also mirrors how much it costs banks to borrow from one another. Since the cost of funds has dropped, banks have become opportunistic, noted FindaHomeLoan founder Sean Lim.

“Given the drop in rates and weakening property demand, banks are having a price war on home loan packages,” said Lim.

A few major banks have recently slashed rates by between 10 and 20 basis points for variable and fixed home loans, said Hui.

“Homeowners who have had Sibor-linked mortgages would benefit directly from the recent drop in Sibor accordingly,” he added.

Lim revealed that a two-year fixed home loan package is now at 1.65 percent, down from 1.9 in March to April, while a three-year fixed loan package is now at 1.8 percent, down from 1.99 percent in March to April.


Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg


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