A Quick Guide to Fixed-Rate Home Loans In Singapore

 In Home Loan

I am going to start this blog post by answering “Should you choose fixed-rate home loans?”. The answer, like the best answers in the world, starts with “it depends…” and gives the best context by taking your current financial situation and priorities into account.

This blog post will make more sense to you after you’ve decided to choose a fixed rate home loan. In case you are still not sure, I would recommend you talk to a mortgage adviser or you can contact us directly to book a free consultation. We’ve helped thousands of people make the best decision in their life.

So let’s begin and set the context.

 

What’s a fixed rate home loan?

A fixed-rate home loan is a type of home loan where the interest rate does not change for a specific period of time.

 

What’s the catch? Some other aspects of fixed-rate home loans:

Premium Fee and (Usually) Higher Rates

 

Premium Fee

Well, there’s always a catch. Since the bank is giving you a commitment, you’ve to pay a security price for that. As it turns out, usually the security fee is premium in the case of a fixed-rate home loan.

Plus, for the very same reason, the rate of interest on fixed-rate home loans is higher than that of other types of home loan packages.

The point here is if you do not assess the home loan options carefully, you may end up paying more on the home loan even with fixed rates.

 

Eventually…the rate of interest is not going to be fixed!

 

The specific period of time in which the rate is fixed is usually 2-3 years. Think of it in this way: the fixed-rate part is a bank’s commitment to you that they will fix the home loan rate.

So what does that mean for you as a consumer? Fixed rates ensure that you don’t have to worry about your home loan interest rates changing overnight.

But fixed-rate home loans will not stay fixed indefinitely. After this fixed period is over, home loan interest rates automatically convert into a floating rate home loan. The one part that you may not like is that you won’t be warned before a floating rate has been activated on your home loan package. So paying a floating interest rate is inevitable.

Of course, there are turnarounds. That’s why we recommended you to talk to a financial advisor.

 

So are fixed-rate home loans better than floating rates in Singapore?

 

I know you’re already confused with all the details. Let me cheer you up.

Most of the time you will be eligible for refinancing after the fixed-rate interest period is over. In that case, you can always change your bank and choose another bank (like HSBC, UOB, or OCBC) which offers a better interest rate (though that also comes with some fixed costs).

But apart from that is there any specific time which is better?

We will let you in on a secret associated with fixed-rate home loans:

The best time to choose a fixed rate home loan is when you expect the interest rates in floating rate home loans to rise significantly over the next two to three years. If floating rates rise higher than your fixed rates, you will save money.

confused about home loan

Sounds confusing? Here’s an example for you.

Between 2010 and 2015, the rate of interest was quite low for fixed-rate home loans. To be precise during that period it did not rise above 1.8%. So what happened to people who opted for fixed-rate mortgages in this period?

Well, they ended up paying more interest on their home loans.

Of course, it’s difficult to predict the future and that’s why we’d like to recommend you the third time in this blog post to consider talking to a home loan consultant.

 

When are you not eligible for fixed-rate home loans in Singapore?

 

If you have a property under construction, such as a condo launch or BTO, you will not be eligible for fixed rates. Banks often want to lock you into a home loan package for the duration of the construction. Since this can take up to 3 or 4 years, banks don’t offer fixed rates for buildings under construction.

 

Conclusion

 

When you’re taking up a home loan in Singapore, it’s important to know what your options are. Depending on your type of property, you may have the choice of fixed-rate home loans or floating rates. But which is better for you? Are fixed-rate home loans better than floating rates?

In this blog post, we discussed fixed-rate home loans and everything that is crucial about it in brief.

If you need to know about your fixed-rate home loan, you can always reach us out at +65 6631 8980.

wayne quek
Wayne is a Chartered Financial Analyst (CFA), and holds a Bachelor of Business Management (Finance) from Singapore Management University (SMU). A successful Relationship Manager during his time with DBS and HSBC, Wayne used his expertise in financial markets to help his clients build up comprehensive investment portfolios. The entrepreneur is also the founder of Home Loan Whiz, a mortgage consulting firm that assists clients with selecting ideal mortgages for their needs.
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