Customers of the three major banks woke up to a shock due to the increase in the fixed interest rate of mortgage loans that had not been seen in recent years for residential property mortgages.
Some homeowners who opted for a bank loan to finance their mortgage were left in shock after the three major local banks announced on October 4 that the fixed interest rate for home loans will be raised to a maximum of 3.85 percent. .
UOB has stated that more clients are now applying for repricing and refinancing than a year ago, in line with market trends in a rising interest rate environment. DBS and OCBC noted that more clients have recently sought stable mortgage rates.
A 34-year-old man, who just moved into his new home in April, told Channel 8 News that he opted for a two-year home loan variable rate package from a bank last September, when the rate was 1.1 percent and the fixed rate was 1.3 percent.
Surprised by the increase in the fixed interest rate on mortgage loans, and perhaps regretting the fact that he did not opt for the Housing Development Board (HDB) home loanhe said:
“Looking back now, I will have some regrets. In fact, just yesterday we received information from the bank, that is, from the 1.1% we had when we started, now it has risen to 3.3%, which is not what we expected”.
The new owner has decided to rent an additional room to deal with the increased cost of repaying the loan, for now. He added that he will consider further action at a later date, given economic conditions and inflation.
Financial consultants generally advise that it’s best to limit your monthly debt payments to 35 percent or less of your income, so you should be able to handle it no matter how high the interest rate gets. Also, if you’re short on cash flow right now, or if your income isn’t stable, then fixed rates are the types of home loans you should consider.
HDB homeowners who did not opt for HDB mortgages in the first place will not be able to do so later. Experts have advised that homeowners who want peace of mind should seriously consider whether bank interest rates will actually benefit them, as they may be lower in the short term but stronger over time.
“As long as housing sentiment is positive, I don’t see interest rates as a big deterrent for people buying properties,” said Paul Ho, CEO of iCompareLoan.
The increase in the fixed interest rate of mortgage loans has not materially affected the public housing resale market, since the amount of loans of most HDB flats is not high and most owners are not over-leveraged.
“As for the private residential property market, most existing homeowners should be able to pay off their mortgage loans now. However, the rise in the fixed interest rate on home loans is more likely to be felt intensely once they pass the 3.5 or 4 per cent mark,” said Mr. Ho.
The total debt service ratio (TDSR) threshold for real estate loans uses a strict 3.5 percent interest rate calculation that should be a sufficient buffer for rates to move before monthly mortgage obligations exceed borrowers’ gross monthly income.
“For buyers of HDB flats who are taking out an HDB loan, the good thing about this is that they have the flexibility to refinancing to a bank loan if they ever change their mind because you don’t have a lock-in period. But if they are taking out a bank loan, there is no way they can refinance to an HDB loan,” said Mr. Ho.
“They should also inform themselves about good guides on refinancing in singapore”, he added.
Buyers are only likely to start investing calmly if the housing market is positive once interest rates rise to 4 or 5 percent with increases in bank home loans and hit their disposable income.
The increased supply of public housing with the launch of more BTO flats in the second half of this year is expected to drive demand away from the resale market. This is also expected to regulate the pace of price growth and tame market exuberance.
As for new home prices, excluding executive condos, prices may rise 6 to 9 percent this year compared to 2021, while around 9,000 to 10,000 units may be negotiated.
Collectively, resale market prices for 2022 may increase 6 to 8 percent from the previous year.
Positive side of the interest rate environment
Consumers today have a wider range of home loan packages to choose from compared to several years ago, and this is a huge plus for home buyers and investors.
The mortgage loans could also be linked to other programs that reward customers with a higher interest rate on their deposits if they make more transactions with the bank, such as get a home loan and accrediting his salary in the same bank.
Typically, home loans offer you attractive rates for the first three years when you refinance, after which interest rates adjust upward. This usually coincides with the end of the lock-up period, giving borrowers a good opportunity to review their loans.
Those who already have a home loan with a lender they are comfortable with should consider changing the price, especially with the recent increase in the fixed interest rate on home loans.
Repricing refers to switching to a new home loan package within the same bank, while refinancing refers to closing your current home loan account and creating a new home loan account with another bank.
A price revision generally occurs when new incremental lines of credit are granted and/or refinancing facilities are entered in the same documentation as an existing loan. The proceeds from the new incremental line of credit will have a lower margin and will be used to pay off the existing loan.
While repricing allows you to replace your existing loan with a new loan from the same lender that potentially has a new interest rate or revised payment schedule, refinancing can be a good option if interest rates have dropped or are lower than your current rate, or if you need to extend your repayment term.
When considering refinancing versus repricing, remember that getting a lower interest rate will lower the cost of borrowing, so you’ll pay less for your home loan overall.
The charge Home Loan Fixed Interest Rate Hike Surprises DBS, OCBC and UOB Clients first appeared in iCompareLoan.