Mortgage Rates in Singapore to Increase After Fed Reserve Increase

After enjoying two years of incredibly low mortgage rates, homeowners in Singapore with existing properties are now entering a period of normalisation. Those who have mortgages tied to bank loans are especially feeling the pinch such as for property purchase. Tan, who works at a software company, bought a condo for 1.75 million Singapore dollars in 2021, and applied for a 1.1% interest two-year fixed-rate mortgage.

Interest rates in Singapore are closely linked to global interest rates

Singapore’s interest rates tend to be closely linked to global interest rates, and most home loans are pegged to either the Singapore Interbank Offered Rate (SIOR) or the Singapore Overnight Rate Average (SORA). While the global economy may be experiencing slowdown, the Singapore property market remains robust, and property prices are on the rise. In fact, Singapore’s mortgage interest rates are closely tied to global interest rates, and many home loans are pegged to the Singapore Interbank Offered Rate or the Singapore Overnight Rate Average (SIOR), which are closely linked to interbank exchange rates.

As a result, Singapore’s economy is particularly vulnerable to a U.S. recession, and the impact will be felt in Southeast Asia as well. With the Federal Reserve continuing its hawkish stance on interest rate hikes, it is hard to see how Singapore will escape the effects of the U.S. recession, especially given Singapore’s highly dependent on U.S. exports. However, Irvin Seah, senior economist at DBS Group Research, does not expect Singapore to enter a recession this year.

Floating home loans are more stable

Floating home loans are mortgages pegged to a benchmark rate, such as SIBOR. This means that when the SIBOR goes up, so do home loan interest rates, which means borrowers will pay more every month. In Singapore, the Association of Banks recently proposed phasing out SIBOR and replacing it with SORA.

Floating home loan rates differ for different types of properties. HDB flats and private properties, under construction and refinancing are all subject to floating rates. It’s important to plan accordingly, as the interest rate may go up or down every month. In contrast, fixed rate mortgages can be cheaper and more stable than floating home loans.

Fixed rate mortgages are more stable

After the Fed raised interest rates by half a percentage point, fixed rate mortgages in Singapore are more stable than they have been in a decade. The US dollar remains the world’s reserve currency, and central banks around the world are trying to cool inflation by raising interest rates. However, despite the heightened interest rates, Singapore’s home sales reached a six-month high in May, resulting in strong demand for housing.

Home mortgage loans are affected the most by rising interest rates, and banks are required to adjust their mortgage loan offers to reflect this. However, a recent pandemic has delayed the reversal of the Fed’s policy and pushed the hike further into 2019. While banks’ interest rates fluctuate in tandem with global interest rates, fixed rate mortgages in Singapore are more stable after the Feds’ increase.

Floating home loans are more expensive

Singapore’s interest rates are closely linked to US interest rates, and the Fed’s recent plans to raise interest rates in 2019 could be a problem for Singaporeans with floating home loans. However, analysts predict that the US Federal Reserve will begin cutting rates by 2023. For now, the floating home loan interest rate is less than what it was prior to the Fed’s actions.

The US central bank recently increased interest rates by 75 basis points, the largest increase since 1994. The rate hikes will increase borrowing costs worldwide. This could affect Singapore’s housing market, which reached a six-month high in May as the economy began to recover.

Fixed rate mortgages can hedge against future rate hikes

Fixed rate mortgages in Singapore provide homeowners with a hedge against future interest rate hikes, as they are tied to the Singapore Overnight Rate Average (SORA). These rates are closely tied to the Fed Funds Rate (Fed Funds Rate) and can be a good way to hedge against future rate hikes. SORA is a standardized benchmark measurement that banks use to adjust their mortgage loan offers. It has increased 100% since earlier this year and is expected to continue rising.

Fixed rate mortgages in Singapore can help you secure a low mortgage rate today. Rising interest rates are a concern for many homebuyers, especially in Singapore. In June, banks in Singapore raised their housing loan rates, following the U.S. Federal Reserve’s 75-basis-point rate hike in June.

Choosing a home loan

Singapore is a small, open economy, and the country’s economy is influenced by US monetary policy and interest rates. This can affect the housing market in Singapore, as mortgage loans are one of the biggest purchases made by the average Singaporean. The Fed’s decision to raise interest rates will increase debt servicing costs for borrowers.

The Fed is attempting to curb inflation. This will affect mortgage interest rates, especially for fixed rates and SORA-pegged mortgages. Fixed rates, which are currently at 2.5 per cent, may be affected, and some banks may stop offering them until the situation stabilizes. Regardless, fixed rates offer the most stability, as interest rates are fixed for the first three to five years. However, perpetual fixed rates are not offered by any banks in Singapore at the moment.