How To Prepare For Rising Home Loan Interest Rates In Singapore

By EdgeProp Singapore / iMoney.sg | August 17, 2018 12:20 PM SGT
The Singapore Interbank Offered Rate (SIBOR) has risen sharply and then fallen back again in the past few months. While it’s nowhere as volatile as the meteoric rise and crashes of say, Bitcoin, it does signal that we should expect more movement in the coming months. In fact, SIBOR rates have been on the rise since 2015:
1) What affects SIBOR rates?
SIBOR rates are correlated to the federal funds rate in the United States. An increase in the federal funds rate would lead to an increase in SIBOR rates.
The fall in interest rates in the past month can be attributed to the decline in USD. However, homeowners should anticipate an increase in SIBOR rates, as the US Federal Reserve is expected to hike interest rates three times this year, and two times in 2019.
2) How do these rates affect you?
If you happen to be a homeowner on a floating-rate, SIBOR-pegged home loan plan, here’s why this matters: the SIBOR rates are used to price your home loan. Most SIBOR-pegged home loan interest rates in Singapore are derived by adding a premium (known as a ‘spread’) to the 3-Month SIBOR:
3-Month SIBOR + spread = home loan interest rate
This means that rising SIBOR rates could mean higher home loan interest rates, and therefore higher monthly home loan repayments.
Assuming you take out a loan of S$600,000 for 30 years at an interest rate of 1.7% per annum, here’s how much more interest you’d have to pay if your home loan interest rate increases:
Interest rate
1.7%
1.8%
1.9%
2.0%
2.1%
Monthly instalment
S$2,128.79
S$2,158.19
S$2,187.83
S$2,217.72
S$2,247.84
Monthly interest increase
-
S$49.58
S$99.17
S$148.76
S$198.41
Yearly interest increase
-
S$594.94
S$1,190.09
S$1,785.43
S$2,380.97