Understand the basics of Singapore mortgage loan rates

As I write this article, SIBOR rates in Singapore are at an all time low. This means that many Singaporeans, especially young middle-class people, are buying expensive properties because current low mortgage rates allow them to pay off a large loan amount. But real estate experts warn against getting carried away by this positive trend. The Singapore market cannot remain isolated from what is happening around the world. If current trends are any indication of things to come, the world is headed for another recession (or probably a depression), and Singapore is sure to become an unwitting participant. The government has also warned that unemployment rates are likely to rise in 2012. Property buyers, especially first-time buyers, need to understand the risk factors before committing to a loan that is likely to run for 20 to 30 years. years. Here are some things to understand when considering Singapore mortgage loan rates:

– Banks are not charitable organizations and are here to make money. Don’t look for a loan package that is the best on the market; instead, choose one that is more suitable for you. Factors such as your personal risk tolerance, market impact and other personal circumstances should be considered before purchasing a property. There are hundreds of packages on the market, and each of them is designed to fit the profile of the target segment.

– SIBOR refers to the Singapore Interbank Offered Rate and is the local equivalent of LIBOR (London Interbank Offered Rate). It is determined by the Association of Banks of Singapore (ABS). In Singapore, a fluctuation in SIBOR rates arouses a lot of interest in the market, because many mortgage lenders use SIBOR rates as a benchmark for their loan portfolios. Contrary to popular opinion, SIBOR rates also fluctuate, albeit with much less volatility. And if you have chosen a loan with a minimum lock-in period, you risk getting caught in an adverse SIBOR trend, unless you are willing to pay the redemption penalty.

– The SOR or Swap Offered Rate is also set by the Singapore Banking Association and depends on complex forex rate calculations. Although SOR rates are traditionally known to be volatile, recent trends have indicated that they are lower than SIBOR. SOR-based loans are ideal if you can afford the risks.

– Both SIBOR and SOR are benchmarks that depend on market factors. A change in the market trend will surely affect these rates and you cannot be immune to these changes. Fixed interest rates are ideal if you are risk averse. Thus, you will be paying a fixed price even when the SIBOR and SOR rates fluctuate. But most home loan packages offer a fixed rate only for a set period of time, after which the interest rates are compared to the SIBOR or SOR rates.

Before choosing a home loan package, make sure you understand the basics of the interest rate structure and other details. Only you know your situation; therefore, decide for yourself the structure that best applies to you.

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