Buying a property for the first time can be a challenge for the less financially savvy, but for others, it is just a matter of a hassle-free meet up with the mortgage loan broker or the home loan specialist at the bank, it all depends on their appetite for risk taking. The problem here however, is finding the best home loan mortgage with the lowest rate of interest. As interest rates in Singapore is largely determined by the Federal Reserve in the US, it also sets the tone for interest bearing mortgage loans offered by financial institutions in Singapore.
For the newbie property buyer, the many mortgage loans offered can be broken down simply into two main types. They are either fixed or floating interest bearing mortgage loans. For fixed interest rates, the banks typically lock down a minimum period with the buyer and fix the rate of interest on the loan quantum borrowed. For floating interest rates loans, it gets a little bit tricky. Floating rate loans are subjected to the fluctuations of the interest rate as determined by the Federal Reserve. That basically means if the Federal Reserve were to lower interest rates, it will effect a corresponding change in Singapore. The reverse is also true. With interest rates presently (2011) at an all time low, there is much speculation that rates may finally begin to appreciate as the global economy recovers.
There are three types of floating rate loans offered by the banks in Singapore at the moment. They are Board Rates, SIBOR and SOR respectively. For Board Rates, changes in the interest rates are determined at the sole discretion of the banks offering these types of loans. SIBOR refers to the Singapore Interbank Offered Rate, which represents the price of borrowing money between banks. As the rate is not determined by one bank alone, there is a greater transparency when the interest rate fluctuates. And then there is the SOR which means Swap Offer Rate. This rate of interest whilst being the lowest offered at the moment, is pegged to both the interest rates set by the Federal Reserve in the US as well as the ups and downs of the US Dollar.
However, should the Federal Reserve raise interest rates and the demand for US dollars were to also rise correspondingly, the first mortgage loans to be affected would be that of the floating mortgage loans with the SOR type mortgage loans to react faster than the others as these rates follow the volatile fluctuations of the US Dollar as well. Then comes SIBOR and finally the Board Rates offered by banks. Under these circumstances, with current interest rates for mortgage loans being at an all time low, it might be wiser and prudent to borrow mortgage loans with fixed interest rates and to lock down the rate of interest for as long as possible.
The vibrant property market in Singapore has seen fever pitched valuations in recent years thanks to efficient policy making, and all at the same time with cheap mortgage loans being offered prices are unlikely to settle. Coupled with strong economic numbers and the free inflowing of capital from foreign investors, the Singaporean dream of owning a property is fast becoming an expensive one. With mortgage loan interest rates at a historical low, the cost of owning a property is very much lowered. But with interest rates slowly gaining traction, fixed interest bearing mortgage loans with the longest lock in period is the way to go if one is to take a longer term view.