What Should Homeowners Do About Rising Interest Rates?

It is no big secret, but the cat is now fully out of the bag. Recent months of rising inflation has led to US Federal Reserve hiking interest rates aggressively in response. Singapore, along with many parts of the world, which takes reference from the US when making any interest rate moves, is now following suit and raising our own interest rates in response.

And as you might have guessed, Singapore banks too have started adjusting interest rates, starting with bank loans on their books. So, how much has bank loan interest rates risen?

How Much Has Bank Loan Interest Rates Risen?

Among all the bank loan packages, fixed rate packages are the ones that have been affected the most. The reason is that banks have to safeguard themselves against the rising interest rate environment and fixed rate bank loans pose the biggest risk to them. Since interest rates on fixed rate bank loans shouldn’t be adjusted once packages have been signed by the homeowner, banks are factoring in a larger margin of safety in light of the rising interest rate environment.

To date, all three local banks (DBS, OCBC, and UOB) have raised interest rates on bank loans. DBS was the first to do so, raising rates for its 2-year and 3-year fixed rate bank loan to 2.75%. OCBC followed suit to raise its 2-year fixed rate bank loan to 2.98%. UOB was the last to do so, but it certainly grabbed the headlines when it raised its 3-year fixed rate package to 3.08%. It is currently the only bank that has raised rates past the 3% mark.

At the same time, certain promotional packages were removed from banks’ bank loan offerings. One of them is DBS’ exclusive bank loan for HDB owners that had a 5-year fixed rate of 2.05%.

What Should Homeowners Do About Rising Interest on Bank Loans?

1. Find Out Whether Your Existing Bank Loan is Available for Refinancing

While rising interest rates are a worrying sign, it is not the time to panic. The first thing you should do is to check whether your existing bank loan can be refinanced. You might still be in the lock-in period from the previous bank loan package that you signed with the bank. And if you do, you have less to worry about.

That’s because, in a rising interest rate environment, being “stuck” in the lock-in period is a blessing in disguise. You will enjoy the interest rate that you had locked in previously. This will likely be lower than the existing bank loans that are available for refinancing.

2. Shop Around for A Better Deal if the Lock-In Period is Expiring

What if your bank loan lock-in period is about to expire? If that’s the case, it means that you are ready to shop around for a better deal than your existing bank loan.

For instance, DBS offers a Two-In-One Home Loan, a hybrid bank loan that combines the best of fixed rate bank loan and floating rate bank loan. It lets you enjoy flexibility and benefits of both types of bank loan where you can decide how much you want to allocate to the fixed rate bank loan and floating rate bank loan.

Unfortunately, another way to look at such hybrid bank loans is that you're worse off by hedging your bets - that is, you'll never enjoy the benefits of either a fixed or floating rate regardless of what happens.

Another hack is to opt for a Singapore overnight rate average (SORA) pegged bank loan. SORA is considered a backward-looking rate because it calculates a volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singdollar cash market. Because of this backward-looking nature, most SORA bank loans come with a lag so you don’t feel the impact of the rising interest rates so soon.

For example, as of Thursday, 14th July, SORA is 1.9374. However, 3M SORA, which is what most bank loans are pegged to, is only 0.9782.

3. Engage A Mortgage Consultant To Find the Best Deals For You

To find good deals for your existing bank loan, you can do it the old school way of doing it yourself. You can visit every bank to get the latest bank loan deals and the corresponding interest rate.

If you don’t want the headache or prefer a more efficient and productive way, try engaging a mortgage consultant like Mortgage Master. Not only does Mortgage Master know the latest home loan packages in the market, what’s even better is that mortgage consultants can sometimes can offer exclusive interest rate packages that you cannot get directly from the bank.

If you want to refinance your existing home loan, you simply have to fill up an enquiry form and a mortgage consultant will follow up with a call.

Thus, engaging a mortgage consultant makes sense for most homeowners. They not only bring you simplicity and efficiency, they also help ensure you get a great deal for an upcoming refinancing.