SIBOR is on an upward trajectory. However, for those on a SIBOR-dependent home loan package, all is not lost. We talk with home loan expert Wayne Quek about what home owners can do to beat the rising SIBOR.
If you’re a home owner currently servicing a SIBOR-dependent loan, you would have probably read about the sudden rise in SIBOR and are worrying about how it will affect your monthly payments. In an earlier article, we stressed that, at the moment, there is nothing to be worried about as the recent spike should not result in a significant increase in your home loan repayment.
However, as with anything in life, it’s always best to explore the different options available to you in the event things turn south, or in the case of SIBOR, north. Our resident home loan expert Wayne Quek shares a few notes that home owners should bear in mind when they’re thinking about refinancing their home loan.
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A word of caution – these tips and tricks are only relevant for home owners whose lock-in period has ended.
Having said that, if your loan quantum is large enough (and we’re talking in the millions), you could probably renegotiate the conditions of your loan to get a better rate or more favourable terms. After all, most banks would rather keep your business than risk losing you, and your delicious money, to a competitor.
Refinance with banks that charge a lower spread (psst, there are a few)
Most of us are used to banks charging spreads that tend to be more than 1 percent a year. Of course, there are banks that do charge less than 1 percent during the honeymoon period (i.e. the first three years) before increasing the spread from the fourth year onward.
That doesn’t always have to be the case though. We know for a fact that the Bank of China is currently offering SIBOR-dependent promotional packages that have spreads below 1 percent for the whole tenure of your home loan.
What makes it more attractive is that the loan amount starts from S$200,000. So, whether you’re looking to refinance your current home loan or on the market for a suitably priced package, do check out the home loan packages from Bank of China.
DBS Fixed Deposit Home Rate (FHR) loan packages
When DBS first launched this particular home loan package at the beginning of last year, there was quite a bit of cheer among consumers who wanted more options.
Three months after the home loan package was introduced, DBS Bank’s managing director Lui Su Kian mentioned that the take-up rate had been encouraging – more than half of DBS home loan customers plumped for the FHR loan package.
The one factor that turned people off from the FHR loan package was the fact that the rates were pegged to the average of the bank’s 12- and 24-month fixed deposit rates. While SIBOR is administered by the Association of Banks in Singapore and is both transparent and easily accessible, the FHR spread is wholly dependent on the bank’s whims, so to speak. However, as Wayne points out, any increase in the rates means that their fixed deposit rates will also increase. Also, the FHR rate isn’t as volatile as SIBOR.
Opting for fixed rates from banks if you’re looking to exit soon
Many banks offer home loan packages with fixed interest rates. These packages will shield you from the volatility and temperamental nature of the financial market.
However, the rates usually tend to be on the high, perhaps even very high, side. At the moment, these rates are on par or just slightly higher than the floating SIBOR but Wayne reckons it will increase in the next two or three years.
The issue comes after the lock-in period for the fixed rates are over – the spread usually becomes higher. In the long run, it results in you paying a lot more interest, money which probably could have been better used in your investments.
Having said that, fixed rate packages are great if you’re looking to sell your property within the next decade, as it gives you the opportunity to plan financially for your exit, or if you’re grappling with tight cash flow.
So, whether you’re looking to refinance or you’re shopping for a home loan with a view to sell in the near future, then we recommend that you check out the home loan packages with fixed interest rates.
When it comes to refinancing your home loans, do note that there are a number of fees involved such as conveyancing fees and valuation reports that might possibly diminish your savings. It doesn’t make sense to refinance your loan if the savings you achieve is wiped out by all these fees. Once again though, many banks do waive these charges if you negotiate hard enough.
Are you looking to refinance your home loan and need expert recommendations, a better rate or even a hard negotiator? We’re offering complimentary home loan advice. Just email us at firstname.lastname@example.org with your name and contact number and we’ll get back to you as soon as possible.