Homeowners-to-be shopping for a home loan may find it intimidating to make sense of loan jargon, especially when it is instrumental in financing the biggest and most precious asset in our lives – a home. Put those worries to rest! This handy guide will explain the type of packages available and its distinct characteristics to better inform your decision based on your risk appetite.
So, what are the different types of mortgage packages available?
1. Board Rate
Risk level: High
Considered the most volatile type of loan across the board (no pun intended), the board rate is entirely controlled by the bank and is therefore not transparent. This means the rate can be unpredictably raised (or lowered) throughout the course of your loan repayment period.
Best for: Those who hate surprises and want to know exactly how much you’ll need to fork out in installments.
2. SIBOR Rate
Risk level: High
Volatile? Check. Transparent? Check. Unlike the board rate in which changes are not transparent and the bank has jurisdiction to change the rate without MAS supervision, the Singapore Interbank Offered Rate (SIBOR) rate hinges entirely on the US Federal Reserve (FED) rate movements. Simply put, if the US market suggests a rising interest rate environment, likewise the SIBOR rate will rise. On the bright side, if the US FED lowers the rate, down goes your interest rate too.
Best for: Those comfortable with leaving the interest rate to market forces, this one’s for you.
3. Fixed Deposit Home Rate (FHR)
Risk level: Medium
Not to be confused with fixed rates (which will be explained later), fixed deposit rates are controlled by the bank, under the monitoring of the Monetary Authority of Singapore (MAS). Characterised as a slightly volatile rate that’s subject to change, banks are able to tinker with the rate however the MAS monitoring dampens the risk of the rate escalating too high.
Best for: Those who are comfortable with taking a slight risk.
4. Fixed Rate
Risk level: Low
The least volatile among all the bank loan packages in this list, fixed-rate loans are ideal for those who don’t want to leave things to chance and loathe unpredictable market forces. Essentially safeguarding yourselves from rising interest rates, fixed rates don’t change inside of the lock-in period, therefore making it suitable for low-risk appetites.
Best for: Those who aren’t willing to risk rising interest rates.
Bonus tip from our in-house mortgage specialist:
Fixed-rate loans are best during a rising interest rate environment as this protects you from escalating rates while floating rates (like SIBOR) are best for a falling interest rate environment as you can take advantage of the dropping US FED rate movement-while it lasts. Ultimately, it is still based on your own needs i.e when you are selling the property, risk profile and future planning for your next home.
Need more assistance in deciding on a home loan package that best suits your needs? Get the best mortgage loan rate in town at 1.75% fixed rate! Don’t hesitate to contact our mortgage specialist by calling 9755 9103 or visit our mortgage advisory page to schedule a callback.