Floating back to Fixed...?

As interest rates threaten to inch higher, more home loan buyers are turning to fixed rate loans for peace of mind. The key three-month Sibor or interbank rate yesterday ended at 0.38%. Although unchanged from the previous day, it is now up almost 12% from a month ago when it hit a low 0.34% on Sept 9.

DBS Bank, the largest home loan provider here, said 20% of new borrowers now go for its interest rate cap package, first launched in August. Since Sept 1 the rate has been sitting at 1.49%.

A DBS spokeswoman said that while the outlook for interest rates is to remain low for an extended period, the volatile global economic environment has created risks and uncertainties.

“To give customers peace of mind when it comes to their mortgage repayment, which is a long-term commitment, DBS introduced three-month Sibor floating rate packages with interest rate cap in August,” she said. “Under this unique scheme, customers benefit from the current low interest rate and at the same time, enjoy certainty if interest rate starts to rise.

“Since its introduction, 20% of our customers who have opted for 3-month Sibor packages have taken up this scheme,” she added.

More and more analysts expect local interest rates to rise further given the slower economic growth outlook which could lead the Monetary Authority of Singapore to slow down the rate of appreciation of the Singapore dollar at next week’s monetary policy statement.

“We expect a slower rate of appreciation of the SGD which means that interest rates will rise relative to the US interest rates,” said Wei Zheng Kit, Citi economist. The three-month Sibor could rise to 0.50 – 0.70%, depending on the stand the MAS take next week, he said.

Bankers said that given the uncertainty it will be better for borrowers to opt for a package which gives flexibility.

Alan Lau, Maybank Singapore head of consumer banking, said that traditionally its fixed rate home loan packages have been very popular with its customers, but in recent months, more have gone for the inter-bank pegged packages, in part due to the low interbank rates environment.

“Yet there is a segment of customers who take a short-term view that Sibor rates will remain relatively low but want to hedge their risks against possible uptrend of interest rates after 12 months,” he said.

Maybank’s hybrid home loan packages which come with the first-year rate pegged against the three-month Sibor and thereafter fixed rates for the second or second and third years will cater well for this group of customers, said Mr Lau.

Source: The Business Times

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