Fixed floating or hybrid: Which home loan package works for you as interest rates rise

by Albert02

Fixed floating or hybrid: Which home loan package works for you as interest rates rise

Fixed floating or hybrid: Which home loan package works for you as interest rates rise. 

Some homeowners who have taken out floating rate loan packages may be in for a rude awakening as mortgage rates rise. Switching to a fixed-rate package may be difficult, according to experts, because some banks, including Maybank and Standard Chartered, have discontinued such offerings in recent months.

DBS, Singapore’s largest lender, discontinued its five-year fixed-rate HDB package on Tuesday (June 28).

According to Mr Lee Meng Choe, executive director (advisory) at financial services firm Gen Financial Advisory, homeowners who are concerned about rising interest rates want to return to fixed rates. The problem is that fixed-rate mortgages still available from banks are now higher than the rate on a HDB loan, which is set at 0.1 percentage point above the Central Provident Fund Ordinary Account rate of 2.5 percent. They also cannot return to the HDB after obtaining a bank mortgage. hese individuals can choose between fixed, floating, or hybrid packages.

The Straits Times applied the rule to the loan packages offered by the three Singapore banks, assuming a $500,000 mortgage over 25 years. orrowers would pay $2,307 per month if they took out a DBS two-year fixed-rate package at the current rate of 2.75 percent.

Monthly payments for a two-year fixed-rate package from OCBC or UOB at 2.65 percent would be $2,281. As a result, the DBS package costs an additional $26 per month.

Fixed-rate mortgages have skyrocketed since the fourth quarter of last year, when three-year fixed rates were at 1.15 percent. They have increased by 1.6 percentage points to 2.75 percent. So, are fixed-rate mortgages still suitable for some borrowers? Mr Lee believes that fixed-rate packages are ideal for people with consistent incomes who dislike risk and uncertainty. A fixed rate also makes household budgeting easier for a homeowner because there is a fixed sum to pay every month, which can be factored into a budget.

Ms Maryanne Phua, head of home loans at OCBC Bank, however, stated that fixed-rate packages typically include pre-payment penalties if the loan is redeemed or prepaid during the lock-in period. Ms Phua advises homeowners to consider this option only if they have no plans to pay off their mortgage or sell their home in the next few years. If they plan to pay off their mortgage or sell the property soon, she recommends Sora-pegged floating packages with shorter lock-in periods.

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