Buying a Home In A Rising Interest Rate Environment – How To Choose The Right Home Loan?
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At the start of the year, SIBOR-linked home loan packages were seen as a good choice as mortgage rates pegged to banks’ internal board rates, including those pegged to their Fixed Deposit Board Rates, started to rise overall, and the US Federal Reserve had announced that they might cut back on interest rate hikes this year. However, the surge in SIBOR hasn’t really dissipated, and as at mid-March 2019, buyers were looking at interest rates not seen since more than a decade ago.
Fixed vs Floating – Making sense of interest rates
SIBOR-linked home loan package has certainly taken market observers on quite a ride, and many homeowners have opted for a SIBOR-linked home loan package because of its overall rate being lower than non SIBOR-linked packages. But the fact remains that SIBOR will fluctuate and that is crucial to bear in mind.
With the Fed’s decision to halt interest hikes, we spoke to UOB to find out their views on the potential changes in interest rates, and how it can impact customers who are looking to take a home loan. A summary of some of the key House views we have noted are:
- SIBOR levels will remain due to current domestic factors,
- and any interest rate decline following the pause in rate hike by the Fed Reserve would be limited
- SIBOR has been following the US rate increases with minimal volatility, but the low volatility might not always remain
- Based on the research team’s view on SIBOR, this could mean greater volatility to a home owner if you are getting a SIBOR linked home loan
According to the UOB Research Team, “we are of the view that SIBOR levels will remain due to current domestic factors looking supportive of it, and any interest rate decline following the pause in rate hike by the Fed Reserve would be limited (should these conditions remain).
SIBOR has been following the US rate increases with minimal volatility, but we are cautious that the low volatility might not always remain given market’s uncertainties and the slowing down of global growth. SIBORs could experience greater fluctuations when domestic conditions respond to unexpected shifts in global growth outcomes.
Thus, based on our research team’s view on SIBOR, this could mean greater volatility to a home owner if you are getting a SIBOR-pegged home loan.”
Getting the lowest interest rate at a particular point in time may not always be the best idea. Instead, it’s important to ask yourself whether you would rather have stability and not have to constantly monitor the listed rates with a Fixed Rate, or if you would prefer transparency in rate movements which you can monitor.
Pros and cons of a fixed vs floating home loan at a glance:
|Home loan package||Transparent?||Volatility||Interest Rates|
|1-month SIBOR-based||√||√||Can be low or high depending on market|
|3-month SIBOR-based||√||√ |
(Relative to 1M SIBOR)
|Can be low or high depending on market|
|Fixed rate||√||X||Fixed for first 2/3 years|
The above examples show you the pros and cons of the different types of home loan packages, and choosing a package ultimately depends on both your risk appetite as well as your own budgeting. But that’s not all you need to consider when trying to buy a home.
The journey of buying your dream home in Singapore is one that is often fraught with uncertainty and sometimes more than a few obstacles. Selecting your home loan packages is just one of them.
Regardless of whether you are a first time homebuyer or a seasoned one, knowing your way around this can greatly smoothen the journey.
Price and valuation
As a buyer, often our benchmark when it comes to getting the value of the home you are buying would be based on prices available online. These prices often vary and are just indicative prices, so buyers would have no accurate valuation of the property. Sometimes, they might even end up overpaying for a property.
Given that you will most likely have to take a loan for that property, it’s important to get a fair and reliable valuation so that you can get the right loan amount. Try the UOB online valuation tool that not only provides a credible valuation instantly but this valuation is also backed by the bank, and it is free of charge! What this means for you is that you can get a bank loan based on the listed valuation amount, subject to the bank’s terms and conditions.
Getting your loan approved
You might have heard from family and friends that getting your loan approved could take 2 – 5 days.
With UOB Home Solution, that is no longer an issue. They are the only bank in Singapore that allows you to get instant approval within minutes if you apply for your home loan online, or in any of their branches. The online application process has been enhanced to be fast, simple and secure with MyInfo, through which you can receive your in-principle approval almost immediately.
Home buying, now made a lot simpler
As we mentioned, the home buying process can be quite tedious, but with the right tools in your hand, you can get what you really want, which is that dream home, without having to deal with the frustrations or delays that many people in the past have experienced.
From getting the right valuation and understanding what you can afford, to getting your loan approved speedily, UOB Home Solution was created with the homebuyer’s convenience and need for efficiency in mind.
To top that off, you can even benefit from their exclusive online home loan promotion now. You can get a TANGS Gift Card of up to S$1,000 if you apply for a new loan. If you are refinancing your home loan, you will be able to enjoy not only the TANGS Gift Card of up to S$$1,000, but you can also get a legal subsidy of 0.4% of the loan amount (up to S$1,800) to cover your legal fees, and enjoy the flexibility to partially pay down your loan at any time. Terms and conditions apply.
What’s more? UOB has the most flexible 3-years Fixed Rate package in the market today for a limited period only. Speak with a banker today to find out more about this package.
To find out more about how UOB can help you with your home purchase, head on over to the UOB Home Solution page.
What are some common challenges in the home buying journey you have heard of? Share them with us here!