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Falling SIBOR Rates - Is It a Good Time to Refinance?

SIBOR (Singapore Interbank Offered Rates) is the interest rate used by Singapore’s banks to lend unsecured funds of a reasonable size to other banks in the country. There are 4 SIBOR rates – 1-month, 3-months, 6-months, and 12-months. Numerous home loans in Singapore are pegged to SIBOR. In most banks, one can only choose between 1-month or 3-months SIBOR home loan package. As of April 2020, the 1-month SIBOR rate is 0.98% while the 3-months SIBOR rate is 0.99%, a decrease of 0.60% and 0.64% respectively.

The reason for the downward trend of SIBOR is largely due to COVID-19 pandemic, whereby the United States Federal Reserve (aka. the Fed) slashed their interest rates to zero. Since the home loans are mostly based on SIBOR, a lower interest rate by Fed will mean that the SIBOR home loan packages will be cheaper as well. Other contributing factors to SIBOR includes currency fluctuations, supply and demand of finds between Singapore’s banks, the level of activities in the overnight market, and the equity funds. During this golden period of falling interest rates, it would be best to capitalize on the low interest SIBOR-based home loan packages. This means that one should consider refinancing into SIBOR home loan right now to secure a lower interest rate, to shorten the duration of mortgage, or to increase the rate of equity built. In addition, a shorter tenure (e.g. 1-month SIBOR) are more beneficial during a falling interest rate period, whereas a longer tenure will be more ideal during a rising interest rate period. Before jumping right into refinancing, there are several considerations to think about – 1. Bank’s spread for SIBOR home loan packages. Different banks charges different spread on SIBOR loan. For example, the base SIBOR loan is 1%. Bank A can charge a spread of 0.45% while Bank B can charge a spread of 0.65%. In this case, it is obvious that Bank A will be a better choice. One thing to note is that banks will increase their spread when they are nearing their quota for SIBOR loans. 2. Long term rate of bank’s spread. The first 3 years of a bank’s spread will often be around the same. It is important to look at the spread of the 4th year and onwards, and it will tend to be higher than the first 3 years. 3. Will it be worth it? On top of looking at the interest rates, it is important to consider the conveyancing fees and other administrative charges – these fees are often neglected. Also, depending on the plan that you have for the house, it might or might not be a wise choice to refinance. For instance, if you have no plans to sell the house anytime soon, it would be a great idea to refinance. SIBOR pegged home loan packages might be cheap right now, but it is very volatile and is largely affected by the U.S. Fed rates. Despite that, it is a very attractive offer, considering the situation now. Besides, the banks’ spreads are also underpriced, from 0.45%. Contact Mortgage Consultancy for an unbiased advice now! We have more 100 loan packages from 16 banks for you to compare and choose from!

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