Should I take a Fixed or Floating Package for my Home Loan?
Many times we faced this common question when meeting home owners for mortgage planning and review.
First of all, let’s try to understand what’s the difference between a fixed rate and a floating rate for home loan package. A fixed rate package offers interest rate on a guaranteed basis of 1-3 years. That means in the event of any volatile market movement during this period, your monthly repayment amount will not be affected. Normally such rates offered will be slightly higher than those floating rates as the rates are on a guaranteed basis. One point to note is such packages come with a lock in period clause and hence, the home owner maybe penalised with cancellation fees should he/she sells off the property or make a full loan redemption during the lock in period. Hence, if you are planning to sell your property within this short term period, you may like to relook your options and talk to a mortgage broker for a detailed calculation.
On the other hand, floating packages are pegged to interest rate elements such as SIBOR (Singapore Inter Bank Offered Rates) eg on 1/3/6/12 month interest revision basis, SOR (Singapore Offered Rate) which is lesser seen nowadays in home loan packages, fixed deposit linked rates(pegged to banks” fixed deposit rates) and board rates as deterred by banks. Floating rates are normally slightly lower as compared to fixed rates as they come with a risk element of rate hike adjustment possibility. Typically, most floating packages can come with no/1-3 year lock in feature. If you are looking at some form of flexibility like making a full redemption on your home loans without cancellation fees imposed, you may like to look at packages with no lock in feature. However, if you have taken any form of legal subsidy when you refinanced your home loan back then, a 3 year clawback clause on the legal subsidy taken maybe imposed to you by the bank.
Typically, there’s no right or wrong answer on which is the best package. Importantly, home owners have to ask themselves whether the terms and conditions set for the home loan packages fulfil their requirements and expectations. Other than looking at the best rates in the market, we also highlight to clients about their risk tolerance as everyone’s threshold towards rate hike adjustment is different.
If you have trouble choosing between a fixed rate and a floating rate, you may like to PM our hotline at +65 85565271 and our mortgage consultants will be glad to advise on which package best suits you.