Author: Editor

Have you been looking up home loans? Whether you’re a first-time homeowner or someone planning to refinance, finding the right home loan can be daunting. From SIBOR to fixed deposit rate, there are quite a number of interest rate indexes to understand in order to find the best home loan in Singapore. 

Read our complete guide to home loan terms here.

In this article, we’ll delve deeper into what a fixed deposit rate is, and how it’s related to home loans in Singapore. 

Fixed deposit rate in Singapore: What is it? 

In Singapore, a fixed deposit rate essentially refers to the interest rate earned in fixed deposit accounts. 

A fixed deposit is a type of low-risk investment that allows you to earn interest by putting your money in an account for a certain period of time. Since it comes with low risk, it tends to be attached to a low-interest rate. 

How is the fixed deposit rate related to home loans in Singapore? 

In 2014, DBS started introducing home loans pegged to their fixed deposit rate as an alternative to SIBOR-pegged home loans. It’s considered a floating rate as it can go up and down, similar to SIBOR and board rate.

Unlike the SIBOR and board rate, the fixed deposit rate is more stable as banks don’t change them as much. 

In comparison, SIBOR is based on daily projections of interbank borrowing, while the board rate can be changed anytime by an individual bank. 

We explain more about mortgage rates like SIBOR, SORA and SOR in this article.

Fixed deposit rate pegged home loan in Singapore: How does it work? 

Instead of pricing the home loan to the board rate or SIBOR, it’s based on the average fixed deposit rate over a period of time. 

For example, DBS names it Fixed Deposits Home Rate (FHR), which comes with a number that indicates the interest rate period, such as FHR6, FHR8, and FHR18. An FHR6 home loan means that it’s pegged to a 6-month average fixed deposit rate. 

Here’s a table illustrating the 2-year fixed rate from DBS:

New purchase / Refinance	2-year fixed
Year 1 to Year 2	1.30% p.a.
Year 3 onwards	FHR6 + 1.60% p.a.

A higher number translates to a higher interest rate as well. This is because fixed deposits with a longer-term earn a higher interest. 

Home loans pegged to fixed deposit rates became so popular in Singapore that in 2017, 90% of DBS’ home loan customers were those that had taken this type of loan. 

Its success has led many banks to jump on the bandwagon a few years after DBS’s launch, but with different names. 

For instance, OCBC called it Fixed Deposit Mortgage Rate. UOB called it Fixed Deposit Property Rate. 

What’s so good about fixed deposit rate home loans? 

What makes fixed deposit rate home loans so popular in Singapore is the low-interest rate. 

At one point, banks were even offering them at zero spread, lowering the monthly instalments for homeowners. 

1. Lower interest rate

The main selling point of home loans pegged to fixed deposit rates in Singapore is that the interest rate will be kept low. If the bank wants to increase the interest rate for this type of home loan, they also have to raise their fixed deposits’ interest rate. 

To put it simply, if the bank wants to increase the cost of the home loan, they’ll also need to pay out more money for their fixed deposit account holders. Essentially, the bank will incur an increased cost for themselves. 

2. Zero spread

Another reason why fixed deposit rate home loans became more popular than SIBOR-pegged home loans was due to their zero spread. 

A few years ago, banks were offering fixed deposit rate home loans that came with zero spread for properties under development. This meant that homeowners would pay lower monthly instalments for the first 3 to 4 years before the project received its temporary occupation permit (TOP). 

At that time, the interest rate for a fixed deposit rate home loan was around 0.6%. For a loan of $400,000 taken over 25 years, the monthly instalments would be $1,436.17. When the development has TOP-ed, the spread was increased to 1%. With an interest rate of 1.6%, this translated to $1,618.61 of monthly instalments. 

On the flipside, home loan packages pegged to other types of floating rates come with a spread for the whole loan tenure. 

While zero spread home loans is a good deal for many homeowners, banks have since stopped offering home loans pegged to their fixed deposit rates. Zero spread fixed deposit rate home loans are currently not available in Singapore as well. 

Is a fixed deposit rate considered a board rate? 

A board rate refers to the bank’s internal managed rate. The bank has full control of it and can adjust it anytime it wants to. It’s also seen to be less transparent than the other types of interest rate indexes, such as SIBOR. 

Since the bank determines the fixed deposit rate, it’s essentially a type of board rate. The bank can change how much interest they want to give out for their fixed deposits and how much they want to charge for their home loans anytime they want to. 

On the other hand, the fixed deposit rate is more transparent than the typical board rate. Since the interest rates of fixed deposits are advertised, you have an idea of the interest rate to be charged for home loans.

This is not necessarily the case for board rates since banks don’t advertise them. 

Should you take out a home loan pegged to a fixed deposit rate? 

You can consider getting it if you prefer to have some stability and predictability. 

As mentioned earlier, banks don’t change the fixed deposit rate as much. While fixed deposit rates in Singapore move in tandem with SIBOR, they don’t fluctuate as much either. 

In contrast, SIBOR is deemed more volatile as it’s based on daily projections of interbank borrowing. 

By getting a fixed deposit rate home loan, you don’t have to worry about the fluctuating interest rates. It spares you from the guesswork on how much you will need to pay for your monthly instalments over the years, allowing you to better plan your finances. 

It may also be a better option when interest rates increase, as you will get to save on your monthly instalments. 

If you’re looking for something more transparent, a home loan pegged to SIBOR or SORA would be better. Since both are based on the rate of interbank borrowing, they aren’t determined by one individual bank. 

You can find SIBOR rates on the ABS website, and the MAS website for SORA. 

They’re also a better option when interest rates are down, as your monthly instalments will be reduced. 

In fact, interest rates have been decreasing, especially over the past year due to the pandemic, with the 3-month SIBOR hovering around as low as 0.4% for the past 6 months. 

So it may be a good time to take up a home loan pegged to SIBOR or SORA. 

Finding the right home loan in Singapore

Whether you’re getting a home loan for your first home or refinancing for the second time, it’s essential to understand the various interest rate indexes and what they entail. 

Regardless of the financial product, banks will change the terms based on market conditions. 

This is also the case for fixed deposit rate home loans in Singapore. Although they used to come with zero spread for the past 3 to 4 years, this is no longer the case at the time of writing. 

Banks such as DBS and Standard Chartered that still offer this type of home loan charge a spread for each year of the loan tenure. 

If you’re still unsure on the type of home loan to take, consider engaging a loan broker such as FinanceGuru.

At FinanceGuru, we seek to help homeowners find the best home loan and help them achieve their financial goals. Learn more about how you can optimise your home loan and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today. 

With anxiety related to the COVID-19 and the economic uncertainty around financial markets, interest rates worldwide have been lowered to stimulate economic growth, encourage borrowing and spur investing. Whether you’re repaying your home loan or looking to invest in property, it’s worthwhile to take a step back to analyse your situation before making a move.

Find out how to shop for the best mortgage rate in Singapore here.

What’s the market like now?

On 10 June 2020, the US Federal Reserve announced that it would likely keep interest rates close to zero until 2022 to help the economy weather the negative impact of the coronavirus pandemic. 

This quantitative easing measure is significant, considering that it was just a few months back in March 2020 when the US central bank made its biggest interest rate cut since 2008 by slashing rates by 0.5.

Correspondingly in Singapore, interest rates registered a significant decline. Banks across the country that tag their loan interest rates to the Singapore Interbank Offered Rate (SIBOR) have lowered their interest rates. 

Learn more about jargons like SIBOR, TDSR, MSR and more in this guide.

Here are the latest SIBOR rates as of 21 December 2020, according to sibor.sg:

Duration	SIBOR
1-month	0.25167
3-month	0.40542
6-month	0.59338
12-month	0.81164

The three-month SIBOR as at December 2020 was considerably lower compared to a year ago. The rate in December 2020 was 0.40%. This, in comparison to 1.76% in December 2019, represents huge savings for big-ticket items like home loans. 

So if you find yourself with extra money and are contemplating putting that into your mortgage and paying it off ahead of schedule, here are 4 reasons why that might not be the best idea for now.

Why you shouldn’t pay off your home loan in now

1. Savings on monthly mortgages with lowered interest rates 

For those eyeing SIBOR-pegged mortgage rates, this could just be an opportune time to take advantage of the lower floating rate. 

You could also take this chance to refinance your home loan, change the length of your loan, or swap your adjustable-rate mortgage to a fixed-rate.

While interest rates will increase eventually, they’re likely to remain low for some time due to the pandemic. This means that if you’re a homeowner with a mortgage loan, you’ll continue to have lower interest rates on your monthly mortgage payments for a while. 

Since you can save on these monthly payments, you’re likely to have more spending money freed up and available. 

Instead of paying down your mortgage loans with the additional finances, you might like to consider diverting this money elsewhere — such as with investment opportunities.

2. Investment opportunities

By not channelling your finances towards paying off your mortgage loan, you free up your money for other uses, such as starting a business or exploring various investment opportunities.

Lowered interest rates mean that you have a greater sum of money available to you. This creates a great financial growth opportunity to build up your personal wealth, especially if you did not previously have the financial ability to invest.

This article in the Straits Times highlights several good starting points for investing in a volatile COVID-19 era—such as diversifying, buying government bonds, and being careful to have an amount of funds in cash instead of investing every last cent.

3. Looking ahead and staying ahead

Even as Singapore enters phase 3 of reopening the country, the COVID-19 pandemic continues to affect our country’s economy. 

It’s challenging, even for professionals, to predict or assume where the pandemic is headed, let alone individuals. This makes it extra important to prepare for a potential financial drought and difficult times in 2020.

4.  Having cash flow for emergencies

The importance of available cash flow is another big reason not to pay off your home loan in 2021. 

COVID-19 has created unprecedented circumstances in Singapore and has brought on severe repercussions all over the world. 

With job and economic markets being unstable and unpredictable as they are, it’s impossible to tell what challenges life throws at you. 

The last thing you would want is to have a financial curveball which you did not anticipate. 

Having accessible funds and money on hand for unexpected medical or unemployment emergencies is not only a prudent but wise decision.

Preparing for your finances

The COVID-19 pandemic has caused unexpected financial strain for many, making it extra important for individuals to have ready and available financial resources. 

As you contemplate the decision to refinance your home loan, it might be a good idea to talk to a mortgage broker. Why get bog down with the confusing literature and all that number crunching, when you can get experts to help you work out the implications of your housing debt?

While you might think swinging an extra few hundred dollars a month on your mortgage payment is simple, it might not be worth it if you’re skimping on important areas such as your retirement savings or your children’s university tuition.

Read here to find out more on how a mortgage broker can help.

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. We offer a service-free, no-obligation consultation on mortgage matters. 

Our team of mortgage experts is also equipped to help you work out the maths on MAS’ recent initiative. While the calculations may seem relatively straightforward at first glance, the two available options to defer your home loan does result in ultimately paying more for your property. 

Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today. 

While owning a home is one of the most significant milestones of adulting, it also translates into paying off your mortgage with a substantial portion of your finances monthly. But what if you can pay less for your mortgage instalments? Planning to refinance your HDB loan to a bank loan may help you save on your monthly payments.

Before we go into the how, let’s check out why most people take HDB loans in the first place. 

Why do people take up HDB loans? 

1. Get a higher loan amount 

The most notable benefit of taking out an HDB loan is that you can get a higher loan amount than a bank loan. HDB loans allow you to finance up to 90% of the cost of your flat. This is subject to eligibility conditions for HDB housing loans. With a higher loan amount, you get to pay less on the downpayment.

On the other hand, the loan-to-value (LTV) limit for a bank loan is 75%. Not only will the downpayment be higher, but you’ll also need to pay 5% of your downpayment in cash.  The remaining downpayment can be paid in both cash and CPF Ordinary Account (OA) savings. 

Scenario HDB loan VS Bank loan:

Daniel and Amy, a newly-wed couple, managed to get a 4-room BTO flat at Toa Payoh from the recent HDB BTO February 2021 launch. The value of the flat is $464,000.

If Daniel and Amy were to take out an HDB loan with the maximum LTV of 90%, the downpayment to be paid is $46,400. They’ll need to pay this 10% downpayment with their CPF OA savings. 

On the other hand, if they choose to take out a bank loan with the maximum LTV of 75%, they’ll have to set aside $116,000 for the downpayment. This includes 5% to be paid in cash, which is $23,200. 

The 25% downpayment can be too high for the couple, especially if they’re just starting out in their career. 

And if they don’t have much cash savings, taking an HDB loan may be better. 

2. Stable interest rate

Another good thing about taking out an HDB loan is the stable interest rate. The HDB loan is pegged to the CPF OA interest rate plus 0.1%. With the current CPF OA interest rate at 2.5%, the HDB loan interest rate is 2.6%. 

This hasn’t changed for the past 2 decades. 

Having a home loan with a stable interest rate means that you don’t have to worry about increasing interest rates, leading to increased monthly instalments. Plus, it allows you to manage your finances better. 

There are also misconceptions about bank loans, which may lead to people choosing HDB loans instead. Let’s take a look at some of them to help you make a more informed decision.

Misconceptions that people have about bank loans 

As a homeowner, it’s essential to differentiate between the myths and facts about bank loans. Doing so can help you decide if you should refinance your home loan to save money. 

Misconception 1: The bank will increase the interest rate

Banks can indeed increase the interest rate, especially for home loans pegged to board rates, as individual banks determine them.

However, home loan packages offered by banks have a lower interest rate than HDB loans typically. Whether the loan is pegged to a fixed rate or floating rate, they have been pretty stable throughout the years.

Learn more about the different types of mortgage rates here.

Let’s compare the interest rates of bank loans and HDB loans over the past 10 years. In this example, we’re using the 3-month SIBOR bank loan as it’s one of the most common home loan types.

Let’s also assume that the bank spread is 0.85%, so the bank loan’s total interest rate is the 3-month SIBOR plus 0.85%. 

Year	3-month SIBOR	Bank loan with 3-month SIBOR	HDB loan
2010	0.69%	1.54%	2.6%
2011	0.44%	1.29%	2.6%
2012	0.38%	1.23%	2.6%
2013	0.38%	1.23%	2.6%
2014	0.40%	1.25%	2.6%
2015	0.58%	1.43%	2.6%
2016	1.19%	2.04%	2.6%
2017	0.97%	1.82%	2.6%
2018	1.50%	2.35%	2.6%
2019	1.89%	2.74%	2.6%
2020	1.77%	2.62%	2.6%

Monitor the latest bank loan rates here. 

As you can see from the table above, the bank loan interest rate has been pretty stable over the years. And if you’ve been following the rates closely, you’ll find that interest rates have been decreasing over the past year due to the pandemic. 

In fact, the 3-month SIBOR has been hovering around 0.4% for the past 6 months. So it may be the best time to refinance your HDB loan to enjoy lower monthly instalments. 

Scenario:

Let’s say Daniel and Amy decide to refinance to a bank loan with an interest rate of 1.4% for 20 years. 

If they’re taking a loan of $300,000, their monthly instalments will be $1,433.88. This equates to a savings of $170.48 every month, which translates to quite a considerable sum in the long run. 

Loan type	Loan tenure	Interest rate	Monthly instalment
HDB loan	20 years	2.6%	$1,604.36
Bank loan	20 years	1.4%	$1,433.88

Misconception 2: If you take a bank loan, you can’t pay your monthly instalments with CPF

This is another thing that people get wrong about the monthly instalments for bank loans. Whether you’re taking an HDB loan or bank loan, you can pay the monthly instalments with cash and the funds in your CPF OA. 

With a bank loan, you can choose how much of your CPF funds will be used for the downpayment. 

This also ensures that you’ll still have some savings in your CPF to earn interest for your retirement. For the first $20,000 in your OA, you can earn 3.5% interest. The remaining balance in your OA can earn you 2.5% interest. 

On the other hand, if you’re taking out an HDB loan, the full 10% downpayment must be paid with CPF. HDB will utilise the entire balance in the OA, allowing a balance of $20,000 to be kept.

Do note that if you decide to sell your home one day, you’ll need to return the CPF funds plus the accrued interest back to your CPF account.  

Misconception 3: There’s too much work needed to refinance your HDB loan with a bank loan

One of the reasons why people choose not to refinance is the refinancing cost and effort required. The truth is that it’s essential to go to different banks to compare their rates and get a suitable home loan. 

Whether you’re planning to take out a bank loan for your new home, or thinking of refinancing your HDB loan, it doesn’t have to take up much of your time. The application can be made online in minutes. Some banks may even provide legal and valuation subsidies that can reduce the cost of refinancing from HDB loan to bank loan. 

And if you don’t want the hassle of going to different banks to find the best home loan rate, you can consider engaging a mortgage broker. 

Find out how a mortgage broker can help here. 

However, do note that once you’ve refinanced to a bank loan, you won’t be able to switch back to HDB loan in future. 

Should you refinance to a bank loan? 

Ultimately, you should only refinance if you can get a lower interest rate, and that the cost savings can cover the switching costs. 

Depending on the loan quantum, banks do provide subsidies or rebates for the legal and valuation fees needed for the refinancing. So, the total refinancing cost can be lower than the cost savings from the reduced interest rate. 

Plus, the good thing about HDB loans is that they don’t come with early repayment penalties, so you can refinance it anytime. 

Not sure where to start? Consider engaging a loan broker. At FinanceGuru, we partner with various banks and compare their loan packages to help you find the right one. Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today. 

Getting a home loan in Singapore can be hard. The sheer amount of paperwork, fees and the number of people involved is a consuming exercise that can be mentally and psychologically draining. Having thoughts about “just getting all this over and done with” is only natural. 

However, as it’s going to be a significant financial commitment each month, it would be a good idea to not give in to the temptation to rush and sign everything before getting some trusted advice.

Before committing yourself to a lender, it might be worthwhile to engage a mortgage broker in Singapore to walk you through the process. In this article, we share how a mortgage broker can help you get a home loan in Singapore.

What is a mortgage broker? 

Mortgage brokers, otherwise known as loan brokers, are well-versed with mortgaging and loan financing. 

They act as intermediaries between borrowers and lenders and have access to hundreds of loan packages across most financial institutions. 

They help borrowers find the best available loans from their pool of lenders. With their wide network, they can find and evaluate which packages are suitable for you based on your financial situation and needs. 

How a mortgage broker in Singapore can help in your search for a home loan

There are 3 areas where getting a mortgage broker in Singapore would be particularly helpful.

1. A mortgage broker can shortlist the best home loan for you 

Home loans today are no longer just about signing up for 20 years and making regular loan payments. Neither is it just about trying to pay off the mortgage as quickly as possible.

Determining the best home loan is highly dependent on your own personal circumstances and requirements. While it’s tempting to make the decision purely based on the interest rate, there can be added value in other features as well, such as flexibility, loan terms, and repayments plans.

A mortgage broker will be privy to the most current range of loan options available in the market and can help you shortlist the most viable option to meet your financial needs. 

Sometimes, the best home loan rates for your needs may not necessarily be as advertised online. This may be arranged by contacting a lender and/or a mortgage broker directly to convey your needs.

A mortgage broker can also help negotiate with a lender if you’re looking to refinance or take out a new loan.

Find out all about cash-out refinancing here. 

2. A mortgage broker can provide guidance and support throughout the process 

While there are many loan comparison websites and D-I-Y home loan calculators available online to help you get a rough gauge of your loan eligibility and repayment capacity, you should note that these calculations are based on a general industry-wide formula. There’s a high chance that they would not have addressed all your financial considerations. 

Read more TDSR and MSR here.

Mortgage brokers have a good understanding of the current situation of the property market. Engaging one that’s fluent with the nuts and bolts of the construct of the various home loan types will be a useful resource in your decision-making process. 

They’ll also be able to help you work through your preference for a fixed or variable interest rate on your home loan. As you consider taking full advantage of the current low SIBOR to refinance your home loan, it would be worthwhile to have a mortgage specialist help you evaluate the features and potential benefits.

Learn more about SIBOR and other common loan terms here.

The refinancing process does come with a whole range of home loan fees out there that can be charged by different lenders. 

Sometimes these fees are packaged within the home loan offer, other times they are featured on the side. Either way, these fees are present, and a mortgage advisor will be able to point out which potential loan options offer fair value. 

The home loan market is crowded and competitive. Having an expert pair of eyes to sniff out home loan rates that come with a catch, could yield substantial savings. After all, you don’t want any rude surprises on a price tag of this size. 

3. A mortgage broker can get it all done for you

With all great plans, the prize is in the implementation. A mortgage advisor can help see you through the entire loan process. 

We all know that one of the most time-consuming parts of applying for a loan is all that paperwork. With a mortgage broker, your application period can be shortened. Your broker can settle most of the paperwork for you, and save you time from making multiple trips to the bank. 

Benefits and drawbacks of engaging a mortgage broker in Singapore to help in your search for a home loan

To help you weigh in on whether you should engage a mortgage broker in Singapore for your home loan, here are the pros and cons:

Pros	Cons
Has access to more lenders to compare loans	May not have access to all lenders, as not all lenders work with brokers
Will help you get the best rate based on your financial situation and requirements	Might be difficult to find a good loan broker dedicated in helping you to get  the best deals
Can consolidate suitable plans for you and provide expert advice
Can help to reduce your workload and speed up the loan application process
Provides a one-stop-shop solution

Getting a home loan in Singapore with FinanceGuru

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. 

You can depend on our mortgage specialists to guide you from start to finish. Our team will take care of all cumbersome paperwork, loan submission and the appointment of a legal firm. Moreover, our work does not end after the completion of your loan application. We’ll assign a relationship manager to help you with your requirements throughout your mortgage life cycle. 

Learn more about optimising your home loan and uncover hassle-free ways that will save you time and money. Get a non-obligatory assessment and loan product recommendations today. 

As a homeowner, you’ll most probably have heard of SIBOR and SOR. And if you’ve been looking up home loans lately, you might have come across the term SORA as well. 

Read: SIBOR, SOR, SORA explained: What do they mean?

Changes set for SOR and SIBOR

SIBOR, SOR, and SORA are all interest rate benchmarks. Banks use them to determine how much interest to charge borrowers or give payouts to customers. While they are used for business loans and derivatives, they’re most commonly known for pricing floating rate home loans. 

However, this is set to change as SOR and SIBOR will be replaced by SORA. 

First announced in 2019, the transition from SOR to SORA will affect a small number of homeowners. As SOR-pegged home loans aren’t as popular, banks have stopped offering them since 2017. 

But the change from SIBOR to SORA will be more extensive, as SIBOR-pegged home loans are more commonly used. 

With that, here’s what you need to know about SORA, and why it’s replacing SIBOR.  

What is SORA? 

SORA is short for Singapore Overnight Rate Average. While it’s been in the spotlight lately due to the transition, it’s not a new type of interest rate benchmark. In fact, the SORA calculation methodology has been around since 2005.

It’s derived from the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank market made between 8 am and 6.15 pm. 

To put it simply, it’s based on the average rate of past interbank transactions. The rate will then be published the next day at 9 am on the MAS website. 

Though banks have only started using SORA for home loans recently, it’s been used to price commercial loans for some time. 

How is SORA different from SIBOR and SOR?

The main difference is that SORA measures the actual interbank transactions. SIBOR and SOR, on the other hand, are based on projections of interbank lending rates. 

SIBOR, or Singapore Interbank Offered Rate, is based on the average rate that banks predict they might borrow from the interbank market. 

Short for Swap Offer Rate, SOR is the effective rate of borrowing SGD synthetically, by borrowing in USD first, and then converting it to SGD. 

As SORA is based on actual transactions, it’s deemed as backward-looking. In contrast, SIBOR and SOR are considered forward-looking. 

This table summarises the differences between SIBOR, SOR, and SORA. 

	SIBOR	SOR	SORA
Calculated by	Each bank submits to ABS its projected lending rate from the interbank market.  After the top and bottom quartiles are removed, the remaining rates will be calculated to find the average.	Volume-weighted average rate of USD/SGD FX swap transactions, computed using the USD LIBOR.	Volume-weighted average rate of transactions in the interbank market.
Governed by	ABS	ABS	MAS
Currently used by	– Home loans – Commercial and syndicated loans – Trade financing – Working capital financing	– Home loans – Derivatives – Business loans	– Home loans – Commercial loans

Why is SORA replacing SIBOR? 

Adopting SORA is a win-win for both borrowers and lenders. For borrowers, you can benefit from more transparent interest rates. Banks also stand to benefit from better risk management. 

Here are other notable reasons why SORA is replacing SIBOR:

1. Attempt to reform SIBOR was unsuccessful

Mentioned earlier, SIBOR is based on projected interbank lending rates. However, banks haven’t been borrowing from each other due to regulatory changes after the 2008 – 2009 financial crisis. 

The Association of Banks in Singapore (ABS) and Singapore Foreign Exchange Market Committee started planning to reform SIBOR in December 2017. With the reform, the new calculation didn’t just consider interbank borrowing, but also wholesale funding transactions. In addition, it relied less on expert judgement. 

After a year of testing, it’s found that this new benchmark — termed the new polled benchmark — was unsuitable to replace SIBOR. 

It was more volatile and didn’t track as closely to SIBOR’s movements as anticipated. Thus, it was less likely to be accepted by users. These different elements also meant that it couldn’t directly replace SIBOR, and doing so would lead to extensive changes to current SIBOR contracts. 

2. The industry is already transitioning to SORA 

SOR is getting replaced due to the discontinuation of the USD London Interbank Offered Rate (LIBOR) by the end of 2021. 

Since SOR is being replaced by SORA, moving to a single interest rate benchmark for the SGD financial markets will be better. There’s been significant progress in the derivatives market since the transition from SOR to SORA. 

3. SORA is more transparent than SIBOR

Due to its forward-looking nature, SIBOR tends to be more exposed to market factors on a single day’s fixing as well, such as a quarter or year-end volatility. Looking at the SIBOR trend and rate history, it’s harder to predict if the rate is going up or down in future.  

Given that SORA is based on actual interbank transactions, it’s deemed more stable than SIBOR. It’s more predictable, allowing you to better insight into how much to pay for your monthly instalments. Comparing home loans will also be easier with SORA. 

On the other hand, SIBOR is based on the rate that banks decide to borrow in the future, so it’s more volatile. 

When will SORA replace SIBOR? 

The transition is currently happening in phases, spread over 3 to 4 years until the end of 2024. 

Due to the low take-up, the 12-month SIBOR was phased out at the end of 2020. Similarly, the 6-month SIBOR will no longer be used by Q1 2022, around 3 months after the discontinuation of the 6-month SOR. 

The 1-month and 3-month SIBOR are the last ones to be phased out by the end of 2024 as they’re most commonly used. The 1M and 3M SIBOR are also the more popular types of home loans currently. 

What are your options if your home loan is pegged to SIBOR?

You’ll eventually need to switch your home loan. In the meantime, you can take the time to consider between sticking to a floating rate home loan, or changing to a fixed-rate home loan.

Floating rate home loan

Floating rate home loans are more volatile as the rates can go up and down. They’re more beneficial when interest rates are declining. 

With banks’ interest rates for floating home loans at their lowest in recent years, your home loan will benefit from the more favourable rates.

Besides SORA, other floating rate home loans are pegged to board rate and fixed deposit home rate. 

• Board rate
  Board rate is determined by individual banks. Thus, it’s seen as less transparent compared to other types of floating rates. 

• Fixed deposit home rate
  Fixed deposit home rate is based on the bank’s fixed deposit products.
  
  It works on the premise that if the bank increases the interest rate for their FD home loans, they’ll also increase the payouts for their fixed deposits. This deters the bank from changing their rates often, so there’s lower volatility in FD.
  
  But it is considered a banks’ managed rate since it’s still up to the bank’s discretion. 

Fixed-rate home loan

Interest rates for fixed-rate home loans are fixed for a few years, depending on your loan tenure. A fixed-rate home loan can help you manage your budget better since there’s a fixed amount to be paid every month. 

And when interest rates are increasing, you’ll get to save on the monthly instalments. 

Learn more about the different types of mortgage rates here.

Changing your home loan in Singapore

The transition from SIBOR to SORA will be gradual and spread over the next 3 years. So you’ll still have some time to go through your options before changing your home loan.

You can take this time to approach different banks to compare their home loans. But if you don’t want the hassle, you can save time by approaching a mortgage broker who can help you find a suitable home loan. 

Find out more about taking out a home loan with a mortgage broker here.

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today. 

It wasn’t too long ago when I realised, to my horror, that my home loan agreement had expired, and I’ve been paying a ridiculous heightened amount for several months! 

At a time when interest rates are lower than ever, how could this possibly be? 

Here’s what happened

I got a letter from my bank announcing their latest updates to home loan packages.

There was no mention within the letter that my home loan was up for renewal. 

A couple of weeks later, I got another letter to say that the monthly deduction from my account towards my home loan will be increased in the following month by x%. 

The implications of that x% increase towards the broader picture were absent. 

Wouldn’t it be more helpful to a customer to update the remaining loan amount and how the monthly mortgage would contribute towards a fully-paid property?

Thus, I went to the nearby bank branch to get more information. 

The customer service officer calmly offered the perfunctory “I’ll get our mortgage department to contact you.” For two weeks, there was no reply. 

Not knowing what to do, I went around asking for advice from friends who were  property agents, financial advisers. I got a whole heap of referrals to speak to enthusiastic bank representatives who were eager for me to sign up for a home loan from the banks they represented. 

I spent an additional 2 weeks trying to figure it all out on my own. 

When I decided that home loans’ comparison process was not all that straightforward, I gave up and just went with the regrettable option that came with the most shopping vouchers. 

Were the shopping vouchers an emotional gratification I needed to tide me over the unnerving state of helplessness? Totally.

Was there a simpler and more effective way I could have managed this? Definitely. 

Determined that no one else should ever have to go through the shock, the frenzy and the unnecessary expense, I have decided to put this article together for 1) homeowners who have some time before your home loan is due for renewal, and 2) those whose home loans will soon be due for renewal. 

I still cannot believe how I had to incur almost a thousand dollars because of a forgotten contract end date.

What I wish I did

Shopping for something as varied and confusing as home loans is predicated on two fundamental considerations: time and access to the right options. 

There’s always too much to do and never enough time, but no matter how stacked your schedule is, as a homeowner, you might want to consider: 

• Setting a calendar reminder to review options for a home loan 4 months before your current agreement expires
• Taking 20 minutes for a Home Loan Health Check 
• Getting a mortgage advisor to support you through the process 

Here’s why

Providing for a 4-month lead time 

While 4 months might seem like forever for something “so administrative”, the shopping experience for a home loan in Singapore is not quite as succinct as buying an oven toaster. 

The banks’ processing time takes approximately 4 business weeks, and that excludes wading through the maze of options, shortlisting them and making a decision. 

Home loan health check 

Taking 20 minutes for this review exercise is useful as it gives you a chance to review your financials alongside your current requirements. 

For instance, how would your financial situation within a 12 month period change? Whether you’re planning to start a family soon, or looking to make a major purchase in the near future, your priorities will shift. 

Spending time to go through all the possible implications is valuable, especially because your home loan decision will determine your flexibility during the lock-in period. 

Read more about why you should do a home loan health check here.

Getting the right help 

The adage “be careful of what you asked for” could not be more apt. My arbitrary question “do you have any contacts with banks for home loans” to my friends who are bankers and property agents would’ve naturally suggested a specific source to a solution I was looking for. 

Had I been more familiar with the make-up of the mortgage market, I would’ve been aware of the benefits of a mortgage broker and widened my question for a mortgage specialist. 

For first-time home loan seekers, you’re probably hesitant to add another person in the team of property agents and bankers you’re already working with.

But the reality is: just because my mother is a great cook, she would not be my first choice if we had to appoint a Chief Procurement Officer for the household groceries. My mother is the perfect example of someone who values convenience over anything else. To drive to a specific store to get fish that promises supple yet flakey, juicy melt-in-your-mouth tenderness is something my dad would do. 

Likewise, when it comes to mortgages, mortgage brokers have all the extensive knowledge of their field. They’re qualified professionals trained specifically in the mortgage area. They have the vast experience and are best placed to help you in your mortgage buying decision. 

Your property agent should not be expected to stand in for a mortgage specialist. Like a property agent is trained to help you in your purchase or sale of a property, a mortgage broker understands the technicalities and implications of a home loan. They’re trained to balance the implications with your financial needs. 

Why you should consider engaging a mortgage broker in Singapore too

To help you make the most informed decision possible, consider engaging a mortgage advisor. Not only do their services come at no cost to you, but a mortgage advisor will also: 

• save you time by comparing the market for you 
• provide an unbiased consultation and offer independent recommendations 
• probably save you money as their access to many lenders would be able to get you a good deal and/or better rate 
• help you with the necessary paperwork

My experience with FinanceGuru

You might like to check out FinanceGuru, a leading mortgage advisory firm with partnerships with all major banks in Singapore. I used them recently when I looked into home loan refinancing for my parent’s house. 

Apart from the no service fee feature for dependable professional advice, the team of experienced mortgage specialists provided advisory support right from the start. This includes taking care of cumbersome paperwork, loan submission and the appointment of a law firm. 

The after-sales service was superb. My parents were suitably impressed that FinanceGuru had assigned a relationship manager throughout their mortgage life cycle. The relationship manage conducts constant home loan reviews and track rates so that my parents never have to worry about overpaying for their loan. 

My top marks go to how prompt and easily contactable the mortgage advisor had been for us. Yes, we’re still reeling from all these useful benefits and not having to pay anything for it.

When the time comes for renewing your mortgage, go for the easy option. Get a mortgage advisor. The relief from frustration and potential savings are great incentives to start. 

Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations with FinanceGuru today. 

Making your first home purchase soon? Or thinking of refinancing your home loan? If you’ve been looking up at the various home loan packages from banks, you might have come across the acronyms SIBOR, SOR, and SORA. 

But what do they stand for? And how do they affect your home loan instalments? 

In the simplest sense, SIBOR, SOR, and SORA are all interest rate benchmarks that banks use to determine the interest rate they charge to borrowers. 

In the case of home loans, banks charge either floating rate or fixed rate. Home loan packages with floating rate are usually pegged to SIBOR, SOR, and more recently, SORA. 

With that, let’s delve deeper into what each of these interest rate benchmarks means. 

What is SIBOR? 

SIBOR is short for Singapore Interbank Offered Rate. Essentially, the meaning of SIBOR is that it’s the rate that banks in Singapore can borrow from each other via the interbank market. 

Just like how people borrow money from each other, banks also do that when they’re short on cash. For instance, when the amount of loans they disburse is more than their short-term cash reserves, they will borrow from the interbank market. 

How is SIBOR calculated?

Every working day, each of the 20 banks will submit to the Association of Banks in Singapore (ABS) the rate that they might borrow funds from the interbank market. 

ABS will then remove the top and bottom quartiles (top 5 and bottom 5 rates), and get the average rate from the remaining 10. This average will be set as the SIBOR. 

You can find the latest SIBOR rate on the ABS website here. 

What does this mean for SIBOR-pegged home loans? 

Given that SIBOR is derived from the average rate that banks might borrow from each other, no single bank can influence it. 

Due to this nature, home loans pegged to SIBOR are considered one of the most transparent ones than other benchmarks such as board rates. While board rates are also floating rate, they’re determined by individual banks, which means the banks have sole discretion to adjust the rates. 

This also makes SIBOR one of the most common benchmarks used for home loans in Singapore.  

On the other hand, SIBOR-pegged home loans may be considered to be more volatile. Since it’s based on the rate that banks might borrow in the future, it’s a little more unpredictable than fixed-rate home loans. 

In a way, you can never really know what’s the total interest rate that you’re paying for your home loan instalments until you’ve made the payment. So if you’re more risk-averse and want to have more certainty towards the monthly repayment each month, a fixed-rate home loan would be better. 

Learn more about the different types of mortgage rates in our ultimate compilation guide here.

If you’re fine with the little changes in interest rate, a floating rate home loan can be a good option. Looking at the history and trend of the SIBOR rate, it’s been on the low side. So you can benefit from the lower monthly instalments due to the lower interest rate. 

However, do note that SIBOR is likely to  be discontinued in the next 3 to 4 years and replaced with SORA. If you’re planning to take a floating rate home loan, be sure to consult with your bank or a loan broker to find a suitable package. 

Read: Here’s why a mortgage broker might be helpful in your home loan process. 

What is SOR? 

Swap Offer Rate, or SOR, refers to the effective rate of borrowing SGD synthetically, through borrowing USD and converting it to SGD. 

SOR-pegged home loans were an alternative to SIBOR-pegged home loans until the last of its kind was taken off the market in 2017. 

Why don’t banks offer SOR-pegged home loans anymore? 

Banks no longer offer SOR due to the low take-up. SOR is more volatile and makes the repayment amount increasingly uncertain for many homeowners. 

In terms of the historical trend, while there isn’t much difference between SIBOR and SOR, SIBOR is generally more consistent. 

On the contrary, SOR doesn’t only reflect lending rates but is also based on the exchange rate between SGD and USD, so it tends to fluctuate more than SIBOR. 

It’s also computed using the USD LIBOR (London Interbank Offered Rate), which will no longer be used after 2021. 

This means that for financial products priced using SOR — including derivatives, business loans, and a small number of home loans — will soon be charged based on another type of benchmark — SORA.   

What is SORA? 

SORA stands for Singapore Overnight Rate Average. Contrary to popular belief, it’s not a new type of interest rate benchmark and has been around since 2005. 

How is SORA calculated? 

SORA is derived by calculating the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank market made between 8 am and 6:15 pm of each working day. 

In the simplest sense, SORA is the average rate of all interbank lending transactions. 

How is SORA different from SIBOR and SOR? 

Similar to SIBOR, SORA measures interbank lending rates and is not influenced by foreign exchange. 

But what makes it different from SIBOR and SOR is that it’s backward-looking and calculated based on actual transactions. 

So it’s deemed to provide more stability than the other 2 types of benchmarks. 

On the other hand, SIBOR and SOR are both forward-looking as they’re based on projections of lending rates. Forward-looking rates are also deemed to be more susceptible to market factors on a single day’s fixing, including quarter or year-end volatility. 

SORA’s stability is also one of the reasons why SIBOR and SOR will soon be replaced by it. 

Learn more about loan jargons in this article here. 

What does this mean for homeowners? 

What this means for lenders is that SORA can help manage risks more effectively. 

Since it’s based on actual interbank transactions, it provides more predictability. It gives you a better idea of how much you’ll need to pay for your home loan instalments, making it easier for you to compare and choose the right home loan package. 

What if my home loan is pegged to SIBOR or SOR?

You’ll eventually need to change your home loan. If you plan to continue with a floating rate home loan, your options are SORA, board rate, and fixed-deposit home rate. The other option would be to go for a fixed-rate home loan. 

As the financial industry slowly transitions from SOR and SIBOR to SORA, you can expect your bank to inform you about the change and help you transition in the near future. 

For instance, if you’ve taken a home loan with UOB, the bank will contact you about the transition and provide you with other home loan options, including SORA-pegged loans.

If your home loan is pegged to the 12-month SIBOR, UOB had replaced it with the 3-month SIBOR in October 2020. 

This is in line with the 12-month SIBOR being discontinued by end-2020 due to its lack of usage. 

Here’s a breakdown on when SOR and SIBOR will be phased out:

Type of benchmark	12M SIBOR	SOR	6M SIBOR	1M SIBOR and 3M SIBOR
When is it phased out?	By end 2020	By end 2021	Possibly Q1 2022, 3 months after discontinuation of 6M SOR	By end 2024

Given that the 1-month and 3-month SIBOR are most commonly used, they’ll only be discontinued by the end of 2024. If your home loan is pegged to either of these benchmarks, there’s still some time for you to switch. 

As of writing, many banks are still offering SIBOR-pegged home loans. Only a few, such as OCBC and UOB, have started offering SORA-pegged home loans.  

Whether you’re a new homeowner or planning to refinance your home loan, be sure to consult with a few banks and loan brokers to enquire about the available options and get the best rates. 

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today. 

Find yourself in a bit of a scramble because your home loan is up for renewal soon? Could now be a good time to review and refinance your home loan in Singapore? Or should you increase the size of your regular repayments and pay off your loan sooner? 

Before you launch into the overwhelming task of refinancing or repricing your loan, it could be worthwhile to take 20 minutes to do a financial health check on your loan.

While the joys of checking on mortgages can hardly rival an hour on Netflix, a yearly financial health check on your loan is helpful, especially if you’re planning for changes in your life. For instance, you may be thinking of starting a family. 

Milestones like these should be considered to ensure your needs are best served as you shift priorities and take up your next home loan.

How to know if it’s time for you to do a financial health check on your home loan?

We recommend that you do a yearly review of your home loan if you’ve responded with a yes to most of these questions:  

• Do you want to pay off your home loan faster?
• Do you plan on making any major purchases soon?
• Do you want to save money on your home loan?
• Is your financial situation likely to change within a 12-month period?
• Are you struggling to meet your current commitments?
• Is your fixed-rate or interest-only home loan expiring soon?
• Are you happy with your current bank or lender?

Even if the questions don’t apply to you currently, reviewing your loan in advance will pick up present conditions that could potentially save you thousands of dollars. For one, you could vary the features on your current loan to serve your impending needs.

The mystifying pool of mortgage terminology, features, and the myriad of available options can prove to be quite a lot to try to make sense of. But a home loan health check will help you make an informed decision. Here are some considerations:

• Could you be getting a better interest rate by refinancing your home loan to another lender?
• Should you switch between fixed and variable rate or vice-versa?
• Are you informed on your property value?
• Are you in the position to access the equity in your home?
• Are you getting the most out of the home loan features?

What our Home Loan Health Check entails 

Home Loan Health Check with our experts at FinanceGuru takes approximately 20 minutes. Before you go for the home loan check, it’s useful to have the following on hand: 

• Address of the property 
• Your most recent home loan statement

With these information, we’ll be able to:  

• Advise you on an approximate valuation of your property 
• Determine the remaining balance and the repayment schedule of your current home loan 
• Help with an understanding of the Loan to Valuation Ratio on your home 

These 3 components are integral in providing an accurate assessment of a loan type that best meets your needs. 

Now, it’s important to remember that it’s not always about getting a better rate. There’s a tendency for most borrowers to focus on getting a lower interest rate. 

However, there are other factors to consider before signing up, such as: 

• Your personal circumstances can change or may be changing, such as work arrangements, travel, marriage or children
• Your current and future needs
• Your short and long-term financial goals

Without proper consideration of these 2 factors, your loan features that you’re paying for may not adequately support your current and future plans.

Perplexed from all you have read? Let our experienced mortgage specialists walk you through the 20-minute free Home Loan Health Check here. 

How home loan repayment works

A home loan payment is calculated based on amortisation. Loan amortisation is the process of spreading your loan payment into a series of fixed payments. It is designed to help borrowers manage their repayments easily as a portion of each payment is applied towards the principal balance and the interest. 

Below is a loan amortisation table to help you visualise your loan repayment. We use a $500,000 loan amount for a 20 years loan at 2.60% interest rate.

Month	Payment amount	Amount applied to Principal	Amount applied to Interest	Remaining balance
1	$2,673.94	$1,590.61	$1,083.33	$498,409.39
2	$2,673.94	$1,594.05	$1,079,89	$496,815.34
3	$2,673.94	$1,596.51	$1,076,43	$495,217.83
…	…	…	…	…
220	$2,673.94	$2,656.63	$17.31	$5,330.55
230	$2,673.94	$2,662.39	$11.55	$2,668.16
240	$2,673.94	$2,668.16	$5.78	$0

Your repayments are recalculated when one or more of the following takes place:  

• An interest rate rise
• When you make payments towards lowering the principal amount of your loan 
• You are coming off a fixed or introductory period which had featured a lower rate than the new loan type 

Find out how to choose the right personal loan repayment plan here.

Read about how refinancing your debt can help you take up a more comfortable monthly repayment amount here. 

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today. 

Navigating the process of applying for a home loan in Singapore can feel like a bit of a minefield. Whether it’s taking up a home loan on your first property, or renewing an existing home loan, knowing how to make smart borrowing decisions is a piece of practical wisdom no homeowner should be without. 

In this guide, we put together some tips to make shopping for the right home loan easier for first-time homeowners. 

What are the types of home loans available in Singapore?

Whether you’re newly married, single, or just looking to move out of your parents’ flat, you’ll need to get a home loan. 

There are two options when it comes to taking out a home loan in Singapore: 1) HDB Concessionary Loan (HDB loan), and 2) loans from financial institutions (bank loans). Let us look into each loan type and its terms. 

HDB loan

HDB loan is catered for those looking to buy HDB properties such as a Build-To-Order (BTO) flat, or an HDB resale flat. It’s not applicable if you plan to buy a private residence like an EC, condo, or landed.

The loan amount offered will also depend on several factors. Your age, financial situation, and monthly income are all key considerations. If you get an HDB BTO flat, HDB will assess your finances closer to the flat’s completion. This gives you more time to beef up your finances to be eligible for the HDB loan. 

Thinking of getting a resale flat? Read our 10-step guide to purchasing one here.

HDB loan eligibility criteria

To be eligible for an HDB loan, check that you meet the following criteria:

Citizenship	– At least 1 buyer is a Singapore citizen
Monthly income ceiling	– $14,000 for families – $21,000 for extended families – $7,000 for singles buying a resale 5-room (or smaller) flat or a new 2-room Flexi flat in a non-mature estate
Household status	– Have not previously taken 2 or more housing loans from HDB – Have taken 1 housing loan from HDB. The last owned property is not a private residential property (local or overseas)
Ownership	– Must not own or have disposed of any private residential property in the 30 months before applying for an HDB Loan Eligibility (HLE) letter. – Do not own more than 1 market/hawker stall or commercial/industrial property – If owns only 1 of the above, you must be operating the business there, and have no other sources of income

Find out more about the eligibility criteria for an HDB loan here. 

HDB loan at a glance

Interest rate	– 2.6% p.a. (pegged at 0.1% above the prevailing CPF OA interest rate which stands at 2.5%)
Loan-to-Value limit (LTV)	– New flats: up to 90% of purchase price – Resale flats: up to 90% of the resale price or value, whichever is lower – If the remaining lease cannot cover the youngest buyer to the age of 95 at the point of application, LTV will be prorated
Downpayment	– Up to 10% (full amount can be paid using CPF)
Early repayment	– Will not incur a penalty

Find out how you can upgrade from an HDB to an EC here.

Bank loan 

Unlike HDB loans, bank loans can be used for any property. This includes HDB flats and private properties. 

Different banks in Singapore offer different types of home loans. You can choose from a fixed-rate package, floating rate package, or both. Interest rates for home loans offered by the banks in Singapore are pegged to fixed-deposit rate, SIBOR, SOR, SORA, or an internal rate determined by the bank. 

Also, bank loans have fewer eligibility criteria to meet as compared to HDB loans. In general, you should have a good credit score and be looking to borrow a minimum loan size of at least $100,000.

Bank loan at a glance

Interest rate	– Variable interest rates depending on packages – Typically ranges from 1.20% onwards
Loan-to-Value limit (LTV)	– Up to 75%
Downpayment	– Up to 25% (at least 5% must be paid in cash)
Early repayment	– Might incur a penalty
Loan amount	– Minimum loan amount required

What is mortgage pre-qualification?

You may find property agents or mortgage brokers in Singapore requesting a pre-qualification before they start working with you. 

A mortgage pre-qualification is purely procedural. This pre-qualification allows mortgage brokers and agents to work with you to determine how much you can afford and which loans are available for you. 

It’s a fairly simple process. You only need to submit your financial information such as income statements and the savings and investments you have. Once this is completed, you’ll have a better idea of how much you can borrow and the price range of the homes you can afford.

Which home loan should you go for? 

In general, an HDB loan is suitable if you’re more comfortable with a stable interest rate. 

Compared to bank loans, HDB loans require a smaller downpayment and the downpayment can be paid via your CPF OA. So if you do not have much cash on hand, it’s better to opt for an HDB loan. 

But, if you know your way around the housing market and know how to refinance your loan, a bank loan will be much cheaper in the long-run. 

Read about the 5 key considerations when choosing to take an HDB loan or bank loan here.

How to find the right home loan suited for you

Remember, we each have our own unique financial requirements. Do not rush the process. 

Your neighbour might have opted for fixed rates for their loan. Your best friend might have opted for a home loan that’s based on a variable rate. Note that their choices do not mean either of the loans are the right loan for you too. 

Some people prefer a fixed-rate loan due to the stability, while others may be more comfortable with lower initial payments of a variable rate loan. 

To make an informed comparison, it’s important to understand all of the components that go into your loan. At a glance, loans could feature the same interest rate. However, on closer look, you could find differences in the features and fees that would result in making one offer more expensive than another. 

Before you decide on a home loan, we recommend 3 areas of consideration: volatility, frequency of change, and transparency. Ask yourself: 

• What’s your appetite for volatility when it comes to interest rates? 
• Are you open to the idea of changes in interest rates regarding budgeting for your home loan? 
• Do you need to monitor the rate you’re paying on the home loan?      

These questions will help you better understand the type of loan you’re more comfortable with and layout your requirements.

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Get a non-obligatory assessment and loan product recommendations here. 

Dealing with financial matters can be nerve-racking, especially if you’re not familiar with the jargon and terminologies. But rest assured you’re not alone — even those comfortable and fluent in the topic sometimes find it difficult to grasp certain concepts. To make it a lot easier for soon-to-be homeowners like you, we’ve made this handy guide to help you to navigate your mortgage purchase easily. Here are 6 common home loan terms you’ll find popping up quite often when applying for a home loan in Singapore.

6 home loan terms you should know when getting a property in Singapore

1. SIBOR

This is one of the terms you’ve probably come across during your research for a home purchase. 

SIBOR stands for Singapore Interbank Offered Rate. Banks in Singapore use SIBOR as the interest rate when they lend funds to each other. This interest rate is determined through the interaction of the banks.

Here’s a table of the SIBOR rates during the COVID-19 pandemic:

SIBOR rate as of 28 Dec 2020
1-month SIBOR	0.25167%
3-month SIBOR	0.40542%
6-month SIBOR	0.59338%
1-year SIBOR	0.81158%

Banks usually price their mortgage loans based on the SIBOR rate. But, there’s an additional spread to it. For one, a mortgage loan may be offered at 1-month SIBOR + 0.80%. This spread of 0.80% is the bank’s margin, and different banks can offer consumers the best SIBOR home loan rates by adjusting their spread. 

Check out the latest SIBOR rate here. 

2. Fixed-rate

Fixed-rate is an interest rate that remains the same during the fixed term. For instance, a fixed-rate mortgage means that you can look forward to an unchanging interest figure on your monthly instalments during the fixed term.

Given that fixed rates are more stable and predictable, you can allocate your monthly budget to repay your home loan and manage your finances easily.

However, do note that floating or variable rates will kick in once the loan term for your fixed-rate ends.

Here’s a table to compare fixed-rate and variable-rate:

Fixed-rate	Floating or variable rate
Interest rate is fixed and will not change during the fixed term	Rate varies and is generally tied to a reference rate, e.g. fixed-deposit rate, SIBOR, SOR, SORA, or an internal rate determined by the bank
No change in rate even when market rates fall	Interest payable moves with reference rate, and vice versa
After the fixed-rate period, floating or variable rates comes in	–

If you’d like to continue with a fixed loan again, you’ll need to specify this when you refinance your loan. 

We cover more about the different types of mortgage rates here.

3. Home loan lock-in period

A lock-in period is a period of time where your loan is “locked-in”. The window of time varies depending on the home loan package you choose. It could last anywhere between one to five years, and it typically begins when the bank disburses the loan.

If you end your home loan within the lock-in period, there is usually an exit penalty. Most banks set their exit penalty at 1.5% of the outstanding loan amount. 

People usually get variable loan packages with a lock-in clause as they tend to be cheaper. If you do not intend to refinance within a short period of time, the lock-in clause is usually insignificant. 

One key thing to note is that if you’re on a fixed-rate loan, you’re almost always considered locked-in during the fixed loan period. For example, you’ll be in a lock-in period of 3 years if your fixed-rate is a 3-year loan term. 

4. TDSR

TDSR refers to the Total Debt Servicing Ratio. It was introduced by the Monetary Authority of Singapore (MAS) to ensure that you do not borrow more than what you can afford. In 2013, about 5% to 10% of Singaporean mortgage-holders were over-stretching themselves by borrowing more than they can manage.

Applicable to both private and HDB properties for refinancing and new property purchases, TDSR is determined by calculating the percentage of your gross monthly income that can go towards servicing your home loan. 

As of 2020, the TDSR limit is set at a maximum of 60%. This means that all your debt obligations, from car loans, personal loans, student loans, must not exceed 60% of your gross monthly income. 

To calculate your TDSR, divide your total monthly debt obligation by your gross monthly income. For example, if your monthly salary is $5,000 per month, your TDSR threshold is $3,000 (60% of $5,000). If you have a monthly debt obligation of $1,500, and you want to apply for a property loan, the maximum monthly repayment you can afford on the home loan is $1,500 ($3,000 – $1,500). 

5. MSR

Mortgage Servicing Ratio, or MSR, is a limit imposed by the MAS on how much you can take out on loan to buy a HDB or new EC. It serves the same purpose as TDSR, in which it helps you find out your loan eligibility and ensures that you do not borrow more than you can manage. 

The only difference between TDSR and MSR is that MSR only applies to HDB property buyers and ECS buyers, whereas TDSR applies to all property loans, regardless of public or private.

Under the MSR, you can use a maximum of 30% of your gross monthly income to repay your housing loan. Do note that your monthly employee contribution credited into your CPF account counts towards your gross monthly income. On the other hand, your employers’ CPF contributions do not. 

To calculate your MSR, simply multiply your gross monthly income by 30%. Let’s say your gross monthly income is $5,000. 30% x $5,000 = $1,500. This amount is the maximum you’re allowed to spend on your monthly repayment for your home loan. 

We compare in detail the differences between TDSR and MSR here. 

6. Mortgage insurance 

If you’re unable to pay off your home loan, mortgage insurance can give you the financial coverage you require. You can claim against your insurance, and your insurer can help you pay off your home loan.

Getting mortgage insurance in Singapore is definitely  a worthwhile consideration as your home loan will most likely be your biggest liability. This insurance policy protects your assets and your family in case of unexpected events.

Coverage you can expect with mortgage protection insurance includes:

• Death — in the event of death, the outstanding mortgage and remaining insurance payout will go to the estate of the deceased. 

• Total Permanent Disability (TPD) — if you’re unable to work due to serious illness or injury, your loan repayments will be taken care of.

• Terminal Illness  — your family will receive a lump sum amount that’ll help pay off the mortgage.

If you’re buying an HDB property using your CPF savings, note that you should have automatically opted into mortgage insurance in the form of the Home Protection Scheme (HPS). If not, you can still apply to join the HPS, though it’s not compulsory. Alternatively, you may look for your own mortgage insurance policy with private insurance companies.

If you’re getting a private property and EC, you won’t have mortgage insurance unless you sign up for a private policy.

Find out how you can upgrade from an HDB flat to an EC here.

Who you can engage to help you get the best home loans in Singapore

A house is probably one of the biggest purchases you’ll make in your lifetime. A sizeable chunk of your wealth will likely be spent on repaying your home loan. So when deciding to purchase a property, it’s important that you get all the help you need. 

You can engage the following to help you through your process:

• Mortgage broker
  A mortgage broker can help facilitate your home loan application by connecting you to the best loan deals, and terms banks that the  financial institutions have to offer. 
  
  Depending on your financial situation and loan needs, they can narrow down and recommend the best loan products in Singapore for you.

• Conveyancing lawyer 
  You will need to engage a conveyancing lawyer to act for you and also to go through your loan contract’s terms and conditions and advise you accordingly. 
  
  Your conveyancing lawyer can also conduct background checks and send out legal requisitions on your behalf, exercise and stamp the option to purchase and help you get your paperwork in order. 

• Pest inspector
  It’s best to arrange a pest inspection to ensure that the property you’re buying is not infested with termites or other bugs that could expose you to unexpected expenses.

• Insurance agent 
  An insurance agent would be helpful in advising you on the types of insurance and coverage that would offer you the best protection as a homeowner. 

Having a strong foundation of financial literacy can help you with your goals in various life stages. For example, saving for education or retirement, managing your finances for a wedding, or getting the best home loans in Singapore. We break down bank jargon for offer letters here. 

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Get a non-obligatory assessment and loan product recommendations here. 

Getting a mortgage in Singapore is one of the biggest financial decisions one has to make for at least 2 reasons: 1) the quantum of money involved in monthly payments, and 2) contractual implications during the lock-in period.

To help you shop for the right home loan in Singapore, we’ll be sharing some cringe-worthy mistakes to sidestep, and what you need to know to stay ahead of the curve as you navigate through the home loan application process.

New to the home loan process in Singapore? Here’s a guide to help you get started.

When should you start looking for a mortgage in Singapore?

Common mistake: leaving this off till the week before the renewal is due.

Mortgage shopping can be an overwhelming process. The terminology, differing features, and array of options offered by the many providers in the market require almost a dedicated headspace to figure it all out. 

You have to look through all your options properly before making a decision that you would have to live with, for the entire duration of the lock-in period. 

Here are some of the reasons why homeowners put off organising a mortgage review:

• They view their mortgage to be “a constant” that cannot be changed.
• There are just too many competing priorities for time 
• Lack of knowledge of how their mortgage is being set up 
• Uncertainty of using the features and facilities available to them

While it’s tempting to put this mortgage review off till later, it might be worthwhile to kick start the process at least 4 months before your mortgage is up for renewal. 

This is because lenders do require approximately 3 to 4 weeks to process the application. If you prefer to take time to think through your shortlisted options, this 4-month time frame would be just nice.

Learn about the different terminologies you’ll come across when applying for a home loan here.

What to look for when choosing a mortgage loan in Singapore?

Common mistake: going with the cheapest home loan available.

The pricing of mortgages is largely derived from its features. It’s important to evaluate if these features are relevant to your needs and not just go for the lowest interest rate when choosing a mortgage in Singapore.

If your primary consideration is based on the entire amount you would be paying over time, these key areas are noteworthy:

1. The deposit you intend to pay
   A higher deposit done upfront will result in a lower loan quantum and it translates to both a lower repayment amount and lesser interest cost in the long run.

2. The standard rate
   If you’re on a fixed-rate package, this is the interest rate you’ll be looking at when your current contract ends.

3. When interest is charged
   Daily interest could work out cheaper, though most home loan packages feature a monthly or annual interest plan.

4. Flexibility
   If flexibility is a feature you require on your home loan, you should check with the lender if they allow partial prepayment towards your mortgage.
   
   Partial prepayment will help you to pay down your loan faster and reduce the corresponding interest expense.

5. Length of the lock-in period
   This is dependent on how much flexibility you’d like to have for the duration of the contract. 
   
   You should also ask if there are any charges involved if you decide to make changes before the contract ends.

What are the differences between repricing and refinancing?

Common mistake: using these two terms interchangeably.

The fundamental difference between repricing and refinancing has to do with whether you’re continuing your mortgage relationship with the same bank or setting up a new home loan account with another bank. 

The shift to reprice or refinance should only be considered: 

• if you can enjoy greater savings from switching to a lower interest rate package
• if the proposed loan package suits your current needs better
• after you factor in the commencement date of the new loan package. Note that repricing could take effect within a month, while refinancing might see a mortgage start date approximately 3 months later
• additional incidental costs such as a legal and valuation fees if you opt for refinancing

Refinancing tends to cost more than repricing due to the additional fees such as legal and valuation. The total usually comes up to about $2,000 to $3,000. However, the banks do dish out rebates/cash rewards/subsidies to defray the costs. 

Here’s a table to compare: 

Repricing	Refinancing
Refers to switching to a new home loan package with the same bank	Refers to closing your current home loan account and setting up a new home loan account with another bank
More straightforward in paperwork as the bank already has your details	Could potentially save money by switching to a more competitive loan package and make lower monthly payments
Quicker processing time due to lesser administrative work	Tend to cost more due to additional fees involved, but banks do dish out rebates/cash rewards/subsidies to defray the costs
Cheaper option with conversion fees at around $500 on average, or a one-time repricing free-of-charge	Need to check loan eligibility for refinancing based on prevailing regulations and banks’ guidelines
	May take a few months before new bank takes over
	Some banks will only allow you to refinance if the loan amount is larger than $200,000

What should you note when using comparison websites to research for your mortgage?

Common mistake: doing your own research without knowing what to look out for.

Comparison websites are a good starting point if you’re looking to get an idea of the latest deals on the market. 

Bear in mind, though not all available offers are listed on comparison websites. Also, not all comparison websites will give you the same results. 

So, it’s important that you do adequate research into the product and features that meet your needs. 

Should you engage a mortgage broker in Singapore?

Common mistake: going with the same mortgage plan your BFF has. 

Your needs from your bestie may vary. What’s suitable for their finances may not be suitable for yours. 

To ensure that you get a product that’s right for you, it might be worth speaking to a mortgage broker who will provide you with the guidance that most comparison websites may not offer.  

Along with providing unbiased recommendations, a mortgage broker can: 

• walk you through a Home Loan Health Check to determine if the construct of your loan is still right for you
• help decipher all the costs and features of available mortgage loan options, beyond the fixed or variable interest rate question 
• provide exclusive offers which only they have access to 
• save you the effort by shortlisting mortgage that’s most suitable for you, and advise on the options you have
• complete the necessary paperwork to avoid subsequent revisiting of your application 

Find out all about Home Loan Health Check here.

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Get a non-obligatory assessment and loan product recommendations today. 

If you’re a property owner trying to finance your home loan in the middle of the pandemic, you’d know how trying the year has been. The global pandemic has hit almost every industry, and the real estate and property industry is no exception. 

Facing a massive economic downturn, many businesses have been forced to restructure or shut down. Employees, on the other hand, are forced to take unpaid leave, and many were retrenched. 

In such climate, both businesses and homeowners have been struggling to finance their property loans.

To help property owners cope, the Monetary Authority of Singapore (MAS) has rolled out relief measures to help finance property loans. Industry support packages, renovation and student loans, extending loan tenures — these are just some of the many relief packages that have been put in place. 

But now that many of these relief packages are coming to an end, how should property owners cope in the future?

Relief measures to help homeowners finance loans

On 30 April 2020, the MAS announced a myriad of packages to provide additional support for individuals who need to finance loans. 

Many of these packages are targeted at property owners who are financing their property or those who are paying off their renovation loans.

Defer repayments

As part of MAS and the Financial Industry’s effort to help ease the burden of property owners, several plans have been announced to allow deferment of repayment for property loans. 

Borrowers who were financing commercial and industrial property loans could extend the loan tenure by up to the corresponding deferment period, and this deferment will not be reflected in the borrowers’ credit report. 

Deferment of repayments was also extended to new mortgage equity withdrawal loans and even for renovations loans. 

These plans have been put in place to help ease the financial burdens of businesses and individuals, as well as to ease cash flow requirements. 

Reducing debt obligations

To ensure that property owners are not bogged down by debt during this trying period, MAS also rolled out plans to make refinancing and repricing of investment property loans easier.

Borrowers who have investment property loans that are out of the lock-in period are allowed to refinance or reprice their loans without being subjected to previous property loan rules under the MAS.

Those who do not meet MAS’ Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) property loan rules will need to repay 3% of their outstanding loan amount over a period of 3 years. 

This allows borrowers to refinance and reprice their loans and lower monthly payments this year. 

Which relief measures are coming to an end?

With the year drawing to a close, many of the MAS’ relief measures will be coming to an end on 31 December 2020. 

From 1 Jan 2021 onwards, measures that allow for deferment in repayment and plans for refinancing and repricing of investment property loans will no longer be in place. 

Property owners who have relied on these measures in 2020 will have to find new ways to ease cash flow and cope with their debt obligations. 

Relief measures that will be extended

That being said, not all property loan relief measures will end on 31 December 2020. 

A number of relief measures will be extended to give borrowers financial support for the next year.

Extended deferment repayments

Those who have renovation loans to pay off may opt for a longer repayment period beyond 31 December 2020. 

On the other hand, SMEs will also get to defer principal payments on selected loans partially, and receive restructuring options. 

These plans are put in place to enable small business owners to transition into usual regulations after reliefs in 2020 have ended and also to receive financial support in the meanwhile.

Individual property loans

Those who need to finance their residential, commercial, and industrial property loans may temporarily reduce their monthly loan repayments to 60% in 2021. 

The reduced monthly instalments will cover interest and partial principal payments to help ease cash flow. 

To qualify for the extension of relief measures, individuals will need to prove that their incomes have been impacted by at least 25% and are not in arrears for more than 90 days on their property and home loan payments. 

Application for the extension has already started on 9 Nov, and the application window will be open to 30 June 2021. 

Under this extension, instalment plans may be temporarily reduced up to 9 months but will not exceed 31 December 2021.

What this means for SMEs and individuals

The extension of these relief measures will help businesses and individuals transition financially in the next year. 

Criteria set for the extended relief measures will also help businesses and individuals who are struggling more financially, and channel funds to those facing more financial difficulties. 

These plans will also help to give more runway for property owners to prepare them for regular monthly repayments in the future, and not be bogged down by financial obligations too suddenly.

Businesses and individuals who do not qualify for the extended measures may have to look for alternative solutions to cope with property loans and cash flow next year. 

What’s the next step?

To cope with this transition, it’s vital for individuals and property owners to start comparing loan interest rates and to think about refinancing their loans. 

Getting the best interest rates will make a drastic difference during these trying times. Additionally, refinancing your loans can help you cope with financial obligations, cash flow, and debt in the near future.

As relief measures from MAS and the financial industry are coming to an end, property owners will have to take proactive steps to manage property loans. 

If you own a residential, commercial or industrial property, ensure that you know whether you can still defer repayments under the extended relief measures. 

Knowing the timeline you have for repayments will enable you to make better decisions on how to finance your loans and manage your cash flow. 

Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today.