With interest rates in Singapore close to their all-time lows, it may feel like a great time to go out and borrow money. Definitely the buoyant home market can be at least partially attributed to low mortgage rates which increase the affordability of a property purchase. In this article we'll have a look at where IRs are in Singapore relative to their history, what classic rates for different types of loans are presently, and decide whether it's a smart idea to go out and take a loan now.
The Singapore Interbank Offered Rate (or SIBOR) relies on the rates at which banks offer to lend unsecured funds to other banks in the Singapore interbank market. As many mortgage loans are now attached to it, it has become a key rate to take a look at and also gives a coarse appearance of where deposit and other lending rates are headed. For foreign banks that do not have a big deposit franchise in Singapore, they must depend on the interbank market to pay for their lending. When SIBOR is high, they would offer fascinating fixed deposit rates to attract Singapore greenback deposits, causing the local banks to also increase their rates to prevent depositors from switching.
Now 3-month SIBOR is at 0.4375%, the lowest level during the past ten years. Rates have been low for an extended period "the 3-month SIBOR has been under 1% since the start of 2009. During the past a decade, the 3-month SIBOR has gone as high as 3.5% (in 2006).
Classic IRs for different loan products
Doing a quick survey of the varied loan products out there, we revealed that the existing low rates have mainly benefitted mortgage borrowers due to low house loan rates, but rates for unsecured personal loans have not come off as much. For example:
1. Home Loans
These are the cheapest and biggest loans that buyers can get, but you'll need to utilise a property as collateral. Floating rate packages based totally on SIBOR can go as low as 0.80% for the 1st year now while fixed rates packages can start from around 1.20% for the 1st year.
2. Private Loans
Covering the gamut from reconstruction to furnishing to consumption loans, they typically have an effective interest rate of 10% to 15%. Keep an eye out for low publicized rates that have a "processing fee" or are flat and not effective rates, which may raise your true value of borrowing.
3. Cards
Annual rates still hover around 20% to 24%, making card borrowing the costliest kind of consumer borrowing out there (apart from going to a loan shark). If you have outstanding credit card debt, it is sensible to do a balance transfer, or take out some other form of personal loan to repay it.
Is now the best time to borrow?
It is clear that rates have been unnaturally low for an extended period of time thanks largely to the Quantitative Easing agenda (known commonly as QE1 and the follow-on QE2) of the United States Fed Reserve, which has pumped a huge amount of liquidity into the system. Interest rates in Singapore are significantly influenced by rates in the United States as our central bank (the Monetary Authority of Singapore) doesn't try to control rates but instead depends on the exchange rate as its main monetary policy tool.
When making any borrowing decision, don't assume that rates will stay low forever. The United States Fed is scheduled to end its course of support for the North American economy (QE2) in June, and it's not clear whether policymakers will make a decision to continue additional monetary stimulus. If not, IRs could rise. Meanwhile, many central banks around the planet are raising their domestic IRs to deal with rising inflation.
Beyond low rates, before taking on debt you must examine whether you really need to do so and what your present debt servicing ratio is. For property financiers, while the existing opening between rental yields and mortgage rates could be seductive, do not base your calculations on a permanently low interest rate. For home buyers who are purchasing for your own stay, you might want to think about a set rate package to fasten in the current low interest rates and reduce the future uncertainty of your mortgage payments if IRs spike.
Hope that you enjoyed reading this Singapore property market article!
The Singapore Interbank Offered Rate (or SIBOR) relies on the rates at which banks offer to lend unsecured funds to other banks in the Singapore interbank market. As many mortgage loans are now attached to it, it has become a key rate to take a look at and also gives a coarse appearance of where deposit and other lending rates are headed. For foreign banks that do not have a big deposit franchise in Singapore, they must depend on the interbank market to pay for their lending. When SIBOR is high, they would offer fascinating fixed deposit rates to attract Singapore greenback deposits, causing the local banks to also increase their rates to prevent depositors from switching.
Now 3-month SIBOR is at 0.4375%, the lowest level during the past ten years. Rates have been low for an extended period "the 3-month SIBOR has been under 1% since the start of 2009. During the past a decade, the 3-month SIBOR has gone as high as 3.5% (in 2006).
Classic IRs for different loan products
Doing a quick survey of the varied loan products out there, we revealed that the existing low rates have mainly benefitted mortgage borrowers due to low house loan rates, but rates for unsecured personal loans have not come off as much. For example:
1. Home Loans
These are the cheapest and biggest loans that buyers can get, but you'll need to utilise a property as collateral. Floating rate packages based totally on SIBOR can go as low as 0.80% for the 1st year now while fixed rates packages can start from around 1.20% for the 1st year.
2. Private Loans
Covering the gamut from reconstruction to furnishing to consumption loans, they typically have an effective interest rate of 10% to 15%. Keep an eye out for low publicized rates that have a "processing fee" or are flat and not effective rates, which may raise your true value of borrowing.
3. Cards
Annual rates still hover around 20% to 24%, making card borrowing the costliest kind of consumer borrowing out there (apart from going to a loan shark). If you have outstanding credit card debt, it is sensible to do a balance transfer, or take out some other form of personal loan to repay it.
Is now the best time to borrow?
It is clear that rates have been unnaturally low for an extended period of time thanks largely to the Quantitative Easing agenda (known commonly as QE1 and the follow-on QE2) of the United States Fed Reserve, which has pumped a huge amount of liquidity into the system. Interest rates in Singapore are significantly influenced by rates in the United States as our central bank (the Monetary Authority of Singapore) doesn't try to control rates but instead depends on the exchange rate as its main monetary policy tool.
When making any borrowing decision, don't assume that rates will stay low forever. The United States Fed is scheduled to end its course of support for the North American economy (QE2) in June, and it's not clear whether policymakers will make a decision to continue additional monetary stimulus. If not, IRs could rise. Meanwhile, many central banks around the planet are raising their domestic IRs to deal with rising inflation.
Beyond low rates, before taking on debt you must examine whether you really need to do so and what your present debt servicing ratio is. For property financiers, while the existing opening between rental yields and mortgage rates could be seductive, do not base your calculations on a permanently low interest rate. For home buyers who are purchasing for your own stay, you might want to think about a set rate package to fasten in the current low interest rates and reduce the future uncertainty of your mortgage payments if IRs spike.
Hope that you enjoyed reading this Singapore property market article!
About the Author:
Propwise.sg, a top Singapore property blog, is devoted to helping you understand the estate market and make better calls. Visit us to read more Singapore property market articles.
No comments:
Post a Comment