Home owners may face hard decisions as mortgage rates rise

With the latest move, fixed rate loan packages are between 3.5 per cent and 3.85 per cent for tenures of two to five years. PHOTO: ST FILE

SINGAPORE - As home loan rates push towards 4 per cent, home owners are hoping rates will improve before they next have to refinance their home loans, or they will have to fall back on contingency plans.

Higher monthly mortgage payments as rates go up would have an impact on their household budgeting but home owners who refinanced their fixed-rate packages earlier said they had peace of mind, at least for now.

One of them, Mr Dallas Goh, a 31-year-old lab technician, refinanced his bank loan for his Housing Board (HDB) flat earlier this year at a low fixed rate. With this package, he can foresee his expenses and budget for the next two years, he said.

Nevertheless, he intends to pay down as much of his loan as possible if rates remain high near the end of his fixed rate term.

On Tuesday, the three local banks raised their fixed rate loan packages to as high as 3.85 per cent for a three-year fixed-rate loan from UOB.

With the latest move, fixed-rate loan packages in Singapore are between 3.5 per cent and 3.85 per cent for tenures of two to five years.

OCBC also relaunched a one-year fixed-rate package at 3.35 per cent per annum.

Mr Sam Chang, 47, the founder of board game designer Capital Gains Studio, is also not losing sleep over the rising rates.

He has about four months to go before he can reprice or refinance his home loan, and will start looking around for deals in January.

Mr Chang said he had no regrets that he took a bank loan instead of an HDB loan for his HDB flat, as he has enjoyed very low interest rates with his loan for a few years.

Bank home loan rates started creeping up only from the fourth quarter of last year, when three-year fixed-rate packages were at 1.15 per cent.

HDB loan rates, which are pegged at 0.1 percentage point above the CPF Ordinary Account rate of 2.5 per cent, look more attractive now, but Mr Chang cannot switch to an HDB loan anymore after he took a loan from a bank.

While those who have already refinanced their home loans are taking the higher rates in their stride, those who are shopping around for another loan or who are buying a new property will have some serious decisions to make.

HDB home buyers can still benefit from the relatively lower rates of an HDB home loan, but private property buyers will have to choose between fixed rate bank loans, which are high but offer certainty, and floating rate loans, which have also gone up but could work to their advantage if rates fall further down the road.

Communications manager Kelly Chiew, 29, is already thinking further ahead.

She worries that with interest rates staying high, her children will not be able to afford housing in the future.

"I don't want them to be in a position where they need to sacrifice passion for bills. But, it seems like this is the direction we are all headed," Ms Chiew added.

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