Types of Housing Loans in Singapore
The most popular forms of housing loan packages in Singapore are the fixed rate and floating rate, which are pegged to the Singapore Interbank Offered Rate (SIBOR). However, many housing loan packages come with various lock-in periods ranging from no lock-in to a one-year, two-year or three-year locking. The lock-in period means the amount of time that you are committed to keep your loan with that Bank. So, what happens when you end up refinancing your housing loan in Singapore while you are still within the lock-in period? Typically, the bank will charge you a lock-in penalty. This lock-in penalty is typically in the region of 1.5% of your outstanding loan amount. Below are some of the features of various forms of housing loan packages:
Fixed rate package: fixed rate packages are exactly what they mean – fixed for a predefined number of years. A typical fixed-rate package would remain fixed for a certain number of years before it switches to a floating rate package. A major benefit of using fixed rate packages is that it allows you to determine your cash flow during its fixed tenure.
Floating rate Package-SIBOR package: One of the most commonly used floating rate package is the SIBOR package. What this means is that the rate at which banks and Singapore lend each other money is a transparent rate that is determined by market forces and published by the Association of Banks in Singapore. You can find the daily SIBOR rate in the Business Times. A typical SIBOR package would have the lock-in period as well as the premium that is being charged above the SIBOR. Let’s take a look at the following example: where the current three months interest rate is 0.48%, the interest rate that you will be charged would be this 0.48 % + the premium of 0.75 %, thus making it a total of 1.23%.
As this current 0.48% rate would change every three months, the floating interest rate would also change.
Floating rate Package-SOR package: Another commonly used floating rate is the SOR – which is an abbreviation for Swap Offer Rate. It is the rate calculated from the Singapore dollar and US dollar. Just like the SIBOR, the SOR is also a transparent rate and can be found in the daily Business Times. A typical SOR package would have a lock in period as well as a premium that is being charged above the SOR. Let us take a look at the following example, where the current three months rate is 0.21%. The interest rate that you would be charged would be this 0.21 % + the premium of 0.55% for SOR, thus making it a total of 0.76%.
Hybrid package: A hybrid loan is actually a combination of both fixed and floating interest rates. Such loans start out with the fixed interest rates for a certain period of time (i.e. 1 to 5 years) after which the mortgage then moves to the floating interest rate package.