For most residents of Singapore, getting the house of your dreams means taking a home loan or mortgage. If you want a home loan that you can pay a little faster, a floating interest rate (sometimes called as a variable interest rate) might be for you. A floating interest rate is an interest rate that changes with the market. If the market goes down, the interest rates fall. However, as the market goes up and interest rates rise, so do your repayments; which could put a squeeze on your budget. At any time, you could decide to move to a fixed rate, another floating rate or choose a combination of the two.
For home mortgages, borrowers generally have an aversion to variable interest rate loans and that is understandable, with the subprime loans of the recent past and the extremely high interest rates of the more distant past. However, if the financial market is good, you can reap several benefits from floating interest rates.
When searching for the home loan, there are a number of important factors to consider depending on your circumstances. You could actually benefit more from the advantages of a variable interest rate home loan over a fixed rate home loan. Here are some possible reasons as to why you would want to choose floating rate over a fixed home loan rate:
- The interest rate and repayments on a variable interest rate home loan are generally lower than a fixed rate home loan and thus help you save some money during the initial phases of the mortgage. Since fixed interest rates give certainty about future payments, therefore, they are generally a bit higher than their floating rate counterparts;
- Floating interest rates also tend to be more flexible regarding extra repayments or partial repayments;
- Since a floating interest rate does not remain constant and if it goes beyond the fixed interest rate, it will not remain higher for the entire tenure. The nature of floating interest rate is cyclical or periodical in the long run. Once at a higher rate, the interest rates tend to come back to their lower position.
Finally, it is solely the borrower’s choice of interest rate which suits his or her budget requirements. It is advisable to compare different mortgage loan rates in Singapore from different banks and choosing wisely.