Fixed or Variable Interest Rate, when is the best time?

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Borrowers are always wondering when the best time to take up a fixed interest rate package. Fixed rates are generally higher than variable rates to take in account possible rises in the lending rates. When a borrower takes a fixed rate, he is predicting that the variable rate will rise above the fixed rates.

Fixed or variable, whats the difference?

Variable rates: Rates will follow movements in line with the reference rate. The reference rate may be determined by the banks or benchmarked against a publicly available indicator like SIBOR or SOR rates.

For an example, a package that offers interest at 3months SIBOR + 0.8% means it is using the 3months SIBOR rate as the benchmark. A spread of 0.8% is then added to the benchmark to form the interest rate. If 3 months SIBOR rate rises, the interest rate will also rise.

Fixed rates: A cautious way of borrowing money, this loan will follow a pre-determined (fixed) rate of interest for a given interval, e.g. one year, two years or three years. After the given interval, the interest rate becomes variable and works like a floating package.

Where are the savings?

The graph below shows an example of the first three years of a $300,000 fixed rate over a 30 years tenure.

If the borrower considers a fixed rate at 1.5% for the first three years (the blue line) and the variable rate (green line) stay constant at 1.238% for the same period, this means the borrower will end up paying “EXTRA” interest (light grey area).

If the variable rate (red line) rose in a straight line from 1.238% to 2.138% over the three years period, the fixed rate borrower will enjoy interest “SAVED” after the first year (dark grey area).



How to decide?

It is difficult to predict the interest rate direction correctly. One way to get started is to talk to your financial advisor and if you prefer to do your own research, you can refer to the MAS Survey of Professional Forecasters. This is a quarterly survey and reflects the view received from up to 25 economists and analysts who closely monitor the Singapore economy.

If you are still undecided and needed our assistance, email us at

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