Floating/ variable rate loans – Singapore landed property for sale/ rent
Interest rate is not fixed but can be varied by the bank. This floating/variable rate is benchmarked against a reference rate determined by the bank. If the reference rate goes up, so will the home loan interest rate and monthly installment. If reference rate goes down, home loan rate and monthly installment will also drop. Most floating rates for home loans inSingaporeare referenced to SIBOR (Singapore Inter-Bank Offered Rate) or SOR (Singapore Swap Offer Rate). Both rates are fixed by the Association of Banks in Singapore. Singapore landed property for sale/ rent.
SIBOR rate refers to the interest rate at which banks inSingapore can borrow funds from other banks inSingapore. SOR rate refers to the average cost of funds used by banks inSingaporefor commercial lending.
You can think of it as the “cost price” for the bank. They then add a margin on top of their cost price, this is called a spread (e.g. 3 month SIBOR + 1%). The best option between stability and low rates is generally the 3-month SIBOR or 3-month SOR option.
When taking up a home loan from the bank, you would have to choose between fixed or floating rate packages. And if you make a choice of floating rates, you have to consider taking up a package that is pegged to SIBOR, SOR or rates that fluctuate according to the bank’s board rate at its sole discretion.
Choosing a floating rate package pegged to board rates set by the banks can be risky. Another important factor to consider is whether the interest rate is based on monthly or yearly rest (reducing balance loan).
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