Online Calculator | Is It A Good Time To Borrow Money To Buy Singapore Property?

Is It A Good Time To Borrow Money To Buy Singapore Property?

With interest rates in Singapore close to their all-time lows, it may feel a bit like a great time to go out and borrow money. Certainly the buoyant housing market can be at least partly credited to low mortgage rates which increase the affordability of a property purchase. In this article we’ll have a look at where IRs are in Singapore relative to their history, what classic interest rates for differing kinds of loans are at present, and decide whether it’s a good idea to go out and take a loan now.

The Singapore Interbank Offered Rate (or SIBOR) is based on the IRs at which banks offer to lend unsecured funds to other banks in the Singapore interbank market. As many mortgage loans are now attached to it, it is a key rate to look at and also gives a rough appearance of where deposit and other lending rates are headed. For foreign banks that do not have a big deposit franchise in Singapore, they have to rely on the interbank market to fund their lending. When SIBOR is high, they might offer interesting fixed deposit rates to draw in Singapore greenback deposits, causing the local banks to also increase their rates to stop depositors from switching.

Currently 3-month SIBOR is at 0.4375%, the lowest level in the past a decade. Rates have been low for an extended period “the 3-month SIBOR has been under 1% since the start of 2009. During the past ten years, the 3-month SIBOR has gone as high as 3.5% (in 2006).
Common IRs for different loan products

Doing a fast survey of the varied loan products out there, we discovered that the prevailing low rates have principally benefitted mortgage borrowers due to low house loan rates, but rates for unsecured personal loans have not come off as much. For example:

1. Home Loans

These are the cheapest and largest loans that buyers can get, but you'll need to utilise a property as collateral. Floating rate packages based totally on SIBOR can go as low as 0.80% for the 1st year now while fixed rates packages can start from around 1.20% for the first year.

2. Private Loans

Covering the gamut from re-building to furnishing to consumption loans, they typically have a useful interest rate of 10% to 15%. Keep an eye out for low advertised rates that feature a “processing charge” or are flat and not effective rates, which will raise your true cost of borrowing.

3. Visa Cards

Annual IRs still hover around 20% to 24%, making Visa card borrowing the costliest kind of patron borrowing out there (other than going to a loan shark). If you have unpaid card debt, it is smart to do a balance transfer, or take out some other type of private loan to pay it back.

Is now the perfect time to borrow?

It is clear that interest rates have been unusually low for an extended period thanks principally to the Quantitative Easing program (known popularly as QE1 and the follow-on QE2) of the U. S. Fed Reserve, that has pumped a big quantity of liquidity into the system. Rates in Singapore are significantly influenced by rates in the U. S. as our central bank (the Monetary Authority of Singapore) does not try to control rates but instead relies on the exchange rate as its main financial policy tool.

When making any borrowing call, don't presume that interest rates will stay low forever and ever. The U. S. Federal Reserve is scheduled to end its agenda of support for the American economy (QE2) in June, and it is unclear whether policymakers will make a decision to continue further monetary impulse. If not, IRs could rise. In the meantime, many central banking organizations around the globe are raising their domestic IRs to deal with rising inflation.

Beyond low rates, before borrowing money you need to examine whether you actually need to do so and what your current debt servicing proportion is. For property financiers, while the existing gap between rental yields and mortgage rates may be seductive, do not base your calculations on a permanently low rate of interest. For house buyers who are purchasing for your own stay, you might need to consider a standard rate package to fasten in the current low IRs and reduce the future doubt of your mortgage payments if IRs spike.

Hope you enjoyed reading this Singapore property market article!

Propwise.sg, a top Singapore property blog, is devoted to helping you understand the property market and make better choices. Visit us to read more Singapore property market articles.

Filed Under Online Calculator | Leave a Comment

Tagged With

Comments

Leave a Reply