HOW MORE CAN MORTGAGE RATES GO?

Experts expect mortgage rates to rise here as Fed officials have signaled more rate hikes are ahead.

Maybank economists Chua Hak Bin and Lee Ju Ye said that with the Fed’s latest dot chart guiding another 175 basis point rate hike to 3.5% by the end of the month. year, the three-month SIBOR could reach 3% by the end. -2022 and the three-month SORA could reach 2.75%.

“Singapore businesses and households should brace for a significant interest rate shock as Singapore’s short-term interest rates will rise sharply given the Fed’s aggressive rate hikes,” they said. written in a note.

“Mortgage rates could climb to around 4% by the end of the year – levels not seen in nearly two decades. Rising financing costs will likely eat into consumer budgets and chill the real estate market.

Mr. Chia estimates that mortgage rates will cross 3% by the end of this year.

“If you want to know the outlook for interest rates, just look at fixed rate packages which jumped to over 2.6%. This means that banks are anticipating that interest rates will reach this (level) or more and that they rise in advance,” he explained.

“With the Fed expected to raise rates further, SORA will rise in tandem. After adding the (lending margin) of banks, floating rate packages can be 2.6% or more. And that’s just for that year; we haven’t even started talking about next year if inflation rates don’t come down.

Echoing similar projections, Mr Wee said that based on expectations that the three-month compound SORA would reach 2.5% and assuming a margin of 0.8%, owners could potentially consider a net rate. 3.3% for variable rate houses. ready in the next few months.

Fixed-rate packages will also likely be “significantly higher”, with lenders expected to continue to monitor these lending options closely and replace them with higher rates as significant moves in benchmark rates occur.

In addition, the likelihood of banks abandoning fixed-rate offers “also increases significantly” when interest rates become too volatile, Wee added.

TIPS FOR OWNERS

Homeowners will have to weigh their options.

Mr Wee advised those still on SIBOR-linked loans to consider switching to a SORA-linked loan, as the latter is “retrospective…and rate increases will lag behind the former”.

In addition, SIBOR will be phased out by the end of 2024 – a move that MAS says is in line with global interest rate reform efforts.

“Banks may also potentially withdraw SIBOR packages earlier, forcing customers to switch to other available packages and exacerbating risk,” Wee added.

Mr Chia also urged homeowners to start reviewing their mortgages and moving to fixed rate packages where possible to protect against rate hikes.

“The fixed rate is now much higher than the SORA-indexed loans, but I still urge people not to take a short-term view because we know interest rates will eventually go up,” he said. he said, adding that fixed rate plans would suit those who prefer some stability in managing their finances.

Other suggestions for dealing with interest rate volatility include the ability to make partial or full repayments via cash or the Central Provident Fund (CPF) for those looking to manage their cash flow. They may also consider increasing the use of CPF for their monthly loan repayments, Wee said.

OCBC’s Ms. Phua advised consumers to review their affordability before committing to a home purchase, while DBS’s Mr. Neo stressed the need for borrowers to set aside sufficient funds as a buffer. against further rate increases or unforeseen circumstances.

“Ideally, one should set aside cash or cash savings that can be used to pay monthly payments for the next two years. This would allow enough time to restructure the loan, or even sell the property in case of financial problems,” Mr. Neo said.

For new home buyers looking for more stability, they can consider HDB home loans which are currently offered at 2.6% per annum, less than some bank loans, experts also said.

The prime interest rate for HDB housing loans is set at 0.1% above the prevailing CPF Ordinary Account interest rate of 2.5% and is reviewed quarterly in January, April, July and October each year.

Ultimately, homeowners need to tread carefully and not end up being overwhelmed financially, Chia said.

“You buy your dream house and you certainly don’t want to turn it into a nightmare castle.”