Note: On 14 December 2023, it was announced that the last 2023 US Fed meeting concluded with an interest rate ‘pause’, which means the latest US Fed rate benchmark is 5.25% to 5.5%. Recently, the Association of Banks in Singapore (ABS) also came out reminding homeowners with Singapore Interbank Offered Rate (SIBOR) packages to review their loans ahead of the discontinuation of SIBOR in 2024. This article has been edited to reflect these events.
When will interest rates go down in Singapore? Will mortgage rates go down in 2024? These are some of the most common questions among homeowners in Singapore who are financing their houses via bank loans. If you’ve been monitoring the market, you would have realised that in 2022, home loan interest rates climbed quickly from their low COVID-19 levels. In 2023, we remain in a high interest rate environment.
The adage is true: what goes up must come down. “But when?” We hear you. Before reading further, check out our latest webinar about the 2024 outlook of property prices and mortgage interest rates featuring our experts, Dr Lee Nai Jia, Head of Real Estate Intelligence, Data and Software Solutions, PropertyGuru Group and Paul Wee, Vice President – PropertyGuru Finance.
When Will Interest Rates Go Down in Singapore? (Video)
What Will Happen to SIBOR Loans? (2024)
On 11 December 2020, ABS announced the upcoming discontinuation of SIBOR home loans. According to ABS, “The proposed shift is expected to support a deepening of SORA markets, result in more transparent loan market pricing for borrowers, and more efficient risk management for lenders.”
As part of this discontinuation, homeowners with SIBOR home loans will be automatically converted to the SORA Conversation Package (SCP) starting from 1 June 2024.
SIBOR vs SORA Home Loans
If you still have a SIBOR home loan, you may be wondering: what’s the difference between SIBOR and SORA? SIBOR is what a bank estimates it will have to pay another bank to borrow SGD, while SORA is the average rate of overnight SGD interbank market transactions.
How differently do SIBOR and SORA rates move?
“When we compute the daily movement of both rates, we notice SIBOR is more volatile than compounded SORA. This is partly because SIBOR is forward-looking, based on estimates made on the day of its publishing, while compounded SORA is backwards-looking, based on an average of actual transacted rates over a period,” said Paul Wee.
From now till 30 April 2024, homeowners with SIBOR home loans can of course review their packages to make the best refinancing decision for them – SORA home loans may be a popular choice for homeowners, but they’re not the only option in the market!
However, on 8 December 2023, ABS announced that close to two-thirds of homeowners with SIBOR mortgages had yet to switch out of their current mortgage packages. Reach out to our team of PropertyGuru Finance Mortgage Experts for personalised advice on the best refinancing option for you – at no cost at all.
If you end up refinancing to a floating rate home loan – a home loan whose interest rates move according to benchmarks like SORA – you’ll want to know how international benchmarks like US Fed rates are moving. They can give you a hint on whether interest rates on a whole are likely to go up, down, or sideways.
Rising Mortgage Interest Rates in Singapore: What Can We Expect in 2024
|US Federal Open Market Committee meeting date
|Rate change (bps)
|Federal funds rate
|1 February 2023
|4.50% to 4.75%
|22 March 2023
|4.75% to 5.00%
|3 May 2023
|5.00% to 5.25%
|14 June 2023
|5.00% to 5.25%
|26 July 2023
|5.25% to 5.50%
|20 September 2023
|5.25% to 5.50%
|1 November 2023
|5.25% to 5.50%
|13 December 2023
|5.25% to 5.50%
According to the PropertyGuru Singapore Property Market Outlook 2023, interest rate hikes are expected in 2023 but are likely to moderate in the second half of the year. As predicted, there are signs that interest rates are already moving sideways.
The latest Federal Open Market Committee (FOMC) meeting which concluded on 13 December 2023 saw interest rates being held steady for the second straight time, with the US Fed pausing interest rate hikes for the third time this year. However, they have signalled that we can expect another hike before the year comes to a close.
In response, reference rates are also beginning to flatten out. Here’s a quick look at the 3M Compounded SORA trend in 2023 so far.
3M Compounded SORA Rates in 2023
|3 January 2023
|2 February 2023
|1 March 2203
|1 April 2023
|2 May 2023
|1 June 2023
|3 July 2023
|1 August 2023
|4 September 2023
|2 October 2023
|1 November 2023
So while we are still in a high interest rate environment, there is some good news and we can expect modest increases. For those who are on a floating home loan, you can expect some relief from persistent increases. What about those looking at financing their homes with fixed rate home loans?
Interest rates on fixed rate home loans have been declining since the beginning of the year and are likely to fall further. In 2022, fixed rate home loans were above 4% but have since dipped. A quick search on our home loan comparison tool reveals that the most competitive mortgage package (in terms of the lowest interest rate offered in the first year) is a fixed-rate home loan at 3.25% (as of 14 December 2023).
What Can Homeowners Do to Manage Their Home Loan Interest Rates?
In this high interest rate environment, homeowners would want to tighten their belts. Ensuring there is enough room in one’s budget for higher home loan repayments is important. And if you haven’t already, consider refinancing your home loan.
According to Paul Wee, Vice President – PropertyGuru Finance, homeowners should:
- Consider making partial or full repayments if rates become too high via cash and/or CPF to manage cash flow demands
- Consider increasing the use of CPF for monthly loan servicing
- Split or refinance loans into separate fixed or variable loans to spread the risk between two portfolios
- If a homeowner is currently on a SIBOR-linked home loan package, he or she may consider moving to a SORA-pegged one, as the latter is a backwards-looking rate, and rate increases will lag the former. In addition, SIBOR will cease to be quoted from 2024. Banks may also possibly withdraw SIBOR packages earlier, compelling clients to move to other available packages and exacerbating the risk.
Paul also advises those who are seeking certainty to refinance to fixed-rate loan packages.
“If you prefer to be assured that your monthly mortgage payments will remain unchanged for some time, it may be beneficial for you to enter a fixed rate package.”
Before Taking a Loan, Consider the Worst-Case Scenario
Additionally, be cognisant of the worst-case scenario before taking out a home loan. Ensure you’re still able to repay your loan should it come to pass (i.e. if you lose your job) and have a buffer.
When budgeting, assume a mortgage interest rate of 3.50% (banks already do this when assessing your debt servicing ratios). It’s the rate we set for our Mortgage Affordability Calculator too.
Another thing to note is that the home loan package with the lowest interest rate is not always the best choice. Sometimes, low promotional rates may seem very attractive, but it’s foolish to only calculate the costs in the first year. Do the math for the overall costs over the lifespan of the package. The rates may increase sharply after the promotional period, or there may be other fees or less attractive terms and conditions.
Financing Your Property in 2024
If you’re thinking of buying a new home, refinancing your existing home loan or shaking up your investment portfolio with some new property picks, now is not the time to throw caution to the wind. Research your home loan options thoroughly and make an informed decision.
Remember, always look for loans with features that match your individual needs. As Paul puts it, “the ‘best’ home loan may not be the ‘best’ for you”!
Need personalised advice on home loans? Get in touch with a PropertyGuru Finance Mortgage Expert and find the best home loan for you.
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