Singapore home loan rates may edge higher after Fed's 0.25 ppt hike
The US Federal Reserve's 0.25 percentage point rate hike on Sep 16 could eventually push up Singapore home loan rates, though the impact may not be immediate or one-for-one. Analysts say borrowers on floating-rate SORA-linked loans are most exposed, while fixed rates had already risen in anticipatio
SINGAPORE: Home loan rates in Singapore may eventually edge higher after the US Federal Reserve raised interest rates by 0.25 percentage points on Wednesday (Sep 16). It marked the first increase since 2023, with Fed policymakers signalling that more increases could follow.
Singapore does not directly follow the US central bank's interest rate decisions. But US rates can influence global funding conditions and, in turn, Singapore's interest rates, including the Singapore Overnight Rate Average (SORA) that is used to price many floating-rate home loans. Many such mortgages are priced using compounded SORA plus a margin charged by the bank.
“When the Fed raises rates, funding costs generally rise, and benchmarks such as SORA may also move higher,” said SingCapital chief executive Alfred Chia. “This can lead to higher mortgage rates and monthly repayments in Singapore.” However, Mr Chia said home loan rates may not move immediately, and any subsequent increase may also not be a direct one-for-one adjustment. “Even if the Fed raises rates by 0.25 percentage points, Singapore mortgage rates will depend on funding costs and competition among banks,” he added.
One important consideration is how long rates stay elevated, said Ms Selena Ling, chief economist and head of OCBC Group Research. “Higher-for-longer rates would keep mortgage servicing costs elevated, especially for borrowers on floating-rate mortgages linked to SORA,” she said. “The greatest impact would be on households with large outstanding loans or mortgage repayments that already take up a significant share of income.” Homeowners on fixed-rate packages and those with smaller loan burdens are likely to be less affected, she added.
Some fixed home loan rates had already risen before Wednesday's Fed decision. MortgageWise.sg executive director Darren Goh said banks had raised their fixed rates by around 0.10 to 0.25 percentage points in anticipation of the Fed hike. Banks price fixed-rate packages based not only on current interest rates but also on expectations about where rates are heading. Mr David Baey, CEO of mortgage broker Mortgage Master, expects fixed home loan rates to go up by slightly over 0.5 percentage points.
Analysts said there is no single package that is best for every borrower. A fixed-rate package gives homeowners certainty over monthly repayments during the fixed-rate period, while a floating-rate loan may suit borrowers who plan to sell in the short term and can accept some volatility. “Ultimately, the decision should be based on the homeowner's cash flow, risk tolerance, plans for the property and expectations about how long they will keep the loan,” Mr Chia said.
Analysts agreed that this is a good time for homeowners to take stock of their loans and consider refinancing. “Homeowners whose lock-in periods are ending should review their loans now rather than wait for another increase,” said Mr Chia, adding that refinancing could allow borrowers to secure a more competitive rate or greater certainty over their repayments. However, he pointed out that a lower advertised rate does not necessarily translate into meaningful overall savings after accounting for lock-in penalties, legal and valuation costs, clawback provisions and the remaining loan amount.
