How Will Rising Housing Loan Interest Rates in Singapore Impact You?

Yen Joon
Last updated Aug 19, 2022

With housing loan interest rates in Singapore rising, home loans in Singapore have become more expensive. So how will this affect you?

Following the U.S Fed’s decision to increase the interest rate by 0.75 percentage points in June, major banks in Singapore such as DBS, OCBS, and UOB have all followed suit by raising the interest rates of their home loan packages. As a result, housing loan interest rates in Singapore have hit a new high of 3.08%

With rising home loan rates, here’s how they will affect you (and what you can do).

Why has the interest rate gone up?

When the COVID-19 pandemic started, it threatened to bring the U.S economy into recession. In an effort to minimise the impact of COVID-19, the Fed decided to bring down interest rates. At that time, interest rates were so low that they were close to 0%

The low-interest rate environment meant that the cost of borrowing became much cheaper. As a result, more people were willing to borrow money to make big-ticket purchases, such as houses and cars. This also encouraged consumer spending. 

With more people spending money, demand for goods exceeded supply. Companies had to increase their output and productivity to cope with the increased demand, which pushed up the prices of goods. 

With the prices of food and energy surging, things took a turn for the worse when the Russia-Ukraine war happened. 

As Russia is one of the major commodity exporters in the world, sanctions against Russia and disruptions in supply saw prices of food, oil, natural gas, and metals shoot up. 

In the U.S, inflation reached a 40-year high, prompting the Fed to increase interest rates in March to cope with inflation. Despite that, inflation wasn’t slowing down, so the Fed increased interest rates three more times. 

Singapore isn’t immune to inflation either; core inflation rose at its fastest pace in more than 13 years, rising to 4.4% in June on a year-to-year basis.

With the rate hike, central banks all over the world also followed suit by tightening their monetary policies, including the Monetary Authority of Singapore (MAS).  

So far, there are positive signs that inflation is beginning to slow down.

According to reports, the producer price index in the U.S fell by 0.5% in July compared to a 0.2% gain in June. While consumer prices have continued to increase, they’re growing at a slower pace.

However, analysts expect the Fed to continue rising rates until inflation eases substantially. 

How have the interest rate hikes affected home loans in Singapore?

Singapore’s interest rates follow foreign rates, especially those in the U.S. 

When the Fed slashed interest rates during the pandemic, Singapore, just like most parts of the world, also benefited from a low interest-rate environment. 

As previously mentioned, this meant that home loans became much cheaper as local banks slashed their interest rates. People took the opportunity to buy a home, which was one of the key reasons for the property market boom.

Others decided to refinance their home loans, which led to a refinancing frenzy. 

But now that the U.S Fed has hiked interest rates, local banks have updated their interest rates in tandem. 

For example, UOB raised its 2- and 3-year fixed rate packages to 2.98% and 3.08% per annum respectively; DBS’s 2- and 3-year fixed rate packages are now at 2.75%; and OCBC increased its interest rate to 2.98%

Moreover, the benchmark rates for home loans — the Singapore Overnight Rate Average (SORA) and the Singapore Interbank Offered Rate (SIBOR) — have also gone up. 

For instance, the 3-month compounded SORA, which is a benchmark used by banks for floating home loans, has risen from 0.2% in early February to 1.41% as of 17 August.

Suggested read: Fixed vs Floating Home Loan Rates: Which One Is Suitable For You?

So how are Singapore homeowners affected?

If you’re on an HDB loan, you won’t be affected: the interest rate remains at 2.6%.

However, you can expect to pay higher interest rates and more expensive mortgage repayments if:

  • You’re taking a bank loan to buy a property;
  • You’re repricing or refinancing your home loan;
  • Your lock-in period is ending

For instance, assuming that you took a S$500,000 fixed-rate loan over a 25-year period. Here’s the monthly instalment you need to pay (based on the current bank rates): 

Bank loans (2-year fixed rate)Monthly instalment
DBS (2.75%)S$2306.55
UOB (2.98%)S$2,365.86
OCBC (2.98%)S$2,365.86

On the other hand, if you’re on a floating rate package:

Bank loans (2-year floating rate)Total interest rate (3M SORA) + bank spread Monthly instalment
DBS (3M SORA + 1%)2.41%S$2,220.49
UOB (3M SORA + 1%)2.41%S$2,220.49
OCBC (1M SORA + 0.98%)2.39%S$2,215.39

So how much more do you need to pay? 

Say that you bought a 5-room HDB flat for S$500,000 in 2020. To finance for the property, you took a bank loan of S$375,000 over a 25-year period with 1% interest and a lock-in period of two years.

Using a mortgage calculator, here’s the breakdown:

Price of propertyS$500,000
Loan amount (75% loan-to-value)S$375,000
Loan tenure25 years
Interest 1%
Monthly mortgage repaymentsS$1,413.27

But now that your lock-in period has ended, the interest rate is now 3%:

Price of propertyS$500,000
Loan amount (75% loan-to-value)S$375,000
Loan tenure25 years
Interest 3%
Monthly mortgage repaymentsS$1,778.29

Therefore, the monthly difference is S$1,778.29 – S$1,413.27 = S$365.02.

That’s S$4,380.24 a year. Your monthly interest payments will also go up from S$234 to S$703, or 3X more.

What should you do?

With rising interest rates, you might be panicking about what to do.

If you’re still in your lock-in period, there’s nothing you can do for now (the pre-payment penalties for refinancing isn’t worth it). 

Otherwise, you can consider repricing or refinancing your home loan. Even in times of rising rates, repricing or refinancing may still work in your favour.

For instance, you can consider repricing or refinancing if the interest you’re currently paying for your mortgage is higher than what’s being offered right now.

That said, you shouldn’t base your decision solely on interest rates alone; also consider your financial goals. 

For example, maybe you’re looking to shorten your loan tenure so that you can fast-track your mortgage repayments. While this means that your monthly instalments will be higher, you’ll save on interest payments. It also means that you’ll be debt-free sooner.

Related article: Should You Pay Off Your Mortgage Faster, Or Invest Your Money?

Conversely, lengthening your loan tenure allows you to lower your monthly repayments so that you have more cash flow.

While this may lead to an increase in the overall amount you need to pay, you’ll have more money to work with in the short term, which you can use to invest elsewhere. 

Besides that, some experts have also suggested picking a fixed-rate home loan to hedge against future rate hikes. 

Since the Fed has hinted that rate hikes will continue to happen until inflation eases substantially, opting for a fixed-rate loan may give you better peace of mind.

If you’re losing sleep over rising interest rates, you may want to consider switching to a SORA-pegged loan

As SORA loan packages are based on the average rate of past interbank transactions, they’re less volatile. The rates are also more transparent compared to SIBOR. 

Last but not least, if you’re a new home buyer, you can consider taking an HDB loan instead. At 2.6%, the interest rate is lower than some bank loan packages right now.

Suggested article: Refinancing vs Repricing Home Loan: What’s The Difference?

Compare and find the best home loans in Singapore

Whether you’re looking for affordable home loans or want to refinance to lower your monthly repayments, find and compare the best mortgage rates in Singapore on SingSaver.

Read these next:
Loan-to-Value Ratio & Limits In Singapore (2022)
When Should You Start Planning To Refinance Your Mortgage?
HDB Loan Vs Bank Loan: Which One Should You Go For?
New Singapore Housing Loan Rules In 2022 – How Much Can You Borrow
Pros And Cons Of Buying An Auction Property In Singapore

By Yen Joon
Before joining SingSaver, I had poor financial literacy. These days, I publish a few personal finance posts every week* to help you manage your money better.

*I mean, I’ll try

Yen Joon August 19, 2022 94734