Monthly repayments - fixed or variable?
It all boils down to this: Do you prefer to simply pay a fixed amount every month for the duration of your mortgage?
Or are you willing to accept mortgage payments that could vary over time – and the accompanying advantages and disadvantages?
If it’s the former, then taking an HDB mortgage is your best choice; your monthly mortgage will remain the same all the way, providing comfort in familiarity.
This is because the HDB home loan interest rate is all-but-guaranteed to remain at 2.6% per annum for the foreseeable future until such time as the authorities deem fit to make changes.
And even then – given the closely-held tenet of homeownership in Singapore – any proposed amendments will likely be hotly debated, with any implementation taking place slowly. Which means you’ll have ample time to consider your alternatives.
As for bank home loans, interest rates will move according to rates set by the MAS, in response to macroeconomic changes such as inflation, as explained earlier in the article.
Now, as inflation is more or less cyclic you can expect bank mortgage rates to adopt a similar pattern, rising and falling over time. Getting caught in an upswing in rates (as seen this year) means that you have to contend with higher and higher mortgage payments.
On the flipside, central banks like MAS cut interest rates in an effort to encourage borrowing, which means there’s more money in the economy to go round – a situation popularly referred to as a “boom”.
The cuts also result in lower home mortgage rates, which means lower mortgage payments, and thus, more money for you to put to other uses, such as investing or savings.
Recognise that this advantage is not guaranteed, as there’s no way to know for sure when your mortgage rates will go down. There’s every chance that your mortgage rate will remain at elevated levels throughout the tenure of your home loan.
And even if rates do fall enough to make a substantial difference, you’ll need to hunt around for a suitable home mortgage package and refinance your existing home loan before you can access the new rates and realise those savings.
For those willing to roll the dice, bank mortgage loans may potentially be a good choice – but even then, only if everything goes your way.
However, if stability is what you value, then HDB home loans would be the better option.
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