More borrowers opt for fixed rate home loans

Homebuyers concerned that interest rates will start rising soon

Fearing that interest rates will soon start to rise, more Singapore borrowers are turning to fixed rate home loans.

The prospect of higher repayments has become far more pressing in recent weeks with the United States Federal Reserve's decision to begin cutting back its stimulus spending.

That paves the way for US interest rates to eventually rise, which will inevitably mean they will rise here too, as Singapore's interest rates closely follow those in the US.

A rise in short-term interest rates would hurt home loan borrowers as many are on floating rate packages that are linked to these rates.

Ms Lui Su Kian, managing director and head of deposits and secured lending at DBS Bank, told The Straits Times: "Recently, we have observed greater interest in fixed rate programmes in part due to concerns about potential hike of interest rates.

"Discerning homebuyers are also planning ahead and (have) opted for fixed rates programmes while interest rates are still low."

About 30 per cent of DBS customers opted for fixed rate packages in November compared with only 10 per cent in the same month in 2012.

The surge in numbers led the bank to offer a promotional rate of 1.88 per cent for its five-year fixed rate loan in November, which continues to receive positive customer response.

Maybank Singapore, which offers two- and three-year fixed-rate mortgages, said fixed-rate packages have been consistently popular with customers "as (this) provides them with more certainty and financial prudence".

However, other packages such as floating rate mortgages continue to be more popular among customers at other banks.

OCBC, which offers one- and two-year fixed rate home loans, has not seen more customers taking up fixed rate packages.

Ms Phang Lah Hwa, its head of consumer secured lending, added: "We will continue to offer fixed rate packages along with Singapore Interbank Offered Rate (Sibor) and variable rate packages."

ANZ offers a two-year fixed rate package at 1.65 per cent but its three-month "combo package" is the most popular.

The combo rate is an average of the Sibor and the Swap Offer Rate (SOR).

ANZ said the take-up for fixed rate packages remains low as customers want variable rate loans. The three-month combo package, for example, is about 1.3 per cent - 0.3 per cent plus a mark-up of 1 per cent - so it will still be lower than 1.65 per cent fixed rate.

An ANZ spokesman said: "By having an average of Sibor and SOR, customers enjoy the best of both worlds and it takes away the hassle of having to choose between the two rates."

source: Straits Times - 2 Jan 2014