Home owners who took out floating-rate loans instead of fixed-rate loans on their houses are expected to pay higher monthly interest rates, following the sharp increase of the three-month Singapore Interbank Offered Rate (SIBOR) yesterday.
Based on Bloomberg data, the three-month SIBOR surged to 0.62052 percent on Tuesday compared to 0.57762 percent on Monday and 0.45738 percent last Friday.
For the most part of 1H 2014, the benchmark rate remained unchanged until it started to slowly increase since August, then rose steadily as the US dollar strengthened further. According to OCBC, the three-month SIBOR may have trended upward due to the weakness in the Singapore dollar dropping to a four-year low against the green back.
As of last Friday’s exchange rate, one Singapore dollar is equivalent to 1.328 US dollar, down from the peak rate of 1.238 on 23 July 2014.
Notably, the benchmark rate is used by Singapore banks as a reference interest rate for funds they lend to other financial institutions and it also determines the interest rate of housing loans.
For instance, the interest rate of some of OCBC’s mortgages is based on SIBOR plus 0.85 percentage points for the first three years of the loan tenure. Basically, as the rate goes up so does the interest rate of loan packages dependent on this benchmark rate.
According to media reports, OCBC said: “If interest rates rise at a slow and steady pace, home owners will be able to adjust. But if it is unwieldy and volatile, then that makes it a bit more tricky, because what you are seeing now is some correction in terms of property prices.”
“It might be overshooting, as it is still the first few trading days and the market is still reacting to conditions in 2015,” it noted, adding that the benchmark rate could reach nearly 0.7 percent by mid-year, then between 1 and 1.2 percent by the end of 2015.
If the three-month SIBOR hits 0.7 percent, the monthly instalment of a S$100,0000 loan with a 20-year tenure is estimated to rise by S$11.45 to $484.85 for mortgages based on this benchmark rate.