Money, money and more money! The recent news about the US interest rates hikes has hit our shores in Singapore and the news is not entirely encouraging.
The three-month Sibor, which is used to price most loans and mortgages here, has been inching its way upwards due to interest rate hike in the United States and a weakening Singapore dollar versus the greenback. The recent announcements by MAS to reduce the Singapore dollar from appreciating aims to keep the Sibor elevated.
The Sibor is fixed daily by the Association of Banks in Singapore based on quotes from banks on what they expect to pay for interbank loans that day. In short, it is affected by liquidity in the banking sector.
“The reduction of the appreciation slope could keep pressure on the US and Singapore dollar exchange rate and thus could ensure Sibor remains at current levels … This move by MAS helps keep Singapore policy on a stable footing, and we expect it to be modestly beneficial for Singapore bank earnings,” analysts from Morgan Stanley said in a research note.
Many housing loans offered by banks are tied to three-month Sibor. Oversea-Chinese Banking Corp (OCBC), for example, has 3 types of home loans and one that is currently offering home loans at three-month Sibor plus 0.85 percentage points for the first three years, according to its website. Lending rates are reviewed every three months. As the Sibor is set to increase, so will the interest rate rise. Home owners will eventually face higher mortgage payments.
“We had expected the bullish move in the SOR and Sibor since last year,” says UOB economist Francis Tan (source)
Analysts are looking at further upside to about 1 to 1.2 per cent at the end of the year. Effectively leading to an interest rate of about over 2% for home loans.
Let us assume an outstanding housing loan of S$500,000 and 20 years remaining. With the current interest rate of 1.5 per cent, this works out to a monthly payment of about S$2,410.
If the interest rate is increased to 2 per cent, the monthly payment would rise to around S$2,530. Should the rate rise to 3 per cent, the monthly payment would be S$2,770.
Higher interest rates charged by banks affect your loans directly. Thus you will see your loans, home mortgage loans, renovation loans slowly inching its way up.
Hence start reviewing your loans! For example, review your home loan packages every two to three years. Look at the trends Conventional wisdom has it that you should review your loan package every two to three years, or before the promotional period ends and your bank raises its premium on the interest you pay, which increases your monthly instalments.
In short, think long term and look around for good deals. Always negotiate with the bank on refinancing options.
DPM Teo added that the improved situation was due to the tough laws enacted, strong enforcement efforts against loan-shark syndicates and the high level of community support in the fight against unlicensed moneylending activities.
According to DPM Teo, about 1,900 people were arrested for unlicensed moneylending and related harassment offences on average yearly between 2011 and 2014, while about 2,600 were convicted in court for these offences.
Seen the recent hype about public harassment during working hours? Debt collectors created a ruckus at Funan Mall over unpaid debts. Moreover, this was during working hours infront of the public eye.
With clamping down on unlicensed activities and harassment cases, this is looking good for us licensed moneylenders at Empire Global. The image of licensed lenders is changing for the better as tougher laws are weeding out bad lenders. Thankfully, the ruly debt collectors have been arrested for unlawful assembly.
This sounds bad . :(