Ever get confused by the massive amount of home loan packages that bankers sent you? In Singapore, there are more than 20 banks and financial institution that proves mortgages to homeowners and the total amount of packages that they have would probably come up to about a hundred.
In general, home loan packages can be broken down into 3 main types, fixed-rate, variable-rate, and interbank market pegged.
1. Fixed rate
Your mortgage rate is fixed for a certain period of time, say 2years, 3 years, or 5 years at a certain rate. The interest rate on your home loan reverts to a variable rate after the fixed rate term. Typically the bank will require you to be locked in with them during the fixed-rate period.
2. Variable Rate
Your mortgage is pegged to a bank’s variable board rate (BR) minus a certain discount, for example. BR 4.5% – 3.2% = 1.3%. The discounts of the Board rate are usually tiered down in the later years. You typically enjoy greater discounts within the lock-in period with the bank.
3. Interbank Market pegged: Sibor and SOR.
Also a class of variable rates, but offers full transparency to borrowers as your mortgage rate is pegged to the interbank market rate.
Sibor stands for Singapore Interbank Borrowing Rate and SOR stands for Swap Offer Rate. Both rates are publicly available in the newspaper and the internet. Banks charge a certain mark-up spread over the Sibor or SOR rate. The Sibor / SOR rate is the cost of funds while the mark-up spread is to cover the bank’s operating cost with the net of it as its profit.
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