In a weird case of déjà vu, the world is now back to the new norm of low-interest-rate environment.…
With more than 70% of Singaporeans being a homeowner, many of us have a home loan to service. It is no wonder why the recent moves in the interest rate makes us so interested. After all, a 0.25% change in interest rate can mean a difference of tens of thousands of dollars in interest rate savings for us. Here are 4 questions that homeowners like you and I will be eager to answer so that you can make the best financial move in the current interest rate environment.
Yes, interest rate will likely fall again. The Fed is expected to reduce interest rate by another 25 basis points. Since the pattern in Singapore’s SIBOR and fixed interest rate follows closely to the US, interest rate in Singapore is forecasted to drop as well. However, you shouldn’t get your hopes up high that a repeat of the low interest rate environment in 2009/2010 will happen again. Here’s why.
For starters, the global economy is doing much better compared to 2009/2010. There is no pressing reason for the Fed to lower interest rate to support the economy. Even if the trade war rhetoric persists, don’t expect the Fed to continue lowering interest rate to further President Donald Trump’s fight with China.
Secondly, inflation in the US is already starting to hit the 2% inflation target. If the Fed continues to lower interest rate, it is putting the economy at risk of letting inflation get out of control. This can cause more damage to the US economy in the long run and eventually reduce growth and employment.
According to our experts, now is the perfect opportunity to take advantage of the low home loan interest rate. We think that homeowners should start shopping for deals that can help you lock the low interest rate for at least another 2 years.
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If you are planning to wait awhile longer, be wary. This is because the current moves by banks to reduce interest rate will not last for long. After all, the economy has already been booming for years. It is very unlikely for the Fed to continue reducing interest rate to support the economy. We foresee the Fed letting the recession cycle take effect and play out as a natural course of action.
Right now, some banks are offering fixed interest rate home loan packages that are as low as 1.89% in the first year. That is absurdly low for the current interest rate standards. Thus, we believe that the current ‘flavour of the month’ is definitely fixed interest rate home loan packages. Homeowners should look to lock in the fixed interest rate for at least the next 2-3 years to take full advantage of the low interest rate.
Banks are not only offering low fixed interest rate, they are also reducing the number of years of lock-in on their home loans. Some home loan packages offer as little as 1 year’s lock-in. This means that if the interest rates continue falling, you can switch out for a better home loan deal. In the event that interest rate doesn’t go further, you would already have secured a low interest rate on your home loan. That’s a win-win for homeowners.
If you are a homeowner, there are 2 ways you can start shopping for home loan deals: Online or offline.
Nowadays, there online comparison websites that help you compare different home loan deals in the market. A single click on the website lets you compare home loan deals across multiple banks. It’s easy and fuss free.
If you prefer the offline method, you can head down to each bank to check out what’s the interest rate they are offering on their home loans. But this can be pretty time consuming. Alternatively, you can let Moneyline’s home loan consultants do the information aggregation for you. Moneyline’s home loan consultants will then arrange a session with you to explain which home loan package will help you take advantage of the low interest rate at the moment by answering a few questions.