Different types of rates explained
With the increasing competition in the mortgage scene, banks are coming up with many different types of packages to choose and consumers are spoilt for choice. So, how do we go about deciding which one to choose? Are packages as simple as simply choosing the lowest rates? To start, lets go through some of the different type of rates offered by banks.
SIBOR, also known as the Singapore Interbank Offer Rate is one of the most common packages offered by banks. It is the rate at which the banks will lend money to one another.
Below is how a typical SIBOR package looks like:
Year 1 0.85% + 1 month SIBOR
Year 2 0.85% + 1 month SIBOR
Year 3 0.85% + 1 month SIBOR
Year 4 onwards 1.25% + 1 month SIBOR
Based on the prevailing 1 month SIBOR rate, the total effective interest rates will be 1.64% during the teaser rate period. If you are on a 1 month SIBOR, your effective interest rates will refresh and change every month. Similarly, if you are on a 3 month SIBOR package, your effective interest rates will refresh and change every 3 months.
The term fixed rates is as simple as it goes. The rates are fixed for the initial first 1 to 5 years and you will pay a fixed monthly installment for the fixed tenure period after which it will revert back to the bank's floating rate and be due for refinancing and interest saving considerations.
Board rates are pegged to the bank internal rates. Compared to SIBOR which is fully transparent and published, board rate are determined by the bank's own set of internal rate references. Banks do reserve the right to review and revise your board rate based on prevailing market interest rate movements.
Fixed Deposit Pegged Home Rates
This is a relatively new kind of mortgage rate introduced by some of the local banks and is pegged to the bank's fixed deposit interest rates. While there is the word fixed in the package, the rates do not stay fixed. Not unlike board rate, banks do reserve the right to change the reference indicator from say a 24 month deposit reference rate to a 18 month deposit reference rate.
Other than the type of packages stated above, there are also some other variants such as the SOR/SIBOR combination or Fixed/Variable combination.
The best package would be the one that is most suited to your needs, risk appetite and your own view of the market movement in the next few years. Contact us for a full discussion of your financing needs today!
Winnie Au | Senior Mortgage Advisor