Four things home owners should know

Home owners with existing loans pegged to the Singapore Interbank Offered Rate (Sibor) are likely to find themselves paying more for their mortgages in 2016, said housing and financial experts.

Most housing loans are set at a certain percentage above Sibor and a rising Sibor rate will equate to an increase in interest payments, said Mizuho Bank's senior economist Vishnu Varathan.

He said that because Sibor moves in tandem with United States interest rates, the US Federal Reserve's announcement last month that it would increase interest rates by 0.25 to 0.5 per cent will definitely affect Singapore's interest rates.

Mr Varathan predicted that Sibor will increase by about 0.75 to 1.25 per cent more than prevailing rates over the course of this year.

So what should home owners here know about the increase in Sibor and what can they do to mitigate it?


Sibor has been increasing gradually over the past year and the US Federal Reserve announcement has been a long time coming, said ECG Property chief executive Eric Cheng, 40.

Mr Cheng said that although home owners will be paying more for their loans and saving less, the interest rates are still fundamentally stable.

"It's a gradual and progressive increase in interest rates, so if you're a prudent investor and you have planned well, you'll be able to handle the increase," he said.

The increase in interest rates is a "normalisation and not a hike", said a spokesman from SRX Property .

"Interest rates have been very low for too many years, so this increase is actually allowing rates to go back to normal," he said.


Home owners should look for alternatives to their current home loan packages, said Mr Ong Kah Seng, director of property market research company R'ST Research.

"They should research and find alternatives and other resources," he said.

"It's good to know the options, because switching interest rate packages or refinancing might not always be the best choice.

"Sometimes, sticking to their current loans will be better."

Mr Ong said that home owners should take this as a chance to become more informed about their loan options as "it's a danger to be a passive home owner".


Everyone will eventually be affected by the interest rate increase, but investors who do their numbers well won't be as severely affected.

"Those who are most affected by the Sibor increase are those heavily geared or invested in property," said Mr Cheng.

"They may have taken loans larger than what they can finance."

Property investment blogger and founder of Property Club Singapore, Ms Vina Ip, advised home owners to consider multiple factors of their property investments.

A combination of factors such as market oversupply, a lucklustre rental market and high vacancy rate can result in more mortgage defaults, she said.


To mitigate the increase in Sibor, investors with vacant properties should be more flexible.

With the dismal rental market, they should lower expectations for rental fees and tenants' profiles, said Mr Ong. Any rental can help negate the increase in Sibor.

He said: "Their top priority should be to get tenants to fill up the space for at least one or two years."