As the name suggests, a fixed interest rate allows you to lock in a fixed rate for 2–5 years, depending on your chosen loan tenure. This means your monthly instalments will be the same until the next cycle of your loan tenure or when the lender changes the rate under certain circumstances. With this type of interest rate, you’ll be able to allocate your budget for the monthly instalments properly since the rates are more stable and fixed. However, at the end of your fixed rate loan tenure, your home loan package will change to a floating rate. Because of this, most home buyers refinance to a fixed loan once again.
There are 3 different types of floating rates in Singapore. Board rates, SIBOR-pegged floating rates and fixed deposit. These rates are variable, which means they can go up or down at any time.
How these rates fluctuate is dependent on the different factors summarised below.
Home Loan Lock-in Period
The lock-in period depends on your chosen home loan package. Typically, it’s between 1–5 years. In the case of a fixed interest rate home loan, your monthly repayments will be the same for the duration of your lock-in period.
Fees & Penalty
If you choose to pay your loan in advance during the lock-in period, you may be charged an early repayment fee of 1%–1.5%, depending on your loan package. These days, if you sell your property within the lock-in period, some banks will waive the penalty fee especially when there’s a waiver clause included in your home loan package. If there’s none, you may enter a negotiation with your bank to waive the fee. In some cases, banks do grant the waiver especially when the borrower returns to the same bank with a new loan.
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