There are two main types of home loans in Singapore— home loans pegged to the SIBOR rate and home loans pegged to the bank’s fixed deposit rate. But before you decide on which type of home loan to commit to, it is important for you to understand they are all about.
SIBOR Home Loan Rate
SIBOR stands for the Singapore Interbank Offered Rate and is the interest rate at which banks use to borrow money from each other. This rate is derived daily from a comparison of interest rates from at least 12 banks in Singapore and published on Association of Banks in Singapore (ABS)’s website.
A SIBOR home loan rates usually comprises of two parts: the SIBOR rate and the bank’s spread. For example, it is usually expressed like this: 3M SIBOR (SIBOR Rate) + 0.5% (Bank’s spread).
The SIBOR rate is usually expressed in numbers like 1M SIBOR or 3M SIBOR to indicate how often the SIBOR rate is refreshed for your loan. If you have a 3M SIBOR rate, this means that the bank will check the SIBOR rate and update it every three months. If you have a 1M SIBOR rate, then your home loan interest rates will be refreshed every month.
The bank’s spread can be generally understood as the bank’s ‘surcharge’ on top of the SIBOR rate. The SIBOR rate will always stay constant regardless of whichever bank’s home loan package you’ve chosen. The bank’s spread will thus determine whether you have a low home loan rate or not.
Let’s look at an example of how a SIBOR home loan rate is calculated:
If your home loan interest rate = 3M SIBOR + 0.5%,
Assuming the 3M SIBOR rate is 1.8% and the bank’s spread is 0.5%, then the interest rate for your home loan would be 2.3%.
Fixed Deposit Home Loan Rate
Instead of being subjected to external market conditions, the fixed deposit home loan rate is pegged by the bank’s fixed deposit rate. It is what people commonly refer to as a “board rate” which means that the bank has full control over the interest rate and can raise it any point they want.
Similar to SIBOR home loan rates, it comprises of the bank’s fixed deposit rate and the bank’s spread. The bank’s fixed deposit rate usually have numbers next to them such as FHR9 and FHR18. The number represents the interest rate period. So FHR9 would refer to the bank’s 9 month fixed deposit rate (which would differ from the rate of other time periods).
You’re not alone in this!
Now that you better understand what the two different types of home loan mean, you can choose and decide which kind of home loans suits you best! You can use our free and comprehensive home loan comparison tool to look at the different loan packages available here.
However, you don’t have to make this decision all by yourself! Our mortgage experts at Best Mortgage Singapore can advise and help you make the best decision for yourself! So don’t hesitate to contact us for an enquiry today: +65 9845 9978