Fixed Interest Mortgage – Worthwhile considering?

Fixed Interest Mortgage – Worthwhile considering?

A recent article in the Straits Times discussed the Fixed Interest Mortgage and how its popularity has increased. The 3-month SIBOR (Singapore Interbank Bid-Offer Rate) is at the 0.40568% level, up from the 12-month low of 0.37083%.  This works to an increase of 9.3%. This does look significant, doesn’t it? Breaking down the numbers Current vs the historical 12-month low For our example, let us use a long term spread of 1.25% over the base rate of the 3-month SIBOR.  In other words, total interest rate is now 1.25% + 0.40568% = 1.65568%. Applying this interest rate against a S$1 million loan over a period of 30 years, the monthly instalment works to S$3,526.40. What happens when we applying the 12-month interest rate low of 0.37083% to the same computation?  The total interest rate works to 1.62083%.  The monthly instalment? S$3,509.48. So the difference of this 9.3% increase in 3-month SIBOR works to a 2.1% increase in total interest rate, and a S$16.92 (or a less significant 0.28%)  increase in monthly instalment (See table below for a quick summary)     Current 12-month-low (a) Difference (b) % increase[(c) = (b)/(a)] 3-month SIBOR 0.40568% 0.37083% 0.03485% 9.3% Spread 1.25% 1.25% – – Total Interest Rate 1.65568% 1.62083% 0.03485% 2.1% Monthly Instalment S$3,526.40 S$3,509.48 S$16.92 0.48% (Loan S$1mn for 30 years)           The Fixed Interest Mortgage The ST article also mentioned a Fixed Interest Mortgage package where the interest is pegged to a Fixed Interest Mortgage of 1.88% for a period of 3 or 5 years. Let’s see if this makes sense. Let’s continue to use the long...
 

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