Last Updated on 20, January 2015
The key interest rate benchmarks namely SOR (Swap Offer Rate) and SIBOR (Singapore Interbank Offered Rate) are surging. For example, the 3-months SOR used to be below 0.25% prior to 1 October 2014 but now the latest figure as at 5 January 2015 is 0.930%. You can see it in graphical format for the historical SIBOR and SOR for the last 3 months:
Source: http://www.icompareloan.com/
Interestingly the SOR is more volatile compared to SIBOR.
The rise in interest rate implies a higher mortgage payment if the loan is pegged to a floating rate. For example, let’s say your mortgage loan is pegged to 1%+SOR and you have a 25 years $800,000 loan, the mortgage monthly instalment increase from $3,106.38 to $3,363.64 for SOR of 0.25% and 0.930% respectively.
It is now possible to find fixed rate mortgage loan that is equal or below the floating rate. I did a random survey and the following was what I found from some banks offering fixed rate loans. Fixed rate will shield you from the effects of rising interest rate.
| A | B | C | D | |
|---|---|---|---|---|
| Year 1 | 1.25% | 1.98% | 1.19% | 1.65% |
| Year 2 | 1.4% | 1.98% | 1.49% | 2.18% |
| Year 3 | 1.5% | 1.98% | 1.59% | 3.38% |
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Are the interest rates for savings a/c and Fixed Deposit heading north?
Not unless world economy & particularly Asia-Pac picks up aggressively. The current increase in Sibor is liquidity-driven i.e. liquidity crunch; fear of inter-bank lending, and not due to inflation and high economic growth.
As long as 99.9% of debtors and mortgagers are still continuing to pay monthly, banks will run more special promos for step-up accounts etc over next few months. But the standard FDs & savings a/c will remain at pathetic rates, coz like I said this Sibor increase is not supported by genuine high economic growth.