Remember the one about "interest rates are going to rise"..?

By The Folks @PropTalk - January 5, 2015 No Comments

Local interest rates have been on a slow upwards creep, and on the first working day of the New Year, rose to a 52-week high as the Singapore dollar continues to weaken against the greenback.

The key three-month Sibor, or Singapore interbank offered rate, on which most home loans are pegged rose to 0.45738% on Jan 2, up 17.6% from the low of 0.38885% on Feb 21.

The benchmark rate had been flatlining for much of the first half of 2014 until it began its slow rise from August, then picked-up pace steadily as the USD rallied. The SGD has fallen to four-year lows against the USD. At last Friday's 1.328, it is down more than 7% from last year's July 23 high of 1.238.

Observers say Singapore interest rates are now tied to the strength of the USD and will move further up even in the absence of rate hikes from the US Federal Reserve. Expectations are for the US Fed to raise rates in the second part of this year.

OCBC's forecast for three-month Sibor is 0.55% and 0.69% for mid- and end-2015, respectively.

DBS projects that the SGD will head to 1.33 by fourth quarter 2015 and 3-month Sibor to reach 0.60% then.

UOB is more bearish - it expects that the start of the US interest rate normalisation in June next year will see further downward pressures on the SGD this year. This will in turn see Sibor moving on a higher trajectory in 2015. UOB expect the three-month SGD Sibor to move towards 1.00% by end 2015.

Should home loan borrowers worry? Some say the pace of the increase could be a concern but as long as the absolute interest rate remains low, the hike in monthly instalments should be manageable.
Info source: BT

Although many will probably brush this off, but the wife and I certainly won't bet against a "perfect storm" of the US Fed raising their interest rates earlier/higher than expected while the USD continues its rampage against the SGD. If that happens, the absolute interest rate and monthly mortgage instalments may not stay as manageable as earlier thought.

And it may be timely to revisit those fixed-rate loan packages again...

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