Borrowing power, a critical factor for homebuyers and property investors in Singapore, is influenced by a combination of interest rates, stress-test benchmarks, and personal financial standing. Recent economic shifts, particularly global interest rate adjustments, have reshaped this dynamic, impacting both new and existing mortgage holders.
Influence of Interest Rates
The US Federal Reserve heavily influences interest rates in Singapore, as the Monetary Authority of Singapore (MAS) primarily uses exchange rate policies rather than interest rates for monetary adjustments. Over the past year, rising rates tied to benchmarks like the Singapore Overnight Rate Average (SORA) have increased borrowing costs, with fixed-rate mortgages climbing to around 3%. However, recent signs of stabilization and potential reductions in global rates may offer relief, providing borrowers with increased flexibility in securing loans.
Changes in Loan Eligibility
A significant determinant of borrowing power is the stress test rate applied by banks to ensure borrowers can meet repayments under adverse conditions. A reduction in this rate can significantly enhance loan eligibility. For example, a family with a combined income of SGD 16,000 could qualify for an additional SGD 100,000 in loans if the stress test rate is reduced by 0.5%, increasing their loan quantum from SGD 1.667 million to SGD 1.757 million over a 25 year loan tenure. This shift is expected to encourage home purchases and refinancing activity.
Refinancing as a Strategy
Refinancing remains a popular strategy for optimizing borrowing power, particularly in a competitive lending environment. Banks now offer packages with attractive features, such as waived legal and valuation fees, allowing homeowners to switch to better terms. Fixed-rate packages are gaining popularity for their stability amid uncertain market conditions.
Long-Term Implications
Despite these opportunities, prudent financial planning is essential. Borrowers must consider future rate hikes and their Total Debt Servicing Ratio (TDSR), which caps monthly debt obligations at 55% of gross income. Ensuring short- and long-term affordability is crucial to avoid financial strain. Ultimately, while lower rates can expand borrowing limits, prudent financial planning remains critical. Borrowers should consider long-term affordability and the total cost of homeownership, ensuring stability in their financial commitments regardless of market conditions. For tailored advice, working with mortgage advisors can be invaluable in navigating this dynamic environment.
Overall, as mortgage markets evolve, homebuyers and investors in Singapore must stay informed and adapt to changes. Seeking professional mortgage advisory services can provide tailored solutions, ensuring optimal financial outcomes amidst a dynamic property market.
Your financial future starts with the right advice
In the ever-evolving landscape of home loans in Singapore, making informed decisions is key to securing your financial future.
Our dedicated team of expert mortgage brokers from IQrate is here to guide you every step of the way. Don’t let uncertainty hold you back; take the first step towards maximizing savings for your mortgage loan, often your largest financial commitment.
Contact us now to schedule a personalised and free consultation.
