Fixed Rate VS SORA Pegged Floating Home Loan Packages: Here’s How to Decide When Mortgage Refinancing

When choosing which home mortgage package to take up, the biggest decision you need to make is whether you want a loan rate that is fixed or floating. Here are the differences between these two, in order to help you decide on what is arguably the most expensive purchase you’ll make in your life.

Fixed Rate Home Loans Aren’t Fixed Permanently

As their name suggests, fixed rate home loans allow you to lock in the interest rate of your mortgage for a certain duration. This provides homeowners with a greater degree of certainty on their interest costs and home loan repayments, at least for a period of time.

However, most fixed mortgages are still subject to interest rate review after the lock-in period, usually 2 to 3 years. So this is something you should be aware of. This review could be a double edged sword, since rates could fall in your favour or rise against you. 

Perhaps the only home loan that is truly ‘fixed’ is offered by HDB, which charges 2.6% interest per annum, and is not subject to automatic reviews.

Floating Rate Home Loans Float at Different Frequencies

Floating rate home loans are designed to be more responsive to various metrics, such as SORA (Singapore Overnight Rate Average), fixed deposit rate plus spread, or the more opaque bank board rate.

When selecting floating mortgage packages, you need to decide how frequently you want your floating loan to be pegged to the underlying metric, such as every 1-month, or every 3-months, or other durations.

The shorter the duration, the more often your rate is subject to changes – for better or worse.

Floating Rates Require Greater Attention and Discipline

While some people might be attracted by the responsive nature of floating home loan packages, it also means you need to monitor home loan rates more closely, and be prepared have sufficient financial buffers to ride out spikes in interest rates.

Conversely, floating mortgage holders should not overextend themselves during periods of low interest rates, and need to instead be disciplined enough to stash the funds saved for a rainy day.

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