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Should Singapore property owners pay off their existing housing loans in 2023?

Posted by Lee Kian Meng on May 22, 2023
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Housing loan in 2023 is the most pressing issue for many homeowners in Singapore. Clients need to know that properties are illiquid assets. Especially for HDB. You can possibly get back your cash only when you sell your HDB, provided it is a positive sale. for PTE properties, there are possibilities for equity term loans if cash is required, but it is not immediate like a savings account. The client will also be required to pay legal fees and valuation fees for such services. 

Therefore, owners need to make sure they are aware of the situation before making this decision. Let’s breakdown into bite size:

  1. What do owners need to know about using CPF to pay for properties?
  2. Ways to manage rising home loan rates.
  3. Fixed-rate or Variable rates?
  4. Will the interest rate continue to rise?

1) What do owners need to know about using CPF to pay for properties?

Owners who use their CPF to pay for properties will have to pay back the accrued interest on top of the CPF used, when their property is sold. Therefore, there are circumstances of a negative sale. Owners will need to factor in the total CPF withdrawn and accrued interest to be paid when they sell the unit.

2) Ways to manage rising home loan rates.

If owners have the financial capability, they can make a lump sum redemption to lower the loan amount if their package is out of the commitment period. Home loan Interest in Singapore is only charged on the outstanding amount, thus, it makes sense to redeem.
Owners can also look at other financial investments when rates hike so as to offset the interest payment on their mortgage.
Refinancing is a way to seek better or lower rates than existing home loan packages. There might be features in the new package which might attract owners to refinance as well. For example free conversion of the package after the lock-in period, which allows the client to change the package for free when rates revise.

3) Fixed-rate or Variable rates?

It depends on the owner’s financial situation, risk tolerance, and perception of the interest rate fluctuation. For more conservative clients, they might feel safer fixing their rates so that if rates increase, they are not affected. The fixed rate is also a good choice if the rates are trending up.
For clients who feel that rates will revise down after a certain period, and are more risk tolerance, they might probably go for floating rate packages.

4) Will the interest rate continue to rise?

According to Yahoo News, Straits Times, and many news sources, interest rates are expected to increase further in 2023.
Forbes also mentioned that rates for home loans are still caught in a tug-of-war between high inflation and the Federal Reserve’s action to restrain inflation, which indirectly pushes long-term mortgage rates higher. Housing market stakeholders are watching inflation and Federal clues closely at this instance.

This article is researched with the help of Caroline who has been in home loan mortgage for many years. You can contact her through us here.

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