Interest rates have started waking up from a years-long slumber, but it seems like homeowners have been slow to react.
Despite recent volatility in local mortgage-linked rates, banks say they have not seen a significant rise in refinancings or inquiries, even from homeowners with loans pegged to the Swap Offer Rate (SOR).
The SOR has been exceptionally volatile in the past couple of months, rising sharply when it seemed like the United States Federal Reserve was going to raise rates, then plunging when it decided not to for the time being.
There are few local homeowners with SOR-pegged loans, as most banks stopped offering these in the past five years.
DBS Bank has even started reaching out to customers to get them thinking about reviewing their mortgages.
Since early last month, it has rolled out newspaper and online advertisements suggesting that homeowners servicing SOR-pegged loans come in to talk to an expert about other options.
However, few homeowners have answered the bank’s call to action, said DBS secured lending executive director Tok Geok Peng. There were fewer than 500 customers with SOR-pegged loans from DBS in September, and that number has not moved much, she said.
“We thought it would be good to alert people about the SOR’s trend, but people don’t move that fast on home loans,” she said.
The SOR jumped some 50 per cent between August and last month, hitting a seven-year high of 1.56409 per cent on Sept 8, before plunging back down to 0.88223 per cent by the end of last week.
Ms Tok said this roller-coaster ride is not good for homeowners’ finances: “Home loans are a long-term commitment and the payment forms a large part of our cash flow, so it’s important for those payments to be stable and not fluctuate monthly.”
OCBC Bank said it has been business as usual despite the SOR’s volatility: “While not a high volume, we do have borrowers enquiring about switching to other pricing packages on a routine basis.”
Citibank Singapore said about 10 per cent of its clients, with all kinds of home loans, have made enquiries about changing their packages.
Most home loans taken out in recent years are pegged to the Singapore Interbank Offered Rate (Sibor), which, while not as volatile as the SOR, has also been see-sawing.
The Sibor hit a seven-year high of 1.13958 in mid-September, and then eased to 1.00906 per cent by the end of last week.
With an outside chance the US Fed might raise rates in December or more likely sometime early next year, there will likely be sharp increases in the SOR and Sibor.
Given this outlook, Ms Tok said fixed-rate and fixed deposit home loans are more popular among new mortgagors now.
The latter is pegged to fixed deposit interest rates, which are much less volatile than SOR and Sibor.
DBS also offers a managed mortgage for customers who find fixed-rate packages too expensive but also worry that a sharp rise in interest rates will hurt their wallets down the road.
Part of the loan has a fixed interest rate and part of it is pegged to a floating rate.
OCBC has a similar service. Customers can opt for a loan that combines a variable rate and the three-month Sibor, with options to switch at no cost during or after the lock-in period of the loan.
Citibank, meanwhile, gives customers on Sibor-pegged loans the option to switch to a different rate when they wish.
“Customers can switch to a longer-term Sibor in addition to fixed rates,” said Ms Sherry Leong, its head of secured finance solutions.