On Last Friday’s Fed Meeting at Jackson Hole, Fed’s Chairwoman Janet Yellen said that the US Central Bank will be raising short-term interest rates in the months coming. Read more about the news here.
What it means for you, is that if you have an existing loan, especially a property loan, your monthly installments are about to go up! If you don’t know much about Finance, I’ve drawn a simple mind map here for you to understand.
For one, SIBOR is short for Singapore Interbank Offered Rate. What it means is the interest banks in Singapore charge one another for loaning money from them (E.g. DBS loans money from UOB).
Whenever anyone (who isn’t a bank) borrows money from any banks, we are charged an interest, usually calculated by adding our Risk Premium to SIBOR. The Risk Premium charged to you is based on your credit-worthiness, whether how likely you are to default on your repayments, or to put it simply, how likely you are to go bankrupt.
Given that the Risk Premium is fixed upon approval of your loan, what can change over the course of your loan tenure is the SIBOR, even if your loan was a fixed one.
While some banks do offer fixed interest loans, where the interest rates of the loan do not fluctuate for a short period of time (usually 2-3 years), the majority of loans are floating rate loans. This means that when the interest rate fall, so does your loan interest rate. On the other hand, when interest rates increase, your loan interest rates will increase as well.
Since the last financial crisis in 2008-2009, investors and home owners like yourself have been blessed with interest rates as low as 0%. However, that is about to change, given that the Fed is ready to increase the interest rates soon.
Now, you would be thinking, what can I do to reduce my monthly installments for my house, or any other investment properties? One answer while I have found online, is to refinance your loan. There are many resources that can be found on Google on refinancing your loans as well as its pros and cons. But 2 of which I would like to introduce to my readers are here and here.
The first link gives you tips on what you should note when refinancing your loan, while the latter allows you to know more about the rates and compare among the loans available to you.
I hope homeowners like you, finds this article to be useful, especially if you’re completely clueless about your loans (I sincerely hope not!) Do drop me a mail if you have any suggestions or tips!