Thursday, March 18, 2010

Low-interest carrots for home owners

Banks are pushing down interest rates which are good news for home owners and investors looking to re-price or refinance their home loans. But you must still be prudent and watch you debt servicing ratios.

Getting into a long fixed rate contract too quickly might not be a good choice as the differential in servicing costs with a floating and fixed package can be substantial. Sibor (Singapore interbank offered rate) or SOR (Singapore swap offer rate) rate will not move up too quickly or too much unless we see an inflationary scenario in our economy.

Home owners are being advised to take a long term perspective for your home loans, rather than going for the lowest price points. Have a budgeting done and know your limits. Interest rates are not going to stay this low. So do make sure you can still afford the loan when interest rates go up to 3 to 4 per cent. An ideal annual debt repayment over annual salary ratio should be less than 35%. Any percentage more than 45% is seen as excessive.

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