Should I Refinance Now Or Hope Mortgage Rates in Singapore Drop in 2025?

Should I Refinance Now Or Hope Mortgage Rates in Singapore Drop in 2025?
Should I Refinance Now Or Hope Mortgage Rates in Singapore Drop in 2025?

Mortgage rates in Singapore have come down since the highs of end-2022, when we saw fixed rate home loan interest rates hit 4.0%. A quick search on the PropertyGuru Finance mortgage comparison tool reveals the most competitive mortgage package (in terms of the lowest interest rate offered in the first year) is 2.85% for a fixed rate home loan and 3.85% for a floating rate home loan (as at 27 June 2024).

Borrowing costs will likely come down further if the US Fed cuts rates. Four cuts are expected in 2025, with the benchmark rate expected at 4.1% at the end of 2025. So the question remains: should you refinance to a lower interest rate package now or wait till 2025 when rates are predicted to expected to drop?

To answer this question, we’ll take a look at the mortgage rate outlook and ask our PropertyGuru Finance experts to weigh in. Want to compare mortgage rates in Singapore and look at home loans instead?

Video: Outlook for Mortage Rates in Singapore for 2024

In case you missed it, you can watch our predicted outlook on property prices and mortgage interest rates for 2024.

Will Mortgage Rates Drop in 2024?

As predicted by the PropertyGuru Singapore Property Market Outlook 2024, interest rates and mortgage rates remain elevated this year. Despite the initial optimism, there has been news the US Fed will probably cut rates just once in 2024.

The current Fed rate is 5.25% to 5.50%, the highest it has been in 23 years. Amid stubborn inflation concerns and a high cost-of-living situation, interest rates have been held steady in the latest Federal Open Market Committee (FOMC) June 2024 meeting. With the Federal funds rate has not changed since June 2023, reference rates have flattened out. In turn, we have seen mortgage rates moving sideways for a while now.

While we remain in a high interest rate environment, the good news is those who are on a floating rate home loan have some respite from continuous mortgage interest rate spikes. The even better news is it is likely the US Fed will cut interest rates and we will subsequently see lower mortgage rates in the coming year.

The question for existing homeowners looking to refinance is: should you wait for rates to drop in 2025 before refinancing your home loan? Or should you secure immediate savings by refinancing now?

Benefits of Refinancing in 2024

1. Securing a Lower Interest Rate than Your Existing Loan

If you’re a homeowner who had to refinance or take on a home loan when mortgage rates were at a high in end-2022 and early-2023, you might want to refinance now. It’s likely the current mortgage interest rates are lower than your current home loan.

Apple Tan, Team Lead – Mortgages, PropertyGuru Finance shares, “If the current offered interest rates are lower than your existing rates, refinancing your home loan now can result in immediate savings. By refinancing now, you don’t miss out as you are eliminating risk and securing savings.”

While you can take a gamble and adopt a wait-and-see approach, Apple highlights holding out for potentially lower rates in the coming year remains a speculative risk.

“Economic conditions are volatile and rate cuts may not be as aggressive as what was initially forecasted. In turn, mortgage interest rates might not decrease as much as expected. All in all. It depends on your risk appetite.”

2. Paying Off Your Home Loan Sooner

Refinancing your home loan and ensuring you have the most competitive mortgage package on the market is one way to save costs. But refinancing your home loan every few years is also an exercise in ensuring your mortgage is aligned with your financial goals.

If you’re looking to pay off your home loan sooner, you could shorten your loan tenure and pay higher monthly instalments. In the long run, you are saving on interest costs.

To aid you in coming to a decision, Apple adds that you can calculate the break-even future interest rate.

Let’s say: the current offered rate is 2.8% and you have a $1.5 million loan with a current interest rate of 3.85%. If you refinance now, you will enjoy 1.05% of savings for 6 months and save $7,500 (assuming for rate adjustment in January 2025).

If the interest rate in 2025 is more than 2.55%, it would have meant you would have ‘lost out’ on the savings if you had refinanced in 2024.

3. Shaving Off Substantial Loan Amounts

Even the smallest mortgage interest rate reduction can mean significant savings for those with substantial loan amounts. Hence, if your goal is to save money on your home loan, there is good reason to refinance in 2024 instead of waiting for lower rates in 2025.

Ben Goh, Team Lead – Mortgages, PropertyGuru Finance highlights the savings from refinancing now could outweigh the potential savings from the slightly lower rates expected next year.

“The future is uncertain; there is no clarity of exactly when mortgage rates will drop. If homeowners refinance now, they can enjoy immediate savings by refinancing. For those who have paid high interest rates for the whole of last year and are tired of waiting for rates to fall further, they may take advantage of the current lower interest rates being offered.”

For those who prefer some flexibility and remain hopeful of lower rates in 2025, you could refinance to a home loan with a shorter lock-in period (i.e. 1-year lock in). This way, you are poised to take advantage of interest rate fluctuations should the rates dip next year.

Should I Take a Fixed or Floating Rate Home Loan in 2024?

If you’re leaning towards refinancing your home loan now, the next step is to consider whether you want a fixed rate or floating rate home loan. With most fixed rate packages on the market offering much more attractive rates than floating rate home loans, you may think it’s a no-brainer to go for a fixed rate package.

However, it’s good to assess your risk appetite. If you believe the floating mortgage rates will dip lower than the current offered fixed rates, then maybe a floating rate home loan might be better. If you’re not sure where to start, let us help you come to an informed decision on whether to refinance or not

At PropertyGuru Finance, our friendly and knowledgeable Mortgage Experts can aid you in calculating your potential savings from refinancing. From choosing the right mortgage package to providing tailored home financing advice, they’re with you every step of the way. The best part? It’s all at no cost!

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