Question on Bank Loan for my New Condo (Under Construction). Fixed or Floating? What to look out for when comparing loan packages?
1) Given the low interest rates lately, should I go for a Fixed or Floating loan?
2) If I expect interest rate to either remain or increase in the next 2 years, should i go for a Fixed or Floating loan?
3) Aside from interest rates/Waiver of cancellation fee, if due to sale/Free Conversions, what are the other factors that I should look at when comparing loan packages?
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Duane Cheng
09 Sep 2020
Financial Consultant at Prudential Assurance Company Singapore
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Hi Shaun,
Let me try and address your queries.
1&2
For a project that is still under going construction, it would be advisable to opt for floating rates currently. Moving forward, your construction timeline has the benefit of going through a low-interest rate environment.
Opting for a fixed, would only lock you in for the first 2 years, following which you cannot refinance your loan, until your project has TOP. The rates after the fixed period, will first be higher than your fixed-rate, and might be substantially higher than today's floating rate. With SORA impletation, today's rate stands around 0.04%. However this number might be adjusted up to reflect either a 6M or 1Y time frame.
3
Some of the factors to note, for free conversions, you will need to check whether valuation costs are inbuilt into this free conversion. However, projects undergoing construction will not be able to revalued due to incompletion. So it will not apply to you. Early prepayment, or penalties for early sale of property during the lock-in period, is also a point to note before you commit to any package.
Hope i was able to shed some insight!