Fixed vs Floating Interest Rate Home Loans: Which is Better?
When financing a property in Singapore, one of the key decisions homeowners and investors must make is whether to choose a fixed-rate home loan or a floating-rate home loan. Each option has its advantages and drawbacks, and the best choice depends on factors such as interest rate trends, personal financial stability, and risk appetite.
1. Understanding Fixed vs Floating Interest Rate Home Loans
Fixed-Rate Home Loan
A fixed-rate loan locks in the interest rate for a specific period (typically 1 to 5 years).
After the fixed period, the loan typically converts into a floating-rate loan pegged to market benchmarks.
✅ Pros:
Predictability: Monthly mortgage repayments remain stable, providing certainty.
Protection from interest rate hikes: Ideal in a rising interest rate environment.
❌ Cons:
Higher initial rates: Fixed rates are usually higher than floating rates.
Less flexibility: Prepayment penalties may apply if you refinance during the fixed period.
Floating-Rate Home Loan
The interest rate fluctuates based on market conditions and is usually pegged to benchmarks such as:
SORA (Singapore Overnight Rate Average) – the current standard for floating home loans.
Fixed Deposit-Based Rate (FDR) – pegged to banks' fixed deposit rates.
Board Rate (BR) – set by individual banks but lacks transparency.
✅ Pros:
Lower initial rates: Usually cheaper than fixed rates.
Potential savings: If interest rates fall, borrowers pay less.
❌ Cons:
Uncertainty: Monthly repayments fluctuate, making financial planning harder.
Risk of increasing rates: Borrowers could end up paying more in the long run.
2. Comparing Fixed vs Floating Rates in Singapore’s Current Market (2024-2025)
With Singapore’s interest rates closely following global economic trends, it’s crucial to evaluate the financial climate:
Post-2022 interest rate hikes: The US Federal Reserve aggressively raised rates, affecting Singapore’s home loan rates.
2024-2025 expectations: There are signs that interest rates may stabilize or even decline, making floating-rate loans potentially more attractive.
SORA-based rates: Most banks have shifted towards SORA-pegged floating rates, which tend to be more stable than previous benchmark rates like SIBOR.
📌 Current Market Insight:
If rates are expected to fall, a floating rate may be advantageous. However, if stability and predictability are a priority, a fixed rate might still be the better option.
3. Which Type of Home Loan Should You Choose?
4. Key Considerations for Homeowners & Investors
✅ First-time Homeowners:
A fixed-rate home loan offers stability, making budgeting easier for those with tight finances.
✅ Property Investors:
A floating-rate loan may be preferable if you intend to sell the property within a few years and want to benefit from lower initial rates.
✅ Refinancing Plans:
If you anticipate refinancing when interest rates fall, a floating rate offers more flexibility.
5. Final Verdict: What’s the Best Choice?
There is no one-size-fits-all answer, but a general rule of thumb is:
Choose a fixed-rate loan if you prefer financial stability and expect rates to rise.
Opt for a floating-rate loan if you’re comfortable with some risk and expect rates to drop.
💡 Pro Tip: Some banks in Singapore offer a hybrid home loan, which combines both fixed and floating rates, allowing borrowers to enjoy partial stability while still benefiting from potential rate drops.
