Fed Cuts Rates by 0.50%: What It Means for Singapore Mortgage Rates

The fed’s bold move and it’s global ripple effects

In a much-anticipated decision the Federal Reserve has officially begun its monetary easing cycle with a 50 basis points cut (0.50 percent) in its latest September FOMC meeting. This decisive action has brought the fed funds rate down to a range between 4.75 and 5 percent signalling a shift in the central bank’s policy stance that could influence interest rates worldwide including in Singapore.

The move, while significant, didn’t come as a surprise to many market observers. Recent weeks have seen weakening labour market data in the US prompting strong expectations for an upsized move. This change in US monetary policy often has far-reaching effects on global financial markets, potentially influencing Singapore’s interest rate environment.

Future projections and implications for Singapore

Looking ahead, the Fed’s summary of economic projections (SEP) provides insight into the central bank’s thinking. Fed officials have pencilled in estimates of a total of 100 basis points cuts by the end of 2024 followed by another 100 basis point cuts in 2025. This trajectory would bring the fed funds rate down to 3.4 percent by the end of 2025.

For Singapore homeowners and potential buyers, these projections are crucial. While Singapore’s monetary policy is not directly tied to the US Federal Reserve there is often a correlation between US interest rates and Singapore’s interest rate environment, particularly in the medium to long term.

Impact on Singapore’s mortgage rates

The key factor for Singapore homeowners to watch isn’t so much how low fixed mortgage rates will go, but rather how quickly SORA (Singapore Overnight Rate Average) will decline from its current levels of around 3.50 percent.

Over the past year fixed rates in Singapore have already seen a significant decrease. The magnitude of any further drop will largely depend on how low SORA gets. Our analysis suggests that SORA could break below the psychological 3 percent level soon, with the potential to approach the next psychological level of 2 percent.

This potential decline in SORA could lead to more attractive floating rate mortgage packages in the near future. However, it’s important to note that other factors, including economic conditions and the Monetary Authority of Singapore’s policies also play a significant role in determining local interest rates.

Strategies for Singapore homeowners

Given this outlook, what strategies should Singapore homeowners consider? Here are a few key points:

1. Monitor SORA Closely: Keep a close eye on SORA movements, as they will directly impact floating rate mortgages.
2. Consider Floating Rate Packages: Homeowners who are comfortable with some interest rate risk might want to capitalise on the current ultra-low spreads for SORA packages. However, this strategy requires a belief in a rapidly falling rate environment, which isn’t necessarily the base case scenario at the moment.
3. Refinancing Opportunities: With rates potentially set to fall further, now might be a good time to explore refinancing options. However, it’s crucial to weigh the costs of refinancing against potential savings.
4. Fixed vs. Floating Rates: The choice between fixed and floating rates becomes more complex in a falling rate environment. Fixed rates offer stability but might not benefit from further rate cuts, while floating rates could see more immediate benefits but carry more risk.
5. Long-term Planning: Remember that mortgages are long-term commitments. While current trends are important, it’s crucial to consider your long-term financial goals and risk tolerance when making decisions about your mortgage.

Latest mortgage rates in Singapore

In light of the recent Federal Reserve rate cut and its potential influence on Singapore’s interest rate environment, we’ve updated our comprehensive compilation of current home loan interest rates across both the HDB and private property markets in Singapore. This includes the latest offerings for fixed rate and floating rate loans, which may be adjusting in response to global trends. The tables below provide up-to-date references for:

We have compiled current home loan interest rates across the HDB and private property market in Singapore, for both fixed rate and floating rate loans. The tables below provide references for:

Expert insights on mortgage rates

While the Fed’s rate cut signals a shift towards easier monetary policy globally it’s crucial to remember that Singapore’s economic conditions and monetary policy also play a significant role in determining local mortgage rates. Our expert opinion is to closely monitor both global trends and local factors particularly SORA movements and consider refinancing options that offer significant savings over your current mortgage terms.

Be cautious in making decisions based solely on the expectation of continually falling rates. The global economic landscape remains dynamic, and local factors will continue to play a crucial role in Singapore’s interest rate environment.

Disclaimer: This information is for general guidance only. ROSHI Pte Ltd is not in the business of providing financial advice. We are not licensed or regulated by MAS under the Financial Advisory Act (FAA) in Singapore. All opinions presented are generic in nature and may not be suitable for your specific circumstances. Please consult with a qualified financial advisor before making any investment or mortgage decisions.