The Difference Between Fixed and Floating Loans
When we purchase our first property, we have to make difficult decisions. With this, it is important that we make the right decision because it can be the difference between saving thousands of dollars every year and losing more.
If we really want to save thousands of dollars, we have to know the difference between fixed and floating rates when it comes to refinancing or home loan. Here’s the difference:
- Fixed rate: In fixed-rate home loans, we have the same or permanent interest rate and mortgage repayments over a set period of time. This also means that we are locked in a particular bank that finances our loans.
- Floating rate: In floating-rate home loans, we can never be sure of the repayment because it is based on the fluctuation of the market. The rate will depend on the movement of Singapore Interbank Offered Rate and most of the time, it is within a three-month period. This means that our mortgage repayments change every one to three months.
Knowing this, how do we choose between the rates? Here in Singapore, floating rates are 1% lower than fixed rates and that means we can save a considerable amount of money. However, there are risks involved when we consider floating rate. Floating rates are vulnerable to market conditions.
If we consider fixed interest rates, we will be assured that regardless of the market conditions, our repayment and interest rate will remain the same. In fixed interest rate, we will be able to plan our budget without thinking of the rising repayments monthly. If we are working under a limited budget, fixed rates are better for us.