Selecting Your Bank Loan

bank loanTo help ease your cash flow, banks offer a variety of repayment choices.

The three most common types are :-

a.Fixed-rate loans,

b.Variable interest loans, and

c. Loans with interest rates pegged to the Singapore Interbank Offered Rate (SIBOR).


Fixed-Rate Loan

With a fixed-rate loan, your monthly instalment is locked for an agreed period of time, usually for the first one or two years of your loan. Advantage is that it protect you from rate fluctuations. The interest rates will be based on the bank board rate at the end of your fixed-rate period, i.e., rates set internally by the bank. Some banks offer a discount on the board rate, so do not hesitate to negotiate for a better rate.

Variable Interest Rate Loan

For loans with variable interest rates, usually you can expect to pay lower interest. However, the interest tends to fluctuate with the banks board rate, so there is a degree of uncertainty regarding how much you can expect to pay. There is also a lock-in period, usually one to three years.  Should you switch banks before the lock-in period is over, you will be subject to a penalty fee.

SIBOR-dependent Loan

The interest rates for this type of loan are pegged to the SIBOR. SIBOR is reviewed every three months, and has varied between 0.6 and 3.5 percent in the last five years. For their offered rate, banks usually add on a fixed percentage to the SIBOR. This type of loan probably offers you the lowest mortgage payment every month as the current market SIBOR is rather low. Just be mindful that your mortgage is likely to increase if the SIBOR rises significantly.