Fixed vs Floating Interest Rate: What’s Best for Your Singapore Home Loan?

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Introduction

Choosing the right home loan package is one of the most critical decisions you’ll make when buying a property in Singapore. Among the most important elements of this decision is selecting between a fixed or floating interest rate for your mortgage.

This choice can significantly affect your monthly repayments, total interest paid over the life of your loan, and your financial stability. While fixed rates provide stability, floating rates can offer cost savings—especially during periods of low interest. However, both options come with trade-offs.

In this comprehensive guide, we explore the pros and cons of fixed versus floating interest rates, how they work in Singapore’s context, and how you can make the right decision based on your financial situation and goals.

What Is a Fixed Interest Rate?

A fixed interest rate refers to a home loan package where the interest rate remains constant for a specific period—usually between 1 to 5 years. During this period, your monthly instalment amount stays the same, offering financial predictability.

After the fixed period ends, your loan typically reverts to a floating rate based on the bank’s board rate or a benchmark rate like SORA (Singapore Overnight Rate Average), with an added spread.

What Is a Floating Interest Rate?

A floating interest rate—also known as a variable rate—is a mortgage rate that changes periodically based on market conditions. In Singapore, most floating rate packages are pegged to:

  • SORA (Singapore Overnight Rate Average) – the current industry benchmark

  • Bank’s internal board rates

  • Fixed deposit-linked rates

Floating rates usually consist of a benchmark rate plus a spread, such as:

Floating rate = SORA + 1%

This means when SORA rises or falls, your home loan interest rate and monthly instalments will change accordingly.

Key Differences Between Fixed and Floating Rates in Singapore

Feature Fixed Rate Floating Rate
Interest Rate Fixed for 1–5 years Varies with benchmark (e.g., SORA)
Monthly Instalments Constant during fixed period Fluctuates with market
Market Sensitivity Not affected during fixed period Highly sensitive to rate changes
Early Redemption Often has lock-in penalties May offer more flexibility
Long-term Cost Higher in early years Lower in early years (usually)
Risk Profile Low-risk, high predictability Higher risk, potential savings

Pros and Cons of Fixed Interest Rate

Pros:

  • Stability: Fixed repayments help with budgeting and financial planning.

  • Predictability: Protection from rising interest rates during the fixed period.

  • Peace of mind: No surprises in monthly instalments.

Cons:

  • Typically higher rates than floating options (especially during low-rate environments).

  • Lock-in period of 2 to 3 years may apply, with penalties for early redemption or refinancing.

  • Less flexibility if market rates fall.

Pros and Cons of Floating Interest Rate

Pros:

  • Usually starts off lower than fixed rates.

  • Potential for lower interest payments if market rates remain low or decrease.

  • May come with no lock-in period, allowing refinancing flexibility.

Cons:

  • Monthly instalments can increase if interest rates rise.

  • Harder to predict long-term loan cost.

  • May create financial stress during periods of rapid rate hikes.

How Benchmark Rates Affect Floating Loans

The most common floating rate benchmark in Singapore today is SORA. Replacing the now-discontinued SIBOR and SOR, SORA is a backward-looking overnight rate published by MAS.

When you opt for a SORA-pegged floating loan, your rate is typically:

3-month Compounded SORA + Spread (e.g., 1%)

If SORA rises from 2.5% to 3.0%, your total interest rate will increase from 3.5% to 4.0%, increasing your monthly repayment accordingly.

Historical Performance: Fixed vs Floating Rates in Singapore

Historically, floating rate packages have often been cheaper than fixed rate packages over a long-term horizon—but they come with volatility.

In the past five years:

  • Between 2020–2021, interest rates dropped to historic lows, benefiting floating rate borrowers.

  • In 2022–2023, global rate hikes led to significant increases in floating rates, causing a spike in repayments.

  • Fixed-rate borrowers enjoyed stability during those hikes but at slightly higher initial costs.

This illustrates how timing plays a significant role in determining whether fixed or floating was more advantageous.

When Should You Choose a Fixed Interest Rate?

Fixed-rate packages are suitable if:

  1. You Expect Interest Rates to Rise:
    If you believe rates will increase in the next 1–3 years, locking in a fixed rate can shield you from rising costs.

  2. You Prefer Certainty:
    If you are a first-time homeowner or have a tight monthly budget, fixed rates provide peace of mind and predictable cash flow.

  3. You’re Risk-Averse:
    Fixed rates eliminate the stress of dealing with rate fluctuations.

  4. You Plan to Stay Long-Term:
    If you’re planning to hold the property for 5+ years, the fixed cost structure offers stability.

When Should You Choose a Floating Interest Rate?

Floating-rate packages are suitable if:

  1. You Expect Interest Rates to Fall or Stay Stable:
    If the economic outlook suggests rate cuts or prolonged low interest, floating loans offer lower costs.

  2. You Want to Save More in the Short-Term:
    Floating packages often start with lower rates, reducing upfront interest costs.

  3. You Plan to Refinance or Sell Soon:
    Some floating packages come with no lock-in period, making it easier to switch or repay early.

  4. You Have a Strong Financial Buffer:
    If you can absorb fluctuations in monthly repayments, floating rates can be manageable and even beneficial.

Hybrid Home Loan Packages

Some banks in Singapore offer hybrid packages that combine features of both fixed and floating rates. For example:

  • Fixed for the first 2 years, then switch to floating from year 3 onward.

  • Capped floating rates: Interest is floating but cannot exceed a maximum cap.

These hybrid loans are great for borrowers who want short-term certainty but long-term flexibility.

Case Study 1: First-Time Buyer Chooses Fixed Rate

  • Profile: Young couple, buying their first BTO flat

  • Budget: Tight monthly budget with limited buffer

  • Decision: Chooses a 3-year fixed rate of 3.5%

Why: They want predictable monthly repayments, are concerned about future rate hikes, and value stability in their early homeownership years.

Case Study 2: Investor Chooses Floating Rate

  • Profile: 45-year-old investor buying a second condo

  • Loan tenure: 10 years

  • Decision: Chooses SORA-pegged floating rate (2.8% + 0.9%)

Why: He expects to refinance or sell the property in 3–5 years, wants to benefit from lower initial rates, and is comfortable with short-term risk.

Tips When Deciding Between Fixed and Floating

  1. Know Your Risk Tolerance:
    Can you sleep well at night if rates go up by 1–2%? If not, fixed is safer.

  2. Assess Your Financial Buffer:
    If interest rates rise, can you still meet monthly repayments without strain?

  3. Read the Fine Print:
    Understand lock-in periods, prepayment penalties, repricing options, and how rates are calculated.

  4. Compare More Than Just Rates:
    Consider the total loan cost over time, including admin fees, legal subsidies, and any repricing flexibility.

  5. Use a Mortgage Broker:
    A good broker can explain different packages, run cost simulations, and advise based on market trends.

Repricing and Refinancing Options

Regardless of your initial choice, you’re not locked in forever. After the lock-in period ends, you can reprice with your current bank or refinance with another lender.

  • Repricing: Switching to a new package with your existing bank.

  • Refinancing: Moving your loan to a different bank for better terms.

In a rising-rate environment, some borrowers on floating rates may choose to refinance into fixed packages, and vice versa when rates fall.

Should You Lock In a Fixed Rate Now?

As of 2025, the mortgage interest rate environment in Singapore remains dynamic. With recent global monetary tightening cycles having peaked and some signs of easing, the market is watching central bank policy closely.

  • If you believe interest rates are at their peak or will fall, a floating rate may be a better bet.

  • If you’re worried about unexpected hikes or global shocks, locking in a fixed rate gives peace of mind.

Ultimately, timing the market perfectly is difficult. Focus on what gives you the most stability or savings based on your current lifestyle and risk appetite.

Conclusion

The decision between a fixed and floating interest rate is not just a financial one—it’s a personal one. It hinges on your comfort with risk, financial goals, budget flexibility, and view of future market conditions.

Fixed rates offer security and stability but may come at a premium. Floating rates promise short-term savings but carry volatility. Hybrid loans can give you the best of both worlds, with some trade-offs.

Before deciding, consult a mortgage loan broker who can assess your income, property type, and financial objectives to recommend the most suitable loan package. Choosing the right interest rate structure today can save you thousands of dollars and bring long-term financial peace of mind.

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