Conversely, a floating-rate home loan has mortgage rates that fluctuate with market conditions. The loan's interest rate is typically tied to a reference rate, and monthly mortgage repayments may go up or down following changes to the reference rate.
While floating-rate loans can experience untimely fluctuations, they can also offer flexibility and the opportunity to save money when interest rates fall.
DBS offers two types of floating-rate loans: the Fixed Deposit Home Rate (FHR) and the Singapore Overnight Rate Average (SORA).
The FHR is derived from DBS's internally determined interest rates for fixed deposits and serves as a good alternative to SORA-pegged floating-rate loans. While the FHR rate is validated by the Monetary Authority of Singapore (MAS), it is still a board rate determined internally by the bank. This means that DBS reserves the right to amend these rates occasionally.
SORA-pegged DBS home loan rates are based on
SORA, the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore between 8 a.m. and 6.15 p.m.
The SORA rate is validated and calculated by the MAS so the SORA-pegged DBS mortgage rate will also be updated every three months.
Borrowers should note that in addition to the three-month SORA rate, DBS will also charge a spread - a fixed interest percentage charged by the bank for lending its money, i.e. the profit the bank makes from giving borrowers capital to purchase their property.
In essence, the three-month SORA rate and the spread will make up the total interest rate of the home loan and determine a borrower's monthly payments.
