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The fixed option means your interest stays constant throughout your lock-in period, which is usually about two to three years. The main advantage is that if banks increase home loan interest rates, you aren’t affected. It’s also better for budgeting as the repayments are fixed for the first few years.
A variable rate home loan is the opposite of the fixed rate option. You get to make the best of the current home loan interest rates should they drop. You can also decide to repay more than the fixed monthly repayment amount without being charged a fee.
The next consideration will be the tenure of the home loan. There are arguments for and against stretching out the repayment period. If you’re the sort who doesn’t want to have a mortgage hanging over your head and hate paying interest over a long period, go for a shorter loan tenure.
However, if you’re savvy with money management and investments, you might want to take a longer loan tenure and a lower monthly repayment. This allows you to invest the extra funds and generate returns that can offset the home loan interest you will pay. The lower monthly repayment also works better for those who do not want to stretch their finances in the short term. General wisdom is to try and get a loan for about 80% of the value of the property to ensure you are not overly burdened with a huge monthly repayment.
Pay attention to the lock-in period too. Banks have a hefty penalty for early repayment. Beware of floating rates that are not pegged to SIBOR or SOR. Banks can unilaterally raise the home loan interest rates for loans that are pegged to the bank’s internal board rates.
Finally, take note of any jump in home loan interest rates after the lock-in period. The best solution is to keep refinancing every few years to continue enjoying the lowest possible home loan interest rates.