Already at 3-year lows, will Singapore's home loan rates keep falling in 2026?

SINGAPORE: Mortgage rates in Singapore have fallen to their lowest in three years, and experts say the reprieve for home owners could extend into 2026 – though further declines may be modest. Lenders here typically follow the cues of the US Federal Reserve, which delivered its third rate cut of the year last Wednesday (Dec 10). Expectations for lower US interest rates have sent Singapore home loan rates into a sharp downtrend. At the start of 2025, fixed-rate loans were going at about 3.1 per cent. These have nearly halved to between 1.4 and 1.8 per cent, depending on the loan quantum, said SingCapital’s chief executive Alfred Chia. These fixed packages – where the interest rate remains unchanged through a lock-in period of two to five years – are moving in tandem with floating rate loans, which are usually pegged to the three-month compounded Singapore Overnight Rate Average (SORA). SORA has fallen from 3 per cent in early January to 1.2 per cent as of Dec 12, its lowest level since August 2022 . LOCAL FACTORS AND FED SIGNALS DBS senior rates strategist Eugene Leow noted that local interest rates began declining well before the Fed’s cuts in September, due to high domestic liquidity and safe haven flows linked to investors reacting to US President Donald Trump’s “Liberation Day” tariffs. Banks have also trimmed the spread – or margin – typically added to floating rate loans, from about 0.7 per cent to 0.25 per cent, said Mr Chia. Looking ahead to 2026, the Fed’s latest policy signals suggest only a marginal easing path. New projections indicate just one-quarter percentage-point cut next year, and Fed chair Jerome Powell has said rate hikes are unlikely. “The message was clear: the era of pre-emptive easing is over,” said Mr Daniel Siluk, a portfolio manager at Janus Henderson Investors, adding that the Fed’s shift to a meeting-by-meeting approach has set “a high bar for further cuts”. The US central bank enters 2026 in a “wait-and-see” mode, with a new chair expected to be announced soon as Mr Powell’s term ends in May. Mr Trump has hinted at appointing White House economic adviser Kevin Hassett, who is seen as favouring further cuts. Mortgage analysts said Singapore home loan rates will continue to follow the Fed’s moves, but large declines are unlikely after the significant adjustments this year. DBS’ Mr Leow said SORA may have already “found a floor”. Mr Darren Goh, executive director of MortgageWise.sg, agreed that current rates likely reflect most of the expected US easing – barring an extraordinary economic shock such as a deep labour market slump. Nevertheless, banks are expected to continue offering competitive packages, including legal subsidies and cash rebates. This is especially so in the first quarter of the year when competition for market share intensifies, said Mr Chia. SHIFT FROM HDB LOANS TO BANKS This year, such deals have led more homeowners to refinance or reprice their loans – a move that can significantly reduce what is often their largest monthly expense. Refinancing involves switching to a new loan with another bank, while repricing refers to switching to a different package with the same bank after a lock-in period ends. Ms Denise Chan, for instance, repriced her mortgage with DBS last month, moving to a two-year fixed loan at 1.6 per cent – nearly half her previous 3 per cent rate. The move is saving her about S$500 (US$390) monthly. Mortgage advisers recommend that homeowners consider switching when their current lock-in periods end to avoid penalties, while remaining mindful of associated costs like legal and valuation fees for refinancing, or administrative charges for repricing. Meanwhile, more flat owners are switching from HDB loans to bank financing. Bank mortgage rates are now lower than the concessionary HDB loan interest rate of 2.6 per cent, which is pegged at 0.1 per cent above the Central Provident Fund Ordinary Account rate. At OCBC, the number of home owners making the switch grew seven times in the first 11 months of 2025. Home owners with a S$500,000 loan could save up to S$4,100 in annual interest by switching to a five-year fixed rate package, said the bank’s head of home loans Maryanne Phua. DBS similarly saw the take-up rate for its POSB HDB loan in October and November increase by 13 times compared to the start of the year. The three-year fixed loan carries a 1.55 per cent rate, with no penalty for early repayment or sale during the lock-in period. Mr Goh of MortgageWise.sg said home owners looking to save on monthly repayments should take advantage of the gap between HDB and bank loan rates now, “so long as they are aware that they cannot go back to taking an HDB loan in future and are prepared for volatility”. “Even though we have come out of the high-interest rate period in 2022 and 2023, there might be another rate tightening cycle down the road,” he said, cautioning that borrowers must be ready for economic ups and downs.FIXED OR FLOATING With interest rates likely to stay low, a floating rate mortgage could appeal to some borrowers, but others may find that the certainty of fixed monthly loan repayments will offer peace of mind. Both Mr Goh and Mr Chua advised home owners to weigh more than just interest rates when selecting a loan. Borrowers should consider their risk appetite, long-term financial plans and individual bank features, such as penalty-free partial repayment options within lock-in periods. OCBC said while demand for SORA-priced packages has risen, fixed-rate loans remain more popular. In 2025, four in five customers opted for fixed packages. “Most home owners prefer having stability in their home loan repayment amounts,” said Ms Phua, noting growing interest in longer-tenure fixed packages. DBS also reported strong demand for fixed loans, especially among new home owners seeking budgeting certainty. “Where there is a sustained and meaningful difference between loan options, refinancing activity is likely to continue, as the potential savings can be tangible,” said Ms Ling. “That said, we consistently remind customers that home loans are long-term commitments, and interest rates do not move in a straight line.”