Increase in interest rate over 2 years
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Why Should I Worry About Interest Rates?

A fresh perspective on personal finance, learning along the way! You can contribute your thoughts like Faith here.

A post shared by one of our members on Seedly Personal Finance Community opened up a discussion regarding yet another interest rate hike at the end of this year. With the second interest rate increase of 1.25% implemented this year, many people are not sure what this means for everyday Singaporeans.

Increase in interest rate over 2 years

What some of you may not know is that interest rates have a larger impact on our lives than we think! Here’s how it affects us:

Home Loans Increase

This affects 90.8% of Singaporeans, with home loans being one of the highest forms of loans on the population that owns a property. Household owners taking up mortgage loans based on SIBOR (Singapore Interbank Offer Rate) and SOR (Swap Offer Rate) can expect to pay higher interests on their loans.

The total amount of mortgages and personal loans come up to $309,083.9 million so that’s an additional interest of $3863.55 million for 2017 alone (assuming interest rates increase by the same percentage of 1.25%).

Liabilites singapore 2017

Source: Singstat

Still don’t think this affects you? Assuming the SIBOR and SOR rate increases by the same percentage of 1.25%, that would mean a flat that costs $600,000 would have an interest rate costing $7,500. Don’t forget that mortgage loans are compounded too and homeowners on mortgage loans will be paying way more than just 1.25%.

For first time buyers out there, you may be wondering if you should go ahead and buy a house and if so how? Check out our article on HDB loan vs Banks loan to find out more!

Currency Drops

An increase in interest rates would mean the increase in confidence on the US economy by the Federal Reserve.

Due to this, more investors would pull out their investments and place it into the US to earn higher interest in US assets such as stocks and bonds. With the withdrawal of foreign investment from Singapore the country’s dollar will weaken against the US dollar, meaning we can say goodbye to traveling to the US or buying from countries pegged to the US dollar -such as Hong Kong- for now as prices would increase.

Effect on interest rate and investment

Source: www.colorado.edu

Cost of Borrowing Increases

As Singapore is directly affected by the change in Interest rates, banks in Singapore would be required to increase their interest rates. This would affect anyone who has a credit card or savings account (which is almost all of us).

This is not all bad though, many of us with savings account would experience the benefit of this as your interest rate increases. However, if you happen to have loans you would also experience the increase in the amount of interest you will have to pay back. Find yourself in debt? Check out these schemes that will help you!

Should I Be Worried?

Singapore is prepared for another potential interest rate increase, banks are also armed with sufficient liquidity against capital outflows from the country. This will allow banks to maintain their interest from any possible hikes in the near future.

However, it is noted that there are only able to do so in the short term which means borrowers and savers out there it is time to start changing your habits. Look out for the best savings account for 2017 or find out how to clear your debts!

Also, keep track of your finances and join a community that shares the latest financial news, tips and guides!

Be part of our personal finance Facebook Group today! Share your knowledge and learn from the closely-knitted Seedly family as we look to bring each other on a more meaningful personal finance journey.
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