Adjustable rate home loans have interest rates that adjust weekly, monthly, or annually. It all depends on the type of package you have opted for. A floating rate package is usually tied to an external interest rate, such as the CPF rate, the bank’s internal rate, etc.
Typically, risk-averse consumers avoid a variable interest rate. You cannot live with the uncertainty of a variable interest rate. A variable interest rate can go down, but there’s an equal chance that the interest rate could go up as well. Another problem with variable rates is that if the rates get too high, they get more expensive. If you use CPF, you may also need to do some administrative work.
Investors with declining market prospects and consumers with greater risk tolerance can afford to take out adjustable rate home loans. With the right research, sufficient cash flow, and appropriate courage, including a variable rate can be the right move in the right situation.
A variable rate usually has a low teaser rate to lure borrowers, but how it’s actually performing lately is unknown. No advisor can accurately predict the future, so the final decision ultimately has a lot to do with the consumer’s personal attitude and character.
A variable rate home loan may have a vesting period with or without a vesting period. For those who wish to stay short-term, they can opt for a no-lockdown package.
Talk to a mortgage advisor if you’re considering taking out an adjustable-rate home loan. The advisor can advise you on the mortgage and how it might affect your CPF. He can talk to you about the advantages and disadvantages of a variable interest rate and assess whether you are really suitable for it.