One of the most important decisions you'll make when taking a home loan in Singapore is choosing between a fixed-rate and a floating-rate (SORA-linked) package. Both have genuine advantages — the right choice depends on your financial situation, risk appetite, and view on interest rates.
Fixed-Rate Mortgages
With a fixed-rate mortgage, your interest rate is locked in for a set period — typically 2 to 5 years. After the fixed period ends, the loan usually reverts to a floating rate (often SORA + spread), at which point you can reprice or refinance.
Pros
- Certainty: Your monthly instalment doesn't change during the fixed period, making budgeting straightforward.
- Protection from rate rises: If interest rates go up, you're insulated for the duration of the fixed term.
- Peace of mind: Especially valuable for first-time buyers managing a tight cash flow.
Cons
- Higher starting rate: Fixed rates are typically 0.3–0.8% higher than comparable SORA packages at the time of taking the loan.
- You miss out if rates fall: If SORA drops significantly, your fixed rate stays the same.
- Lock-in penalty: Refinancing or selling during the fixed period usually incurs a penalty of 1–1.5% of the outstanding loan amount.
Floating-Rate (SORA-Linked) Mortgages
Floating-rate packages are pegged to 3-Month Compounded SORA plus a fixed bank spread. Your rate — and therefore your monthly instalment — adjusts every quarter as SORA moves.
Pros
- Lower spread: Banks typically offer tighter spreads on SORA packages, so your starting rate is often lower.
- You benefit when rates fall: If SORA declines, your effective rate drops automatically.
- Flexibility: Some SORA packages have shorter lock-in periods or no lock-in at all.
Cons
- Rate risk: If SORA rises, so does your monthly repayment. This can strain cash flow, especially for large loans.
- Harder to budget: You won't know your exact repayment three months from now.
How to Decide
There is no universally correct answer, but here are some guiding principles:
| Situation | Consider |
|---|---|
| Tight monthly budget, limited buffer | Fixed rate |
| Expect to sell or refinance within 2–3 years | Floating (check lock-in) |
| Rates are near historical highs | Shorter fixed, then reassess |
| Rates are falling | Floating to benefit from drops |
| Dual income, comfortable buffer | Either — optimise for lower cost |
A Common Approach: Split Your Loan
Some borrowers split their loan — putting a portion on a fixed rate for stability and the remainder on a SORA package to capture potential rate decreases. Not all banks offer this flexibility, but it's worth asking about.
Key Takeaways
- Fixed rates offer certainty; floating rates offer potential savings.
- The "right" choice depends on your cash flow, risk tolerance, and interest rate outlook.
- Always compare the all-in cost (rate + fees + lock-in penalty risk) rather than the headline rate alone.
- You can always reprice or refinance after the lock-in period — you're not stuck forever.