Understand the differences between fixed and floating rate mortgages in Singapore — including how SORA works, when to choose each option, and refinancing strategies to save money.
Understanding Your Mortgage Options
When financing a property purchase in Singapore, one of the most important decisions you'll make is choosing between a fixed rate and a floating rate mortgage. This decision affects how much you pay every month and your total interest cost over the life of the loan.
Let's break down both options so you can make an informed choice.
How Fixed Rate Mortgages Work
A fixed rate mortgage locks in your interest rate for a specified period, typically 2 to 3 years. During this lock-in period, your interest rate and monthly repayment remain constant regardless of market movements.
Typical Fixed Rate Structure
| Period | Rate (Indicative) |
|--------|-------------------|
| Year 1–2 | 3.00–3.50% p.a. |
| Year 3 (if 3-year lock-in) | 3.20–3.60% p.a. |
| After lock-in | Reverts to bank's board rate (variable) |
Key Features
Predictable monthly payments during the lock-in periodNo impact from market rate movements — your rate stays fixed even if SORA spikesLock-in penalty — if you refinance or fully repay during the lock-in period, you typically pay a penalty of 0.75–1.50% of the outstanding loan amountAfter lock-in, the rate reverts to the bank's internal board rate, which is usually higher and less competitiveSubsidy clawback — some banks impose a clawback on legal subsidy and valuation fee subsidy if you refinance within 2–3 yearsWhen to Choose Fixed Rate
You prefer budget certainty and want to know exactly what you'll pay each monthYou believe interest rates will rise and want to lock in a lower rate nowYou're a first-time buyer and want the comfort of predictabilityYour finances are stretched and you can't afford payment surprisesHow Floating Rate Mortgages Work
Floating rate (or variable rate) mortgages have an interest rate that moves with a reference benchmark. In Singapore, the primary benchmark is SORA (Singapore Overnight Rate Average).
What Is SORA?
SORA replaced SIBOR and SOR as Singapore's primary interest rate benchmark. It is:
Published daily by the Monetary Authority of Singapore (MAS)Based on actual transactions — it reflects the volume-weighted average rate of unsecured overnight interbank SGD transactionsMore transparent and reliable than its predecessors, as it's based on real transaction data rather than estimated ratesCompounded over 1-month or 3-month periods — banks use 1M SORA or 3M Compounded SORA as their benchmarkTypical Floating Rate Structure
| Package Type | Rate Composition (Indicative) |
|-------------|-------------------------------|
| SORA + Spread | 3M Compounded SORA + 0.70–1.00% |
| Board Rate | Bank's internal rate (less transparent) |
For example, if 3M Compounded SORA is 2.80% and the spread is 0.80%, your mortgage rate would be 3.60%.
Key Features
Rate changes periodically — typically every 1 or 3 months depending on the SORA compounding periodNo lock-in period in most cases (some may have a short 1-year lock-in)Greater flexibility to refinance or make lump sum repayments without penaltyLower initial rates compared to fixed rate packages in some market conditionsTransparency — SORA is publicly published, so you can track exactly how your rate is determinedWhen to Choose Floating Rate
You believe interest rates will remain stable or declineYou want the flexibility to refinance without penaltyYou're comfortable with some month-to-month payment variationYou have a larger financial buffer to absorb potential rate increasesYou're planning to sell the property within a few yearsFixed vs Floating: Side-by-Side Comparison
| Feature | Fixed Rate | Floating Rate |
|---------|-----------|---------------|
| Monthly payment | Constant during lock-in | Varies with SORA |
| Lock-in period | 2–3 years (typical) | Usually none |
| Early repayment penalty | Yes (0.75–1.50%) | Usually no |
| Refinancing flexibility | Restricted during lock-in | Flexible |
| Rate transparency | Known upfront | Changes with benchmark |
| Budget predictability | High | Lower |
| Typical rate range | 3.00–3.60% | 3.20–3.80%* |
| Best when rates are… | Expected to rise | Expected to fall or stay flat |
*Rates are indicative and vary by bank and market conditions.
The Board Rate Trap
One critical aspect many borrowers overlook is what happens after the lock-in period ends. Most fixed rate packages revert to the bank's board rate — an internally set rate that is:
Not benchmarked to any external referenceTypically higher than both fixed and SORA-based ratesOpaque — the bank can change it at any time without reference to market conditionsOften 1.0–2.0% higher than competitive market ratesThis is why savvy borrowers refinance before the lock-in expires. Staying on a board rate is almost always more expensive than switching to a new package.
Refinancing Strategy: How to Save Thousands
Refinancing is the process of switching your mortgage from one bank to another (or to a new package at the same bank) to get a better rate.
When to Refinance
3 months before your lock-in expires — start shopping for new ratesWhen the rate difference is at least 0.30–0.50% — this threshold typically makes refinancing worthwhile after accounting for costsWhen you've been on board rate for any period — you're almost certainly paying too muchRefinancing Costs
| Cost Item | Typical Amount |
|-----------|---------------|
| Legal/conveyancing fees | $2,500–$3,500 |
| Valuation fee | $300–$600 |
| Lock-in penalty (if applicable) | 0.75–1.50% of outstanding loan |
Many banks offer legal fee subsidies (covering $2,000–$3,000) and free valuation to attract refinancing customers. This effectively makes refinancing free or very low cost, as long as you're outside your lock-in period.
Repricing vs Refinancing
Repricing — switching to a new package at your existing bank (cheaper and faster, typically $500–$800 admin fee)Refinancing — switching to a different bank entirely (more paperwork, but potentially better rates)Always check repricing options with your current bank first. If the rate is competitive, it saves you the hassle of refinancing.
Current Rate Environment and Outlook
As of early 2025:
3M Compounded SORA has been hovering around 3.0–3.5%Fixed rate packages are available at approximately 3.0–3.5% for 2-year lock-insThe spread between fixed and floating has narrowed, making fixed rates relatively attractiveIf global central banks cut rates in 2025–2026, SORA-linked rates should decline accordinglyWhat the Experts Suggest
In a flat or declining rate environment, floating rate packages may offer savingsIn a rising rate environment, locking in a fixed rate provides protectionThe ideal strategy for most borrowers: alternate between fixed and floating as market conditions change, refinancing every 2–3 yearsPractical Tips for Mortgage Shoppers
Compare at least 3–4 banks before committing — rates can vary by 0.20–0.50% between banksLook beyond the headline rate — check the lock-in period, penalty clauses, and board rateFactor in the total cost of borrowing, not just the monthly paymentSet a calendar reminder to review your mortgage 3 months before lock-in expiryConsider using a mortgage broker — they can compare multiple banks at once and often have access to exclusive ratesDon't forget TDSR — regardless of rate type, your total debt servicing obligations cannot exceed 55% of gross monthly income---
Disclaimer: Interest rates and mortgage packages mentioned are indicative and subject to change. Always check with your bank or a licensed mortgage advisor for the most current rates and terms.