Inflation Rate and How It Affects Singapore Mortgage Rate
Like every other market, the real estate market is very volatile and that any movement in the market has a profound effect on Singapore mortgage rate. Basically, the monetary policy of Singapore is designed to promote low inflation. These policies are also evident in the housing market in which the Singapore government, which is considered as an interventionist, when it comes to the real property market. The government closely monitors the process of reviewing land use and allocating housing to local residents and foreigners. Interest rates are relatively stable in Singapore because of this.
If you are a home owner who is currently servicing monthly amortization to your home loan, you might be wondering how the inflation rate affects your Singapore mortgage rate. If the inflation is zero, the mortgage rate can be easily calculated but if it is more than zero like in Singapore where the inflation rate is projected at 2 to 3% in 2011, there is a need to reflect the present value of the property against this rate. Having said this, there are specific contributing factors to your decision to buy a property in Singapore. If you are a lendee who can purchase a restricted and non-restricted property of about more than SG$2 million, then your financial standing is good. This directly reflects a personal consumption pattern that is rather high in relation to consumer price index. If you own a home owner who currently maintaining monthly repayments on your mortgage, you may wonder how inflation affects your Singapore mortgage rate. If inflation is zero, the mortgage rate can be calculated easily, but if greater than zero like in Singapore, where an estimated inflation rate of 2 to 3% in 2011, it is necessary to reflect the current value of the property against this rate. That said, there are specific factors that contribute to your decision to buy a property in Singapore. If you are a lendee who intends to buy a restricted or non-restricted property by more than SG$2 million, then your financial situation is generally in good standing. This is directly reflected to a personal consumption which is quite high relative to the consumer price index.
But when you consider buying a property at current value, then the Singapore mortgage rate can be lowered with higher inflation. Suppose the interest rate on your mortgage is 2% for 30 years duration and the inflation rate is 0%, then it will give you an overall low value over the long term if the market value property remains the same, and if inflation will remain at 0%, which is not always the case. The cost of the loan and the Singapore mortgage rate will be reduced, but when inflation is 2%, you have to pay a present value at higher prices. While the real value of the property may vary in the future, the value of money may be smaller after adjustments. In other words, when the price of the property is adjusted for inflation over the next 20 years, the money you pay in the future will be more than 60% based on the current inflation rate, reducing the purchasing power of money in the process.
In sum, if you are going to modify the inflation rate of its real value other than its nominal value, you may realize different interest costs to your mortgage loan. The real value will be higher if you purchase the property when the inflation rate is higher. This means that the higher the inflation rate, the lower the total interest cost of the property considering the present value. Having said this, you have to purchase a property at a time when the Singapore mortgage rate is low but the inflation rate is high so that when adjusted 20 years from now then it will be of greater real value.