Effects of Inflation on Singapore Mortgage Rate
Like any other market, the real estate market is very volatile and that any movement in the market has profound effects on Singapore mortgage rate. The monetary policies in Singapore basically aim at promoting low inflation. These policies are also evident in the housing market wherein the Singaporean government is considered as an interventionist when it comes to this market. The government strictly monitors the process of scrutinizing land uses and allocating the housing units to local and foreigner residents. Interest rates are rather 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.
However, when you consider buying a property at present value, then the Singapore mortgage rate can be lowered with higher inflation rate. Assume that the interest rate of your home loan is 2% for 30-year duration and the percent of inflation rate is 0% then it will produce a total interest rate of lower value in the long run if the market value of the property remains the same and if the inflation rate will be kept at 0% which is not always the case. The cost of the loan and the Singapore mortgage rate will be reduced but since the inflation rate is 2% you will have to pay a higher present value. While the real value of the property will be varied in the future, the value of the money will be smaller after adjustments. That is, when the price of the property is adjusted for inflation in the next 20 years, the money that you pay in the future will be more than 60% based on the current rate of inflation, decreasing the purchasing power of this money.
In short, if the inflation rate is changed from its real value than its nominal value, you can have different costs for your mortgage interest. The actual value will be higher if you purchase the property when the inflation rate is higher. This means that inflation rate is higher at the time you purchase the home loan then the total interest rate of the mortgage loan will be lower. Having said that, you need to buy a property at a time when the Singapore mortgage rate is low, but inflation is high, so that when adjusted for 20 years, then the real value of the property will be higher.
