How to Learn Fixed and Floating Home Loan Rates Quickly and Correctly

Should you choose a fixed-rate home loan or a floating-rate home loan? Before answering, learn what each rate promises and what it does not promise. A fixed-rate package usually holds the interest rate steady for a specified initial period, while a floating-rate package follows a reference rate or a bank’s contractual rate-setting rule. Neither is automatically the better choice for everyone. This eduKateSG Quick Notes lesson compares the two using a fictional mortgage, explains what happens after an introductory period and shows why the all-in rate, repayment schedule and contract conditions matter more than the headline alone.

Fixed-rate period: the applicable rate is held constant for the agreed period, not necessarily the entire mortgage.
Floating-rate period: the contractual rate can change when its benchmark or rate-setting conditions change.
Read the all-in rate: a benchmark and a contractual bank spread may both contribute to the actual rate.
Check reset dates: know when the lender recalculates the rate and instalment.
Separate lock-in: a penalty period is not necessarily identical to the fixed-rate period.
Compare risks: assess payments if rates fall, rise or remain unchanged.

Teaching paragraph 1 — understand the central difference. Suppose you borrow S$300,000 for 25 years. A fictional fixed package offers 3% annually for its first two years; a fictional floating package starts at 2.5%, but the rate may change under its benchmark rule. Under an illustrative full-term constant-rate amortisation formula, S$300,000 at 3% would require about S$1,422.63 per month, while at 2.5% the same 25-year model gives about S$1,345.85. The floating payment is lower in this one invented starting scenario. That does not mean it stays lower: the benchmark and spread may change, and the balance and remaining tenure evolve.

Teaching paragraph 2 — practise the risk of a rate increase. If the all-in floating rate were instead 3.5% from the start of the same hypothetical 25-year model, the corresponding payment would be about S$1,501.87, and at 4.5% it would be about S$1,667.50. These are separate full-term scenarios used to show sensitivity, not exact recalculated payments partway through an existing loan. The real borrower has a smaller outstanding balance and fewer remaining months at a later reset. The correct lesson is that a rate movement can change the required repayment and total interest, so households should budget for rate uncertainty instead of assuming the initial rate lasts forever.

Teaching paragraph 3 — read every date on the offer. MoneySense explains that bank fixed-rate mortgages generally become variable after their initial fixed period, while floating-rate loans depend on reference rates such as SORA or a rate determined by the bank. The fixed-rate period, contractual lock-in, promotional margin and next reset are separate things. An attractive first-year rate can become less attractive after year two or three. Before signing, ask which formula applies later, how often it can change, what notice applies and whether switching or prepaying early triggers a charge. A home loan is a long-term contract; do not mistake the first page of an offer for the whole contract.

A One-Page Comparison of Fixed and Floating Rates

Focus on the structure rather than claiming fixed loans are always safe or floating loans are always risky. A fixed rate provides temporary certainty about the contractual interest rate, not certainty about employment, property prices or future refinancing costs. A floating rate may respond to falling benchmarks but carries uncertainty over future payments.

Fixed: the interest rate is stated for a specific period, making scheduled payments more predictable during that period under ordinary conditions.
Floating: the rate changes according to the agreed reference rate or bank-setting methodology.
Fixed advantage: short-term payment predictability if market rates rise.
Fixed trade-off: you generally cannot automatically enjoy a market rate reduction during the fixed period.
Floating advantage: some rate falls can reduce interest under the contract.
Floating trade-off: the rate and required payments may rise.
Both: may have lock-ins, fees, rate resets and refinancing rules.

Worked Example: Three Different Interest-Rate Scenarios

Take a fictional S$300,000 loan amortised over 25 years at a constant annual rate. Using a standard monthly reducing-balance formula, a steady 2.5% implies about S$1,345.85 per month; a steady 3.5% implies about S$1,501.87; and a steady 4.5% implies about S$1,667.50. The difference between the first and third scenarios is roughly S$321.65 per month.

These model calculations deliberately keep the same original principal and tenure to isolate the effect of the interest rate. A real floating-rate mortgage that moves from 2.5% to 4.5% after several years will be recalculated on its current principal and remaining tenure, so you cannot simply replace a real statement with the classroom table. Ask for lender illustrations reflecting the actual contract.

SORA, Board Rates and Bank Spreads

A floating mortgage may be linked to 1-month or 3-month Compounded SORA, a bank’s board rate or another contractually specified reference. Singapore Overnight Rate Average (SORA) is administered and published by the Monetary Authority of Singapore. For a hypothetical package written as 3-month Compounded SORA + 0.80 percentage point, an assumed benchmark of 1.20% would produce a model all-in rate of 2.00% per annum. These numbers are invented for the exercise, not a quote of today’s SORA or a live mortgage package.

Do not confuse percentage points with percentages of a rate. If SORA is 1.20% and the spread is 0.80 percentage point, the sum is 2.00%, not 1.2096%. The spread is a contractual margin and can have different values during or after promotional periods. The benchmark’s date and reset rule matter as much as the numeric margin.

For the benchmark’s definition and reporting, read MAS: SORA Interest Rate Benchmark. MoneySense’s SORA guide explains why compounded averaging is used in residential loans.

Fixed-Rate Period, Promotional Period and Lock-In

A fixed-rate period is how long the interest rate is fixed. A promotional period is the time for a specified offer, which might include a lower margin or discount. A lock-in period is a contractual restriction that may apply penalties if you redeem or refinance during certain dates. They can overlap, but they need not have the same start and end date.

For instance, a hypothetical package might have a two-year fixed rate but a three-year lock-in. The rate could become floating in year three while the borrower still faces a charge to leave. This is a made-up contract structure to illustrate the distinction. Never infer the actual dates from the name of a package; read its fact sheet and full contract.

What Happens When the Fixed Rate Ends?

MoneySense advises borrowers to ask the bank to explain the reference rate, reset frequency, circumstances of changes and special features that may later change. A fixed period ending is a known contract event, not necessarily a sudden surprise. Mark the relevant date early enough to review options thoughtfully.

The lender applies the rate formula written for the next period.
The new rate may include a reference rate plus a margin.
The instalment may be recalculated using the remaining principal and tenure.
Any fee or lock-in condition may continue or end on its own specified date.
The borrower may compare allowed repricing or refinancing options, subject to costs and approval.
The household should update its budget for the new payment rather than assuming a renewal of the promotional rate.

When Might Predictability Matter More Than a Lower Starting Rate?

A household with a tight monthly budget may prioritise stable payments during an agreed fixed period even if a floating package starts slightly cheaper. A household with larger cash reserves may tolerate more rate variability, but the potential saving is uncertain. The purpose of the comparison is not to predict market rates precisely; it is to understand the consequences of different scenarios.

Use a monthly cash-flow table. After essentials, other loans, property expenses and emergency saving, how much room remains for a higher mortgage instalment? If a higher-rate scenario produces a serious shortfall, the borrower should reconsider the debt amount, tenure or package rather than hoping the rate will not rise.

What to Read in the Property Loan Fact Sheet

Singapore banks are required to provide a property loan fact sheet before a bank home loan is signed. See MoneySense’s guide for the intended contents. Read it together with the letter of offer; do not treat an estimated rate from a marketing page as a binding offer.

Initial rate and length of the fixed or promotional period.
The subsequent reference-rate or bank-rate formula.
Reset frequency and method for notification of changes.
Instalments at the initial and illustrated higher rates.
Effective interest rate and the full repayment schedule.
Lock-in dates, early repayment fees, legal subsidies and clawbacks.
Conditions of repricing, refinancing, partial prepayment and bundled products.

Ten-Minute Fixed and Floating Rates Lesson

Minutes 1–2: explain fixed and floating in one sentence each.
Minutes 3–4: identify which package changes when its reference rate changes.
Minutes 5–6: add fictional 1.20% SORA and a 0.80-percentage-point spread.
Minutes 7–8: locate the fixed-rate end date and lock-in end date on an example offer.
Minute 9: explain what happens when a promotional rate expires.
Minute 10: describe why a household should test its budget against higher mortgage payments.

Check Your Understanding

Question 1: Does a two-year fixed mortgage rate necessarily stay unchanged for 25 years? Answer: No.

Question 2: If a hypothetical benchmark is 1.50% and a bank’s contractual spread is 0.70 percentage point, what is the all-in rate? Answer: 2.20% under those assumptions.

Question 3: Can a floating mortgage repayment rise when the applicable reference rate rises? Answer: Yes, depending on the contract.

Question 4: Is the fixed-rate period always the same as the lock-in period? Answer: No.

Question 5: What should you compare besides starting rates? Answer: Repayment schedules, later rates, fees, penalties and household affordability.

Common Mistakes to Avoid

Calling a two-year fixed rate a twenty-five-year fixed mortgage.
Assuming a floating-rate discount can never disappear.
Confusing a SORA benchmark with the full interest rate charged by a bank.
Treating percentage points as a percentage of another percentage.
Assuming lock-in and fixed-rate periods automatically end together.
Judging affordability only by the first monthly payment.
Failing to read the interest-reset rule after the promotional period.

Primary Sources and Final Reminder

Sources: MoneySense: How Home Loans Work (updated 28 September 2026); MoneySense: Switching to SORA; MAS: SORA. All rates and repayments above are fictional classroom scenarios, not current market quotations. Final rule: read the full rate formula and the dates, then prepare for the payment you may actually face.