Rising Interest Rates will hurt you if you over leverage
When considering the impact of rising interest rates on loans, it's crucial to understand the relationship between central bank decisions, such as those made by the Federal Reserve, and the interest rates overseen by MAS in Singapore. This connection is fundamental and has a significant influence on local interest rates.
In Singapore, the country's interest rate is tied to a diverse basket of currencies. MAS, Singapore's de facto central bank, maintains secrecy regarding the specific currencies in this basket to prevent currency manipulation by market players seeking to exploit exchange rate differentials. Consequently, when central banks like the Federal Reserve increase interest rates, Singapore's interest rates also experience an upward trend in response. This synchronization highlights the interconnected nature of global economic factors on domestic financial landscapes.
How does it affect you?
Due to the rise of interest rates, the mortagage payment amount will increase and as a result the nett profit as a landlord will decline after paying off your mortgage and the maintenance fees. However, the saving grace for landloards is that rents are also rising which helps to mitigate the erroding profits.
Hence, it is important not to have razer thin margins for your investment property as any movement in interest rates northwards will erode your profits. However, if your aim is not to generate any rental yields but rather lookng for capital appreciation and acknowledgement
Should you bother or even be worried if the property is not an invesment property but it is for homestay? Yes, you should as the monhly payments for your loans will be higher which translates to you paying more for your home. This effectively makes your home more expensive.
