How Banks Determine Your Mortgage Interest Rate: The Complete Comparison
Singapore banks don't use a one-size-fits-all formula to set mortgage rates. Instead, each bank combines multiple factors—your credit profile, loan amount, tenure, property type, and current market conditions—to determine your specific rate. This is why two borrowers applying on the same day can receive significantly different offers, even from the same bank. Understanding how this process works helps you negotiate better terms and identify which bank offers the best deal for your situation.
At Homejourney, we believe transparency is essential to building trust in property transactions. This guide breaks down exactly how banks calculate rates, why rates differ between lenders, and how to compare offers effectively so you can make confident borrowing decisions.
The Two Core Components of Your Mortgage Rate
Every mortgage rate in Singapore consists of two fundamental components: a benchmark rate and a bank spread. Understanding this structure is crucial because it explains why rates vary across banks.
The Benchmark Rate is the foundation. For floating-rate loans, this is typically the 3-month compounded Singapore Overnight Rate Average (SORA), which stood at approximately 1.2% as of December 2025. For fixed-rate loans, banks use their own cost of funds and market expectations. The benchmark rate reflects broader economic conditions and is largely outside any individual bank's control.
The Bank Spread is where differentiation happens. This is the margin—typically ranging from 0.25% to 0.7%—that banks add on top of the benchmark rate. The spread covers the bank's funding costs, operational expenses, credit risk assessment, and profit margin. A bank offering a spread of 0.25% on SORA+0.25% will provide a lower rate than a competitor charging SORA+0.5%, assuming SORA remains constant.
As of January 2026, banks have trimmed spreads significantly from earlier highs, with competitive packages starting from SORA+0% (essentially the benchmark rate itself) for loan amounts of $500,000 and above. This compression reflects intense competition for market share and lower funding costs across the banking sector.
Key Factors Banks Evaluate When Setting Your Rate
1. Your Credit Profile and Income Stability
Your credit score and income stability are among the first factors banks assess. A clean credit history with no missed payments, manageable debt levels, and stable employment signals lower credit risk. Banks reward this profile with better rates. Conversely, if you have recent defaults, high existing debt, or irregular income, expect higher spreads to compensate for the perceived risk.
Banks typically stress-test your affordability at a higher interest rate than your quoted rate. The Monetary Authority of Singapore (MAS) requires banks to use a medium-term interest rate floor of 4% per annum or the prevailing market rate, whichever is higher, when calculating your Total Debt Servicing Ratio (TDSR). This means even if you're offered a 1.5% rate, the bank ensures you can afford repayments if rates rise to 4%.
2. Loan Amount and Loan-to-Value Ratio (LTV)
Larger loan amounts typically receive better pricing. A $500,000 loan will attract a more competitive rate than a $300,000 loan from the same bank. This is because larger loans generate more revenue for the bank, justifying lower margins. Additionally, your down payment size affects your LTV ratio. A 20% or larger down payment reduces your LTV, making you less risky to lenders and qualifying you for better rates. Conversely, a smaller down payment increases your LTV and may result in a higher spread.
3. Loan Tenure
Most Singapore home loans range from 20 to 30 years. Shorter tenures (20-25 years) often attract slightly better rates because they represent lower long-term risk exposure for the bank. However, the difference is typically minimal—usually 0.05% to 0.1%. Longer tenures (25-30 years) may carry marginally higher spreads but offer lower monthly repayments, which can help you pass the TDSR test if your income is moderate.
4. Property Type: HDB vs Private Property
Property type significantly impacts rate determination. HDB flats are governed by strict CPF rules and the government-set HDB loan rate of 2.6% per annum. This fixed rate applies to HDB-to-HDB purchases using CPF. Private property loans, by contrast, are priced entirely by individual banks with no government cap. As of January 2026, many private property fixed-rate packages now start below 1.8%, making bank financing more attractive than the HDB concessionary rate for some borrowers.
5. Global Interest Rate Trends and SORA Movement
Singapore's mortgage rates are heavily influenced by US Federal Reserve policy. When the Fed cuts rates, SORA typically follows, and floating-rate mortgages become cheaper. Conversely, Fed rate hikes push SORA higher, increasing floating-rate repayments. Fixed-rate loans adjust more gradually because banks price in future interest rate expectations and funding risks.
SORA declined from 3% in early January 2025 to 1.2% by December 2025, driven by three consecutive Fed rate cuts. This sharp decline benefited floating-rate borrowers significantly. Looking ahead to 2026, the Fed has signaled only marginal easing, with just one quarter-point cut expected. This suggests SORA may have found a floor, and further rate reductions are unlikely without an economic shock.
Understanding SORA: The New Mortgage Benchmark
SORA (Singapore Overnight Rate Average) is a volume-weighted average of unsecured overnight interbank borrowing rates. It replaced SIBOR as Singapore's primary mortgage benchmark because it better reflects actual market conditions and is more resistant to manipulation. SORA is published daily at 9 AM, based on transactions from the previous day with a minimum transaction size of $1 million from at least five reporting banks.
Most floating-rate mortgages are pegged to the 3-month compounded SORA, which is the average of daily SORA rates over a three-month period. When SORA moves, your mortgage repayment adjusts in the same direction. If SORA rises 0.5%, your monthly repayment increases proportionally. This is why floating-rate loans carry more payment uncertainty than fixed-rate loans.
The chart below shows recent SORA trends to help you understand how rates have moved and what to expect:
As you can see from the chart above, SORA has declined substantially through 2025, benefiting floating-rate borrowers. However, the pace of decline has slowed, and experts predict SORA may stabilize around 2.6% by end-2026 if the Fed maintains its cautious stance. For borrowers considering floating-rate loans, tracking SORA movements is essential. Homejourney's bank rates page displays live 3-month and 6-month SORA rates updated daily, allowing you to time your application decisions strategically.
Fixed vs Floating Rates: How Banks Price Each Option
Fixed-Rate Mortgages
Fixed-rate loans lock your interest rate for a set period, typically 2 to 5 years. Your monthly repayment remains constant throughout the lock-in period, providing payment certainty and protection against rate increases. Banks price fixed-rate loans based on their funding costs, expected future interest rates, and the risk that rates might fall (reducing their revenue). Because banks bear the risk of rate movements, fixed rates are typically higher than the initial floating rate but lower than the worst-case floating rate scenario.
As of January 2026, competitive fixed-rate packages start from approximately 1.30% for loan amounts of $500,000 or more, with lock-in periods of 2-3 years. After the lock-in expires, your rate typically reverts to a floating rate pegged to SORA plus the bank's spread.
Floating-Rate Mortgages
Floating-rate loans are pegged to SORA plus a bank spread. Your repayment adjusts monthly or quarterly as SORA changes. Banks price floating rates lower than fixed rates because borrowers bear the interest rate risk. The lowest floating rates currently available start from SORA+0% (essentially the benchmark rate) for large loan amounts, though most borrowers qualify for SORA+0.25% to SORA+0.5% depending on their profile.
Floating rates offer flexibility and lower initial payments, but they expose you to payment uncertainty. If SORA rises 1%, your monthly repayment increases proportionally. This is why floating rates suit borrowers with strong income growth expectations, high risk tolerance, or those planning to refinance within a few years.
Why Rates Differ Between Banks: A Real Comparison
Even when evaluating identical borrowers on the same day, banks offer different rates. Here's why:
Different Funding Costs: Banks source funds differently. Some rely heavily on customer deposits, while others use wholesale funding or bond markets. A bank with abundant low-cost deposits can offer tighter spreads than a bank relying on expensive wholesale funding.
Risk Appetite Variations: Some banks target aggressive market share growth and accept lower margins. Others prioritize profitability over volume. This explains why you might see one bank offering SORA+0.25% while a competitor charges SORA+0.5% for the same loan profile.
Lending Targets: Banks set quarterly or annual lending targets. When a bank is below target, it may offer promotional rates or waived fees to attract borrowers. When target is met, pricing tightens. This is why rates fluctuate week-to-week, even without changes in SORA or Fed policy.
Operational Efficiency: Banks with lower operational costs can afford lower margins. Fintech-enabled banks or those with streamlined processes may offer better rates than traditional banks with higher overhead.
Promotional Periods: Competition intensifies in Q1 (January-March) each year. Banks offer legal subsidies, cash rebates, and reduced spreads to capture market share. Borrowers applying in January typically receive better offers than those applying in September.
To compare rates effectively, use How Banks Determine Mortgage Rates: Process & Timeline | Homejourney to understand the complete process, then compare current offers from all major banks side-by-side on Homejourney's bank rates page. This ensures you're comparing apples-to-apples and identifying genuine rate differences.
How to Compare Mortgage Offers from Multiple Banks
Step 1: Get Pre-Qualified
Before comparing rates, determine your borrowing capacity. Your maximum loan amount is constrained by TDSR (Total Debt Servicing Ratio), which caps your total monthly debt repayments at 60% of gross monthly income. Calculate your eligibility using Homejourney's mortgage calculator, which instantly shows your maximum borrowing power based on your income and existing debts.
Step 2: Standardize Your Comparison
When comparing offers, ensure you're evaluating identical loan parameters: same loan amount, same tenure, same property type, and same rate type (fixed vs floating). A 1.5% fixed rate for 25 years is not directly comparable to a 1.2% floating rate for 30 years. Calculate monthly repayments for each scenario to understand the true cost difference.
Step 3: Look Beyond the Interest Rate
The headline interest rate is only part of the story. Compare these additional factors:
- Processing Fees: Typically $500-$2,000. Some banks waive fees during promotional periods.
- Valuation Fees: Usually $300-$600. May be waived for larger loans.
- Lock-in Period Penalties: Some banks allow penalty-free partial repayment during lock-in; others charge 1-2% penalty.
- Repricing Options: Can you refinance to a lower rate within the lock-in period without penalty?
- Cash Rebates: Some banks offer $500-$2,000 rebates for loans above $500,000.
- Legal Subsidies: Some banks cover legal costs ($1,000-$2,000).
A bank offering 1.45% with $1,500 in fees and no rebate may be more expensive than a competitor offering 1.50% with fees waived and a $1,000 cash rebate. Calculate the total cost over your intended holding period to make a true comparison.
Step 4: Apply Through Homejourney for Multi-Bank Offers
Rather than applying to each bank individually, submit one application through Homejourney's bank rates page. Our Singpass integration auto-fills your personal and financial data in seconds, and your application is simultaneously submitted to all partner banks: DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, CIMB, RHB, Public Bank, Hong Leong Bank, and Citibank. Within 1-2 business days, you'll receive personalized rate offers from multiple banks, allowing you to compare apples-to-apples and negotiate from a position of strength.
Current Market Rates: January 2026 Snapshot
As of mid-January 2026, here's what the market looks like:
- Fixed-Rate Mortgages: Starting from 1.30% for loan amounts $500,000+, with 2-3 year lock-in periods. Rates for smaller loans ($300,000-$500,000) typically start around 1.50-1.60%.
- Floating-Rate Mortgages: Starting from SORA+0% (currently 1.2%) for large loans, with most borrowers qualifying for SORA+0.25% to SORA+0.5%.
- 3-Month SORA:
