Every homeowner refinancing or taking a new mortgage eventually sits across from a banker or scrolls through a comparison site and asks the same question: which rate is lower right now? It feels like the obvious question. It's also the wrong one.
Fixed versus floating isn't a question about which number is smaller today. It's a question about what happens to your monthly cash flow if rates move against you — and how much that movement would actually hurt, given everything else going on in your finances. Get that framing wrong, and you can end up with a mortgage that technically had the "better rate" at signing but was the wrong structural choice for your household.
What Fixed And Floating Actually Are
A fixed-rate home loan locks your interest rate for a defined period — typically 2 to 5 years in Singapore — regardless of what happens to benchmark rates during that time. Your monthly instalment doesn't move. When the fixed period ends, the loan usually reverts to a floating rate unless you refinance or lock in another fixed period.
A floating-rate loan is pegged to a reference rate — commonly SORA (Singapore Overnight Rate Average) plus a bank spread — and moves with the market. When SORA rises, your instalment rises. When it falls, your instalment falls. Some floating packages also carry a lower headline spread than fixed packages, which is exactly why the "lower number" framing is so tempting.
Here's the part most comparison tables don't show you clearly: the headline rate at the point of signing tells you almost nothing about your total interest cost or your risk exposure over the life of the loan. It only tells you what you'd pay if nothing changes — and rates changing is the entire point of the decision.
Why "Which Rate Is Lower" Is The Wrong Question
Say you're choosing between a fixed rate at 3.2% and a floating rate currently sitting at 2.9%. The floating rate looks like the obvious pick — it's cheaper today. But that comparison only holds true for however long rates stay where they are. The real question isn't "which is cheaper now" — it's "what happens to my monthly cash flow if SORA moves 1.5 percentage points in either direction over the next three years, and can my household actually absorb that?"
This matters because SORA has moved by more than 1.5 percentage points within a single rate cycle before, and it can happen faster than most borrowers expect. A floating rate that looks attractive at 2.9% today can become considerably more expensive if the underlying benchmark climbs — and unlike a fixed package, you don't get advance notice or a grace period. Your instalment simply adjusts on the next reset date.
The Real Framework: Cash Flow Sensitivity, Not Rate Comparison
The decision that actually matters is a stress test, not a rate comparison. Before choosing, work out three numbers:
- Your current monthly instalment at the rate you're being quoted, whether fixed or floating
- Your monthly instalment if rates rise by 1 to 1.5 percentage points — this is the realistic upside scenario for a floating package over a 2–3 year horizon based on past SORA movements
- The gap between those two numbers, measured against your household's monthly cash flow — not your income, your actual discretionary cash flow after CPF contributions, other debt servicing, and fixed expenses
If that gap is something your household can absorb without touching savings or cutting into other financial goals, a floating rate is a reasonable structural choice, and you keep the option to benefit if rates fall further. If that gap would meaningfully strain your monthly budget, a fixed rate isn't the "safer but more expensive" option — it's the only option that actually matches your risk tolerance, even if it costs slightly more in a scenario where rates stay flat or fall.
This is why the right answer genuinely differs between two households with identical loan quantums. A household with a large cash buffer, dual stable incomes, and low other debt has real capacity to absorb rate volatility — floating can make sense for them. A household that's already stretching TDSR, has variable income, or is carrying other loan obligations has far less room — for them, the certainty of a fixed rate is worth paying a premium for.
Where TDSR Fits Into This
Your Total Debt Servicing Ratio calculation at the point of loan approval is based on a stress-tested interest rate set by MAS, not your actual quoted rate — which means the bank has already effectively pressure-tested your ability to service a higher rate before approving your loan at all. This is useful information, but it isn't a substitute for your own stress test. TDSR approval tells you the loan is serviceable under a regulatory stress scenario; it doesn't tell you whether you'll be comfortable under a rate spike, or whether servicing that higher rate would mean cutting into your CPF top-ups, your children's education fund, or your own retirement savings rate. Passing TDSR and being financially comfortable under a rate spike are two different bars, and only one of them is checked for you automatically.
The Honest Downsides Of Each Choice
Fixed-rate packages aren't a free hedge. You're generally paying a premium over the equivalent floating rate at signing, in exchange for certainty. If rates fall or stay flat over your fixed period, you end up paying more than you would have on a floating package — full stop. Many fixed packages also carry lock-in penalties for early refinancing or repayment, which reduces your flexibility if your situation changes or if a better package becomes available partway through your term.
Floating-rate packages carry genuine volatility risk. If you're already near the edge of comfortable cash flow, a rate spike isn't an abstract scenario — it's a real monthly cost increase that hits your account on the next reset date, with no cushioning period. Floating packages can also make long-term budgeting harder, since you can't lock in a precise number for financial planning beyond your current reset period.
What About Switching Later?
Some homeowners treat this decision as low-stakes because they plan to refinance or switch packages later anyway. That's a reasonable strategy, but it comes with real friction costs: legal fees, valuation fees, and potential penalties if you're still within a lock-in period. Refinancing isn't free, and "I'll just switch if rates move" is a fallback that costs money to execute and depends on market conditions and your credit profile being favourable at the time you actually need to switch.
What To Actually Do Before You Sign
Before choosing a package, run these numbers with actual figures, not estimates:
- Calculate your instalment at the quoted rate and at a rate 1 to 1.5 percentage points higher
- Compare that gap against your household's actual monthly discretionary cash flow, not gross income
- Check the lock-in period and penalty structure on any fixed package you're considering — a 2-year fixed rate behaves very differently from a 5-year fixed rate if your circumstances might change
- Factor in whether your income is stable and dual-earner, or single-earner and more exposed to disruption
- Decide based on what your household can comfortably absorb under the higher-rate scenario — not on which number looks smaller in the bank's rate sheet today
The lower headline rate is the easiest number to compare and the least useful one to decide on. The right mortgage structure is the one your household can service comfortably even when rates move against you — and that's a calculation specific to your numbers, not a generic answer that applies to everyone refinancing this quarter.
If you'd like to run this stress test properly against your actual loan quantum and household cash flow, reach out and I'll walk through the numbers with you.