SINGAPORE –  Most home owners here still prefer to take fixed mortgages even though the interest rates for these packages have risen amid the Middle East conflict, and are now pricier compared to loans tied to floating rates.

Reasons cited include the desire for greater peace of mind amid the current market uncertainty, and to hedge against potential future rate hikes, bankers told The Straits Times.

Nevertheless, some home owners are making the switch to floating rate packages, which have been declining in line with the compounded Singapore Overnight Rate Average (Sora) rates.

Floating-rate loans are typically pegged to the three-month compounded Sora, which banks use to price mortgages here - namely by adding a fixed percentage, called the spread, to cover their costs and profit. 

Fixed-rate packages have become more expensive as global interest rate expectations rise and central banks are expected to slow their pace of interest rate cuts to counter the impact of the Middle East tensions on inflation.

Interest rates in Singapore largely track global rates because the Republic manages inflation through its exchange rate, rather than by setting interest rates. 

If global rates are expected to rise, Singapore rates must go up too or money will flow out, weakening the Singdollar.