An unfamiliarity with home loan terms like Singapore Overnight Rate Average (SORA), Singapore Interbank Offered Rate (SIBOR), and Singapore Swap Offer Rate (SingSOR) can make the first steps of the home-buying process seem daunting (SOR). Yet, fret not. You’ve come to the perfect spot to learn the meanings of common mortgage words.
Here’s an article that breaks down the differences between SORA, SIBOR, and SOR, and what they all mean for your mortgage payments. If you’re already familiar with these rates of interest, though, we can go right to the one that matters most: SORA.
Why You Should Care About SORA, the New Suggested Standard
Basically, the floating interest rates of bank loans in Singapore are determined by three industry-wide benchmark interest rates known as SORA, SIBOR, and SOR. The good news is that in the near future, you probably won’t have to worry about anything but SORA-pegged bank loans.
To promote better industry trust, Singapore is phasing down SIBOR and SOR in tandem with the scandal-tainted London Interbank Offered Rate (LIBOR). Starting in 2022, SORA will replace SIBOR and SOR as the go-to benchmark interest rate, with SIBOR being phased out in 2024 and SOR in 2021.
As a result, prospective borrowers can choose from a number of SORA (and perhaps SIBOR) variable rate packages to fund their house purchase. In addition, homeowners who now have a SIBOR-pegged package may want to consider making the transfer to a SORA-pegged loan as SIBOR is progressively phased away.
But before we go there, let’s clarify something…
Just what is SORA stand for?
The Singapore Overnight Reference Rate (SORA) is the weighted average borrowing rate in the unsecured Singaporean Dollar (SGD) cash market between 8 a.m. and 6:15 p.m. Your bank loan interest rate will be based on the overnight rate as published on the website of the Monetary Authority of Singapore at 9am the following day.
Comparison of 1M SORA and 3M SORA
Choose between 1-month (1M SORA) and 3-month (3M SORA) compounded SORA loan payments if you choose with the variable rate SORA packages. What’s the dissimilarity between the two plans? Your loan interest rates will be “refreshed” at intervals that you specify.
Your interest rate renewal for your 1,000,000 SORA home loan package will be calculated each month based on the monthly compounded SORA interest rate. A 3M package is same, except that it renews every three months instead of monthly. The interest you pay will vary on a monthly or quarterly basis depending on whether you have a 1M SORA or 3M SORA.
With that out of the way, let’s dive into the benefits of a SORA mortgage and why you should consider applying for one. However, before we get there, we must first…
When deciding between a fixed-rate and a variable-rate mortgage, what factors should you consider?
First-time buyers of privately owned property are need to get a mortgage loan in order to fund the purchase. People who already own homes may want to look into refinancing their mortgages, especially if their present loans are tied to the Shanghai Interbank Offered Rate (SIBOR).
You’ll have your pick of numerous different home loan packages, including variable rate packages like the SORA home loan packages.
What are the advantages and disadvantages of getting a house loan with a fluctuating interest rate vs a fixed interest rate in Singapore?
The quick answer is that it is dependent on the prognosis for the market and your own financial status.
How can one benefit from a mortgage with a variable interest rate?
The increased savings potential should be considered before choosing a variable rate mortgage loan like SORA. There might be periods of low interest rates as a result of market forces or economic downturns. If interest rates drop, you’ll benefit from switching to a floating-rate mortgage.
Taking a gamble on a home loan with a fluctuating interest rate requires careful consideration of market conditions. This means that only individuals with a high tolerance for risk may benefit from the monthly interest rate fluctuations.
Mortgage rates in Singapore, including SORA rates, often track worldwide interest rates. The US Federal Reserve increased interest rates by 0.25% to 0.25% on 14 December 2022, making the new benchmark borrowing rate range 4.25-4.50%. As a result, the rates of both fixed and adjustable mortgages have been climbing.
Your interest rate on a floating-rate mortgage may be significantly higher than that of someone who took out a fixed-rate mortgage when rates rise. The second part of the year often sees a decrease in mortgage interest rates, as predicted by the Housing Market Group Singapore Property Market Outlook 2023.
Reasons to Consider a SORA Mortgage in 2023
But you’re reading this because you’re interested in SORA mortgages. Some of the benefits of a SORA mortgage are outlined below.
First, the elimination of SIBOR and SOR is now under progress.
It has been already announced that SIBOR would be retired in 2024 and SOR will follow suit in 2021. After June 30th, 2023, SOR will be formally discontinued along with the USD London Interbank Offered Rate (LIBOR). What happens to your mortgage when the reference rates it was tied to become obsolete?
First, your bank may offer you a different floating rate package with them (like a SORA home loan), but this time you’d be subject to the current rates, fees, and other stipulations (i.e. a longer-than-you-would-like lock-in period). On the other hand, you might have to go elsewhere for a mortgage in order to complete your house purchase.
You shouldn’t find yourself in a bind where you have to hustle to obtain a mortgage package, for whatever reason. It’s possible that the new mortgage interest rate you secure won’t work out well with your other priorities.
When the benchmark rate is eventually eliminated, you may find yourself bogged down in paperwork and other bureaucracy. When possible, go for a SORA mortgage instead of a conventional one.
In addition to 1), there are further potential cost-savings with SORA mortgage loans.
Interest rates on mortgage packages that use compounded rates (such as SORA mortgages) tend to fluctuate less often and gradually.
As of 14 December 2022, the 3M Compounded SORA was 3.0937 percent, which was much greater than the 0.1949 percent recorded on 4 January 2022. (which is the first SORA publication date of the year). To put it in perspective, on 7 December 2022, the 3M SIBOR was 4.25179 percent, up from 0.437 percent on 3 January 2022.
If you’re an existing homeowner with a SIBOR mortgage and your bank charges an interest rate spread of 4.5 percent or more, your net loan rate is likely above 4.5 percent. Certainly, you’re under some financial strain right now.
Whether you’re interested in SORA home loans or just want some advice on how to get the best rate on your mortgage, don’t hesitate to contact our mortgage specialists for free advice.
Finally, (3) SORA is a more reliable and open standard against which mortgage loans may be measured.
The Singapore Monetary Authority (MAS) is in charge of SORA, while the Association of Banks in Singapore Benchmarks Administration Co. (ABS Co.) is in charge of calculating SIBOR on behalf of its 17 member banks.
SORA is a retroactive rate since it is based on the previous day’s average rate of real interbank loan transactions. In contrast, SIBOR is a forward-looking rate since it takes into account the rates at which the world’s largest banks plan to borrow.
SIBOR takes the average of a small number of banks, neglecting the lower and higher percentile/values, hence it may not fully reflect the real expectations among all the different banks in Singapore.
Furthermore, SORA is not tied to foreign interest rates like SIBOR is. Therefore, compared to SIBOR, SORA is more reliable and precise. Consequently, SORA provides a more open and consistent standard against which borrowers may evaluate alternative mortgage products.
Singapore’s Official Housing Financing Agency, SORA
The viability of a SORA mortgage for you will depend on your current financial standing and the state of the market.
DBS, Citibank, OCBC, UOB, Maybank, HSBC, Standard Chartered Bank, and RHB Singapore are just few of the institutions that provide SORA mortgages. Various mortgage packages are available from various financial institutions. The Singapore Housing Market provides a mortgage package comparison service.
Contact one of our helpful mortgage specialists at PropertyGuru Finance to learn more about our current mortgage options and competitive interest rates. In addition, they offer free, personalized financial guidance.
