Home financing in Singapore can be intimidating, especially if you’re unfamiliar with home loan acronyms like Singapore Overnight Rate Average (SORA), Singapore Interbank Offered Rate (SIBOR) and Singapore Swap Offer Rate (SOR).
If you Google SORA rate, you’ll likely end up seeing articles on the 3M SORA rate and comparisons of 1M SORA vs 3M SORA. But hey, no worries. Whether you are taking up a mortgage with a bank for the first time or looking to refinance your home loan, and want to familiarise yourself with these mortgage terms, good news: You’re at the right place!
To get you started, here’s a helpful article on SORA rates vs SIBOR vs SOR and what these rates mean for your home loans. You can also click below to watch a video explainer about SORA rates by Ethan Tan, Team Lead – Mortgages, PropertyGuru Finance.
Watch Our Video on SORA Rates
Table of contents:
SORA Rates: An Overview
In a nutshell, SORA, SIBOR and SOR represent three of Singapore’s industry-wide benchmark interest rates used to determine the floating interest rates of bank loans. Here’s the good news, though: chances are, you’ll only need to think about SORA-pegged bank loans very soon.
In line with the phasing out of the scandal-tainted London Interbank Offered Rate (LIBOR), Singapore is phasing out SIBOR and SOR to ensure greater trust within the industry. Phasing out SIBOR and SOR by 2024 and 2021 respectively, SORA is the standard benchmark interest rate used for mortgages since 2022.
So if you’re a future homebuyer looking to take up a floating rate bank loan, you’ll get your pick of various SORA (and possibly SIBOR) floating rate packages to finance your home. And if you’re an existing homeowner who has a SIBOR-pegged package, you can consider switching to a SORA-pegged loan as SIBOR will gradually be phased out. But first, let’s understand…
What Are SORA Rates?
SORA reflects the volume-weighted average rate of borrowing transactions in Singapore’s unsecured overnight interbank SGD cash market between 8am and 6.15pm. This rate is published on the Monetary Authority of Singapore’s website at 9am the following day, and it is this rate that will be the basis of your bank loan’s interest rates.
1M SORA Vs 3M SORA Rates
If you opt for the floating rate SORA packages, you’ll get to choose between 1-month compounded (1M SORA) and 3-month compounded (3M SORA) SORA loan payments. The difference between the two packages? You’re choosing how often your loan interest rates are ‘refreshed’.
For a 1M SORA home loan package, your interest rates will be renewed every month depending on SORA rates compounded within a month. The same goes for a 3M package, but for every three months. So depending on whether you’re getting a 1M SORA or 3M SORA, your interest payments will fluctuate monthly or quarterly.
Now that we understand what SORA is, let’s get into why you should consider getting a SORA home loan. But before that, we need to consider…
Floating Vs Fixed Rate Home Loans: Which to Pick?
If you’re a first-time homeowner buying a private property, you have to finance your home purchase with a bank loan. For those who are existing homeowners, you may be considering refinancing your home loan, especially if your current loan is pegged to the SIBOR.
Regardless of your situation, you’ll be choosing between several home loan packages – including floating rate packages, i.e. SORA home loan packages. Between floating vs fixed rate home loans in Singapore, which should you pick?
The short answer: it depends on the current market outlook and your specific financial situation.
Why Choose a Floating Rate Home Loan?
One thing to consider before opting for floating-rate house loans like SORA is the greater saving opportunities! As interest rates change, there may be periods where interest rates fall (e.g. during a recession). Opting for a floating-rate home loan would give you an advantage should interest rates fall.
However, taking a chance on floating-rate housing loans also means you will need to be aware of market uncertainties before taking the leap. As such, the changing nature of monthly interest rates may only benefit those with a good risk appetite.
Mortgage Interest Rates in 2023
Singapore’s mortgage interest rates tend to follow that of global interest rates, and that includes SORA rates. On 26 July 2023, the US Fed raised interest rates to a benchmark of 5.25% to 5.5%, the tenth time since the COVID-19 pandemic – setting US Fed rates to a 22-year high. Correspondingly, mortgage interest rates for both fixed and floating home loans have been on the rise.
Interestingly, Paul Wee, Vice President – PropertyGuru Finance observes that market interest rates have been moving ‘sideways’ since the second half of 2023. He said, “The narrative is shifting from asking ‘Will mortgage rates continue to rise?’ to ‘When are mortgage rates expected to fall?'”
Because of the current interest rate market, longer-term fixed rate mortgage packages tend to come with lower rates than floating rate mortgage packages. However, Paul advises, “Fixed rate packages with 1-year or 2-year lock-in periods, as well as floating rate packages, may be better presently, to prioritise flexibility to capitalise on interest rate changes.”
Okay, so you’re interested in taking on a floating rate home loan because of its potential benefits when market interest rates fall. But which benchmark rate should you consider when deciding which home loan to choose?
SORA Rates: Why Choose a SORA Home Loan in 2023?
1. SIBOR and SOR Are Being Phased Out
As previously mentioned, SIBOR will be phased out by 2024. SOR has also been phased out since 30 June 2023. When these benchmark rates are no longer in use, what happens to your home loan if they’re pegged to these rates?
One, your bank would offer you another floating rate package with them (e.g. SORA home loan), and you may be subject to prevailing fees and terms (i.e. a longer-than-you-would-like lock-in period). Or, you could be left to find another home loan to finance your home purchase.
Either way, you don’t want to be caught in a situation where you have to scramble to find a mortgage package. The new mortgage interest rate you secure may be unfavourable to your financial needs or goals.
Additionally, you may get caught in technicalities when the benchmark rate is phased out (we’re already dreading all the paperwork you would have to deal with). You want to pick a SORA home loan when you can, and not when you have to.
2. SORA Home Loans Can Provide Greater Saving Opportunities
Mortgage packages that have interest rates based on compounded rates (i.e. SORA home loans) tend to see more gradual change and be less volatile than other benchmark rates.
3M SORA rate
3M SIBOR rate
3 April 2023
2 May 2023
1 June 2023
3 July 2023
1 August 2023
4 September 2023
For existing homeowners with SIBOR home loans, your net loan rates have probably exceeded 4.05%, taking into account your bank’s interest rate spread. And you’re probably feeling the pinch.
3. SORA Is a More Transparent and Robust Benchmark for Mortgage Loans
SORA is administered by the MAS whereas SIBOR is computed by the Association of Banks in Singapore Benchmarks Administration Co. (ABS Co.) which currently comprises 17 participating banks.
SORA is a backwards-looking rate as it uses the average rate of actual interbank lending transactions that happened the day before. Meanwhile, SIBOR is a forward-looking rate because it considers the rates major banks intend to borrow at.
What this means is that SIBOR may not accurately reflect the actual expectations among all the various banks across Singapore; SIBOR takes the average of a few banks, ignoring the lower and higher percentile/values.
Plus, unlike SIBOR, SORA does not depend on international interest rates. This makes SORA more stable and accurate as compared to SIBOR. As such, SORA is more transparent and serves as a uniform benchmark that borrowers can use to easily compare various mortgage packages.
SORA Home Loans in Singapore
Depending on the market outlook and your personal financial situation, a SORA home loan might just be for you.
Some banks that have SORA home loans include DBS, Citibank, OCBC, UOB, Maybank, HSBC, Standard Chartered Bank, and RHB Singapore. The offered mortgage packages each bank has differ. You can use PropertyGuru Finance’s mortgage comparison tool to browse mortgage packages across major banks with the latest interest rates.
For more information on the latest mortgage packages and interest rates, reach out to one of our friendly PropertyGuru Finance Mortgage Experts. They can also provide you with tailored financial advice, all at no cost!