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Guide To Understanding SIBOR And SOR Interest Rates – And How It Affects Your Home Mortgage

The low interest rate environment is fuelling a spate of refinancing and repricing activity in Singapore.


In the wake of the US Federal Reserve cutting its benchmark interest rates to near zero to cushion the impact of COVID-19 on the financial system, interest rates in Singapore have also been reduced significantly to their lowest levels for years. This is both a boon and a bane.

On one hand, we see reduced earnings from our savings accounts and fixed deposits, and this would necessitate moving our cash into alternative instruments like cash management accounts or endowment plans in order to keep pace with inflation.

On the other hand, the low interest environment is great for business owners who wish to borrow to grow their businesses, or homeowners who can now refinance their existing mortgages and save money.

Particularly, you might be attracted by the low interest rates of SIBOR/SOR-pegged home loans. Before you contact your trusted mortgage broker or bank, here’s what you need to know about SIBOR and SOR, and how it might affect your loan package if/when these rates change in future.

Read Also: Who Are The Winners And Losers Every Time Central Bank Rates Go Up (Or Down)?

What Are SIBOR And SOR?

The Singapore Inter-Bank Offer Rate (SIBOR) and Singapore Dollar Swap Offered Rate (SOR), are key benchmark indicators for the cost of borrowing within Singapore’s financial system.

SIBOR is the median rate at which banks in Singapore borrow/lend money among one another over the near-term.

Historical SIBOR (Source: ABS)

SOR is a key benchmark for interest rates in Singapore, based on the exchange rate between SGD and USD, based on the USD London Inter-bank Offered Rate (Libor).

Historical SOR (Source: ABS)

With the discontinuation of the USD Libor, Singapore will make a full transition from SOR to SORA by end 2021, which stands for Singapore Overnight Average Rate. This reference rate is based on unsecured overnight interbank SGD transactions in Singapore.

Sample SIBOR/SOR Rates In June 2020 (Source: ABS)

How Do SIBOR And SOR Affect Home Loans?

The 3-month SIBOR is one of the most commonly used benchmark for pricing floating rate home loans, though SOR-pegged mortgage packages are also available. For example, a SIBOR + 0.3 package means the interest rate you will be paying is the prevailing SIBOR rate, plus 0.3%.

Here are current home loan packages from across various banks, courtesy of RedBrick.

Other floating rate loan packages could be pegged to fixed deposit rates or an internal board rate set by the bank.

Amid lower SIBOR/SOR rates, the amount of interest you pay would also be reduced. However, if/when these rates go up in future, you would then be on the hook for higher monthly repayments and pay higher interest costs in total.

Your mortgage can be pegged to a variety of SIBOR/SOR durations, such as 1-month or 3-months. The shorter the duration, the more responsive your home loan rates will be to SIBOR/SOR changes, and the more volatile your monthly interest rates will be.

Thus, it is crucial to calculate how potential interest rate changes would affect your monthly repayments, and ensure you take a loan amount and tenure that you can sustainably handle, even when the interest rates move against you.

You should also find out how much advance notice your bank will give you before revising your mortgage rates (usually 30 days).

Read Also: Complete Guide To Choosing The Most Suitable Home Loan In Singapore

Low Interest Rates Will Not Last Forever

Amid projections that Singapore could be in a recession that lasts for an entire year, it is imperative that homeowners understand that a low interest rate environment is unlikely to continue for the next 3, 5 or even 10 years, and should be prepared for this.

Now is a great time to refinance, if you ensure you can cope with your SIBOR/SOR-pegged mortgage repayments amid possible fluctuations. Alternatively, a fixed-rate loan package might make sense for those who want to have certainty.

Read Also: Why 2020 Is A Good Time To Refinance Your Home Loan (And What To Look Out For)