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Guide To Understanding How SORA-Pegged Home Mortgage Loans Work

SORA-pegged home loans are set to replace SIBOR and SOR ones by end-2021.


You may have heard news that the Monetary Authority of Singapore (MAS) is prescribing the Singapore Overnight Rate Average (SORA) as a financial benchmark under the Securities and Futures Act (SFA) and the transition from the Singapore Dollar Swap Offered Rate (SOR). With such proposed changes in Singapore’s benchmark lending rates, here’s a guide to understanding the new SORA-pegged home mortgage loans.

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

The SIBOR and SOR are the two 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.

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).

Singapore’s financial system is slowly transitioning to SORA as the USD London Inter-bank Offered Rate (LIBOR) is likely to be discontinued after end-2021. The joint industry consultant report by The Association of Banks Singapore is also recommending discontinuing the Singapore Interbank Offered Rate (SIBOR) in three to four years, and using the Singapore Overnight Rate Average (SORA) as the main interest rate benchmark for Singapore’s financial markets.

What Is SORA?

Singapore Overnight Rate Average (SORA) is volume-weighted average rate of unsecured overnight interbank SGD transactions in Singapore, administered by MAS. It has been published since 1 July 2005 and is commonly monitored as a reflection of daily conditions in SGD money markets.

SORA is regarded as more stable due to the absence of the foreign exchange component and the fact that it is used mainly as a compounded average compared to forward-looking rates such SOR, which are subject to market factors like quarter/year-end volatility.

SOR  SORA 
Definition  Effective rate of borrowing SGD synthetically, by borrowing USD and swapping for SGD Average rate of unsecured overnight interbank SGD transactions brokered in Singapore
Methodology and inputs Volume-weighted average rate of USD/SGD FX swap transactions, with USD LIBOR as an input Volume-weighted average rate of transactions reported by brokers in Singapore to MAS
Administrator ABS Benchmarks Administration Co MAS
Tenor Overnight, 1-month, 3-month, 6-month Overnight

(Source: The Association of Banks Singapore)

Are There Currently Any SORA-Pegged Home Loans?

OCBC is currently the only bank that offers a SORA-pegged home loan. The interest rate for OCBC’s 90-day SORA home loan is calculated based on the simple average of the daily SORA rates over the past 90 calendar days ahead of the loan repayment period. This rate is updated every month, instead of every three months, for a loan.

About 25% of home loans are pegged to either the SIBOR or SOR at the moment, according to MAS. This means that for most borrowers with home loans would not be directly affected by the changes. Instead, most borrowers are likely to continue to favour fixed rate loans or even alternative floating rate loans pegged to fixed deposit rates.

However, future home loans will be indirectly affected as the banks will use the SORA as a reference point to decide the rates for their fixed rate home loans and their fixed deposit rates. Banks may also offer more SORA-pegged home loans in the future as they slowly phase out home loans pegged to SIBOR and SOR.

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

What About Existing Home Loans Pegged To SIBOR or SOR?

As these changes are still in consultation and being slowly phased in, existing borrowers with home loans pegged to SIBOR or SOR have no need to panic. As the transition is likely to take place over the span of 3 to 4 years, you will have time and opportunity to refinance to another loan, if necessary.

At point of writing, the only confirmed cessation is that for the 12M SIBOR on the 31 December 2020. The 1M, 3M and 6M SIBOR will continue to be published.