Purchasing Your Home With A Loan Pegged To Sora

When looking for a bank loan, you may have encountered acronyms like SOR, SIBOR and SORA. Learn what they mean and how that relates to interest rate for your new nest.

- Wendy Ker

Singapore’s increasing price trend and high cost of living have made taking out a home loan one of the most important considerations for many homeowners. When looking for home loans, you will encounter terms like SIBOR, SORA, and SOR. Rayner Teh, chief operating officer of Mortgage Master, talks to us about the different benchmark rates and what they mean for current and future home loans.

HOW ARE HOME LOANS MEASURED?

In short, all the three terms above refer to a reference rate pegged to floating-rate home loans to determine the final interest cost. There are currently two types of home loans: a fixed-rate loan and a floating-rate loan.

It is surprising to learn that interest rates for fixed-rate home loans are only unchanged for two to three years before they are linked to reference rates like SIBOR (Singapore Interbank Offered Rate). With floating-rate home loans, interest rates can change periodically, which can affect your monthly payments.

There are essentially three types of benchmark interest rates, but SOR (Swap Offered Rate) has been pretty much phased out for home loans and banks have stopped offering it because of its volatility.

WHAT ARE SOR, SIBOR AND SORA?

SOR The SOR relies on the US Dollar London Interbank Offered Rate (USD LIBOR) for its computation. As mentioned in the table here, this refers to the rate in which the SGD is borrowed synthetically through borrowing USD, and then converting it back to SGD. Due to the volatility of its nature and the likely discontinuation of LIBOR after this year, SORA was recommended to replace SOR as a more suitable and stable benchmark on Aug 30, 2019.