As if choosing a suitable and affordable home is not complex enough, the variety of home loans in Singapore and the terminology that they use make it a difficult task for the average consumer to understand what they are signing up for.

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In this article, GET.com hopes to clarify the terms 'SIBOR' and 'SOR' and show you the difference between the various SIBOR and SOR-pegged home loans so that you can pick the one most suited to your needs.

Before 2007, most home loans in Singapore were pegged to the banks' internal board rate. While currently there are still loans that are priced using these 'board rates', some consumers might prefer using the SIBOR or SOR loans instead, as the way they are derived is deemed more transparent.

SIBOR vs SOR

SIBOR

SIBOR stands for the Singapore Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks borrow from one another.

SOR

SOR is the Singapore Swap Offer Rate and it's calculated based on a formula that takes into account the current and expected exchange rates of the US dollar against the Singapore dollar.

Both SOR and SIBOR come in 1, 3, 6 and 12 month tenures, which reflect the corresponding interest rates for borrowing funds for 1, 3, 6 and 12 month-periods, respectively.

As a rule of thumb, longer term rates are higher as they represent a greater risk for lending money over a longer period of time.

The thing to note is that both rates move in tandem. This means when SIBOR is up, SOR is up as well. The main difference between the two is in volatility. SOR is known to be more volatile as it is tied to exchange rates between the Singapore dollar and the US dollar.

Choosing Between SIBOR And SOR

So how would you make the decision to choose between a SIBOR or SOR-pegged loan?

Firstly, SIBOR rates are considered to be more stable compared to SOR.

If you prefer to have a more consistent repayment schedule, then SIBOR loans are probably more suitable for you.

Borrowers who prefer SOR-pegged loans are those who are looking to take advantage of SOR's volatile nature, hoping that when interest rates fall, SOR will fall more compared to SIBOR.

This will in turn bring down their interest costs. In the past few years where the US has seen near-zero interest rates, SOR even went into the negative (see chart below).

3-Month SOR

Credits: Mortgage and Finance Association Singapore

However, in the past year, SOR has consistently been higher than SIBOR rates as the USD strengthens against the Singapore dollar.

Credits: Mortgage and Finance Association Singapore

So if you prefer a more stable interest rate, choosing SIBOR loans might be more suited to you.

Additionally, the interest rate environment is seen generally trending upwards since the start of 2015, so taking out a SOR loan might expose you to rising rates at an increasing speed.

Differences Between 1M, 3M, 6M And 12M SIBOR/SOR

Many borrowers are confused over SIBOR/SOR rates which are denominated in different months. Firstly, understand that SIBOR and SOR rates change everyday. The 1-month SIBOR rate today is different from the 1-month SIBOR rate yesterday. The same goes for the other month's rates.

So for example, if your mortgage loan is pegged to a 1-month SIBOR rate, you can expect your repayment to be different on a monthly basis.

SIBOR-Pegged Mortgage Home Loan: 1M SIBOR

If a loan is disbursed on 1st Jan, 2015 and the interest rate is 1m SIBOR + 0.85%:

  • 1M SIBOR is 0.42% on 1st Jan, client will pay 1M SIBOR + 0.85% = 0.42% + 0.85% = 1.27% 

  • 1M SIBOR is 0.60% on 1st Feb, client will pay 1M SIBOR + 0.85% = 0.60% + 0.85% = 1.45%

  • 1M SIBOR is 0.69% on 1st March, client will pay 1M SIBOR + 0.85% = 0.69% + 0.85% = 1.54% 


Comparing 1M vs 12M SIBOR: Based On Spread Of 0.85%

Do you notice an anomaly here? The interest rate you pay on the 12M SIBOR loan remains consistent throughout the month.

This is because the bank will only refresh that interest rate for your loan after 12 months. While the 12M SIBOR loan started out being more expensive than the 1M SIBOR for the first 2 months, subsequent months actually saw the borrower paying less interest comparatively.

Do note that this will not always be the case as it depends on which way the interest rates are going. If you are unsure about which SIBOR rates to choose, Citibank home loans has a package that allows borrowers to switch across the different SIBOR tenures.

Comparing 3M SOR vs 3M SIBOR Rate Volatility:

As you can see from the change in rates, SOR rates tend to be more volatile. Based on a loan principal of $800,000, a 0.36% difference will equate to a substantial $2,880 per month, but this can mean you get to pay an extra $2,880 or pay that much less per month!

So if you prefer a more consistent monthly repayment, a 12M SIBOR loan might be more suitable for you compared to a 1M SOR loan.

If you're thinking of purchasing your first home, take a look at GET.com's guide for first-time home owners before applying for your loan!

New & Refinance Home Loans In Singapore

Best Fixed Rates
Maybank1.85%>
Hong Leong Finance1.88%>
BOC2.10%>
SBI2.15%>
Best Floating Rates
Maybank1.70%BOARD RATE>
CIMB1.73%SIBOR>
RHB1.75%BOARD RATE>
Singapura Finance1.78%BOARD RATE>
Find the Right Home Loan