For those of you who are on the lookout for a home loan in Singapore, you probably have come across terms like 'SIBOR' and 'SOR'. If you're wondering what they mean and which type of home loan is better for you, read on. Here, we at GET.com will show you what SIBOR and SOR mean, what they have in common and how they differ so that you can decide which type of home loan is better for you.
Here, you can see the latest SIBOR vs SOR rate trend (updated monthly) for the different tenures. This is updated automatically each month so that you can see at a glance the current and historical trend of SIBOR and SOR. Be sure to bookmark this page!
|Latest available sibor rates|
|1 month SIBOR||1.6338%|
|3 months SIBOR||1.7591%|
|6 months SIBOR||1.8778%|
|12 months SIBOR||2.0640%|
|Latest available sor rates|
|1 month SOR||1.5923%|
|3 months SOR||1.7508%|
|6 months SOR||1.9170%|
Features SIBOR & SOR Have In Common
SIBOR and SOR share many features, although they also differ in a number of important areas.
SIBOR and SOR are Singapore-based reference benchmark interest rates that are updated daily by the ABS Benchmarks Administration Co Pte Ltd, a wholly-owned subsidiary of the Association of Banks in Singapore (ABS), and are both widely used as reference rates for floating-rate home loans in Singapore.
Both rates tend to move in the same direction, in tandem with the United States Federal Reserve funds rate. If the Fed funds rate are expected to rise, both SIBOR and SOR will also tend to rise. If the Fed funds rate are expected to fall, both SIBOR and SOR will also tend to fall.
Both rates are expressed in a number of tenures, or time periods, to which the interest rates apply, and are expressed as 1-, 3-, and 6-month maturities (although SIBOR also has a 12-month tenure).
Determining Maturity Dates
SIBOR and SOR maturity dates use the ISDA Modified Following Business Day Convention, which according to the ABS, it means that "if the maturity date of a deposit falls on a day that is not a Business Day, the maturity date shall be the first following day that is a Business Day, unless that day falls in the next calendar month, in which case the maturity date will be the first preceding day that is a Business Day."
Home Loan Packages
In Singapore, a floating-rate home loan can be packaged based upon the appropriate SIBOR or SOR rate, plus an extra (or premium) amount which is called a spread.
This spread is determined by a number of factors, such as the size of the mortgage, the borrower's credit standing, the location of the property, etc.
The floating rates are reset periodically, usually every 1 to 3 months, to reflect changes to the prevailing rates.
First Business Day of Month
The SIBOR/SOR rate for the month is based on the rate as of the first business day of the month.
1M SIBOR (or 1M SOR) vs 3M SIBOR (or 3M SOR)
The "M" stands for month, so a 1M SIBOR or 1M SOR home loan package resets its rate every month, while the 3M package resets every 3 months, depending on the prevailing SIBOR/SOR rate in play on the reset date. Mortgages with reset periods longer than 3 months are less common.
Example of a Home Loan Pegged to SIBOR or SOR
A bank might create a mortgage package pegged to SIBOR or SOR based on a SIBOR/ or SOR 3-month rate of say, 1.255 percent, plus a premium of 0.745 percent, resulting in a total interest rate of 2 percent, which remains until the next reset period, when a new mortgage rate is calculated based on the latest 3M SIBOR or SOR values.
Differences Between SIBOR and SOR
The differences between SIBOR and SOR affect their popularity and riskiness as benchmarks for mortgage packages.
SIBOR: The daily interest rate at which Singapore's banks, known as Contributor Banks or Panel Banks, offer to lend unsecured funds of reasonable size to other banks in the country's money market (interbank) market just prior to 11:00 a.m. Singapore time.
SOR: In its simplest form, SOR is the exchange rate expected at a future time between the Singapore dollar (SGD) and the US dollar (USD), but in practice, it is the cost of synthetically borrowing SGD, by borrowing USD for a given tenure and swapping the USD for SGD at the end of the maturity.
To learn more about home loan terms like these, take a look at our list of the 10 home loan terms you should know.
SIBOR: ABS collects the submitted borrowing rates from Panel Banks just before 11:00 a.m. Singapore time and hands them off to its Calculation Agent, Thomson Reuters, which ranks them highest to lowest, discards the top and bottom quartiles, and averages the remaining rates out to five decimal places before posting the rate at 11:30 a.m.
SOR: The ABS Calculation Agent calculates the SOR daily by plugging three factors into an equation:
- Spot Rate: the current USD/SGD exchange rate as of the initial day of the swap (swap date).
- Forward Points: the difference between the spot rate and the forward USD/SGD exchange rate for the maturity date.
- USD Rate: the spot 1-day interest rate on USD.
Image source: ABS
Significance of the Different Calculations
SOR, which relies on both interest rates and currency exchanges rates, is more volatile than is SIBOR, which is calculated using only interest rates.
SOR is also more affected by international (i.e., non-Singaporean) financial conditions because of its reliance on the 1-day London Interbank Offer Rate for calculating interest on the US dollar as well as using the current and forward US dollar/Singapore dollar (USD/SGD) exchange rates.
Home loan borrowers who choose a package that is based on SOR rates are more likely to tolerate SOR's higher volatility in order to benefit from SOR's ability, especially in the 1-month tenure, to fall well below SIBOR when interest rates are declining, while tolerating those periods of rising interest rates when SOR is higher than SIBOR.
Of course, risk-averse borrowers or those who believe interest rates will rise might prefer a loan package that is pegged to SIBOR rates.
SIBOR mortgage packages are ubiquitous, but few banks offer SOR packages, due to two reasons:
- Many banks stopped offering SOR packages because of the thin profit margins on these packages when SOR dropped to negative territory in 2011, and few banks have resumed offering them, although at least one bank offers a SIBOR/SOR combination package.
- Many borrowers are put off by the higher volatility of SOR-pegged packages as compared to SIBOR-pegged ones.
Your Source For Home Loan Information
Visit GET.com for the latest home loan offers from a number of the most reputable Singapore lenders, as well as timely articles about SIBOR and SOR, home loans and the property market in Singapore.
To find out more about SIBOR and SOR rates, read our guide to SIBOR and SOR home loans in Singapore.
Are you more interested in fixed rate home loans? Here you can find our more about fixed rate home loans so that you can decide if this type of mortgage is right for you.
Read our comprehensive guide to home loans in Singapore to find out more about the different types of home loans.
If you're buying your first property, check out our home buying guide in Singapore which will guide you through the home buying process and show you what to look out for.