How Does The US Fed Interest Rate Hike Impact Your Home Loan Interest Rates

The US Federal Reserve, also known as “The Fed” for short, has confirmed a 25-basis-point rate increase this week. Despite the recent collapse of the Silicon Valley Bank and Signature Bank, the US Fed went ahead with this move hoping to curb the global inflation problem which ballooned in 2022, and to bring inflation down to 2% (as according to The Federal Reserve Bank of St. Louis via FRED).

So how does this affect us? The Fed essentially controls the interest rate in which banks and other financial institutions borrow money at, and interest rate hikes are an attempt to adjust the cost of borrowing so as to stop the US economy as well as the other affected economies around the world from plunging into another Great Depression that happened in late 1920s and '30s.

Masthead Image

Lock in your mortgage rates with Moneysmart!

Fed Funds Rate changes since 2018 (Last Updated on 04 May 2023)

DateFed Interest Rate % IncreaseAdjustment factors
March 20180.25%- Improving economic situation and labour market
June 20180.25%- Improving economic situation and labour market
September 20180.25%- Improving economic situation and labour market
December 20180.25%- Improving economic situation and labour market
August 2019 -0.25%- To curb rising trade tensions
September 2019-0.25%- To curb rising trade tensions
October 2019-0.25%- To curb a slowdown in global economic growth
March 2020-0.50%- Concerns over the economic effects from the spread of the COVID-19 virus
March 2020-1.00%- To buffer against the extensive damage of the COVID-19 virus outbreak
January 20220.25%- Fastest inflation surge in the past 40 years
March 20220.50%

- Concerns over rising inflation and Russian invasion of Ukraine

- Consumer Price Index jumped 1.2% (monthly comparison) in the month of March, the highest since September 2005

May 20221.00%

- Continuous Russian invasion of Ukraine

- China bringing back strict COVID-19 lockdown regulations

- Clogged supply chains and rising energy prices due to decreased production rates

June 20220.75%- Concerns over stagflation
July 20220.75%- To control growing inflation
September 20220.75%- Concerns over inflation at its highest levels since the early 1980s
November 20220.75%- Increasing concerns over inflation at its highest levels since the early 1980s
December 20220.50%- Slight cut in interest rate hike but focus is set to ease inflation
March 20230.25%- Concerns over inflation at its highest levels since the early 1980s
May 20230.25%- Concerns over continuous high inflation and target to bring inflation back down to 2%

SORA Rates

As many home loan rates in Singapore are pegged to either the Singapore Overnight Rate Average (SORA) or Singapore Interbank Offered Rate (SIBOR), the Fed interest rate hike will inevitably affect both benchmarks and the SORA and SIBOR will be expected to follow the Fed hikes. This means homebuyers can expect an increase in floating and fixed mortgage rates in Singapore.

Before you pick a SORA-pegged loan, you’ve got to decide how often you’ll prefer to have your interest rate refreshed. At the moment, most banks in the Singapore market offer the options of 1-month compounded SORA and/or 3-month compounded loan packages. 

Depending on which option you pick and the ups and downs of the SORA rate published on MAS’ website, your interest payments will fluctuate monthly or quarterly. So to bring you up to speed on this, here’s an overview of the compounded SORA rates over the past 6 months.

Compounded SORA Rates (As published on MAS' website)

SORA Publication Date1-Month Compounded SORA3-Month Compounded SORA6-Month Compounded SORA


Similar to SORA-pegged loans, the 1-month compounded SIBOR and/or 3-month compounded SIBOR loan packages are the more commonly available ones offered to homeowners by most banks in Singapore. 

With the shift to SORA that began last year, SIBOR will soon be phased out, just like SOR. So if you’re paying off your house with a SIBOR-pegged loan now, it may be a good time to switch over to a SORA-pegged or fixed-rate home loan as the more widely used 1-month and 3-month SIBOR will be discontinued immediately after 31 December 2024. Below is an overview of the SIBOR rates published on the Association of Banks in Singapore (ABS) over the past 6 months.

*Note that the 6-month SIBOR value has been 0 since 1 April 2022.

Compounded SIBOR Rates (As published on ABS' website)

SIBOR Publication Date1-Month SIBOR3-Month SIBOR6-Month SIBOR

Get the best mortgage rates now

Impact on SORA & SIBOR rates

Gradual rise in Singapore Overnight Rate Average (SORA)

SORA, being the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market made between 8am and 6.15pm in Singapore, is a backwards-looking overnight rate benchmark based on the average rate of all actual interbank lending transactions, unlike SIBOR rates which are forward-looking term rates.

Most mortgage loans are now pegged to SORA since last year’s massive shift from the Swap Offer Rate (SOR) to SORA as announced by the Monetary Authority of Singapore (MAS). So naturally, mortgage loans in Singapore will have an increase in interest rates as SORA reacts accordingly to the increase in US Fed Funds Rate, but you will not see SORA soaring too high prematurely despite anticipation of an increase of US Fed Funds Rate.

A more drastic change in Singapore Interbank Offered Rate (SIBOR)

As SIBOR is a forward-looking term rate, the rates are subjected to higher market volatility due to the future rates which banks plan to borrow at is derived as the average rate at which Singapore banks loan from one another. It’s based on a poll of rate forecasts by the Association of Banks in Singapore (ABS)’s 20 member banks.

This means that whenever there may be possibilities of a Fed interest rate hike coming in the near future, the SIBOR will attempt to predict interest rate movements, and fluctuate more drastically (probably having a sharp increase even before the upcoming Fed interest rate hike), which is in contrast to SORA that doesn’t swing that unpredictably.

background image

How does this affect your mortgage loan?

If you’re one of the many homebuyers who are looking to get a mortgage loan or thinking of refinancing your loan, it’ll be better to re-assess your financial ability to meet your current mortgage obligations. Once you’re already tied down with a heavy debt load, it’s best not to take on anymore loans with the recent interest rate hikes at the moment.

Fixed-rate home loans

Moreover, as interest rates are expected to rise further, getting a fixed-rate home loan may be a safer option than floating-rate mortgage loans which are pegged to either SORA or SIBOR. However, with the current situation, you can expect many banks to also increase fixed rate home loan prices, or offer fixed rates for a shorter period. 

Fixed deposit home rates (FDHR) packages

Nevertheless, those looking to refinance with another type of home as an alternative to their current floating-rate home loans, can consider packages which are based on Fixed deposit home rates (FDHR). FDHR is another type of floating-type home loan that’s linked to a bank’s fixed deposit account interest rate. Banks like DBS and OCBC are known for their FDHR-linked home loan packages. So, if their interest rates go up, so will your home loan interest rates. You can say that it’s similar to board rate, but it’s published and therefore seen as slightly more transparent than board rate.

You can refer to our SIBOR vs SOR Historical Rate Chart, if you’re interested to find out more about the respective interest rate benchmarks that may affect your mortgage loans. In addition, if you’ve any doubts and need some help in finding suitable home loan packages, you may speak to MoneySmart's home loan mortgage specialists or read up more on our home loans page.

Frequently Asked Questions

When did the US Fed announce the interest rate hike in May?

The US Fed confirmed a 0.25% rate increase on 03 May 2023.

How does the US Fed affect the SORA and SIBOR?

Whenever there’s an upcoming Fed interest rate hike in the near future, the SIBOR will attempt to predict interest rate movements, and fluctuate more drastically than SORA. However, both will most likely increase.

Is SIBOR discontinued?

At the moment SIBOR-pegged home loans are still deemed valid, but 1-month and 3-month SIBOR will be discontinued immediately after 31 December 2024.

Where can I find the most updated published SORA rate?

The most current 1-month, 3-month and 6-month Compounded SORA overnight rates are published daily at 9am on the Monetary Authority of Singapore (MAS) website.

How is the SORA rate calculated?

Data on all eligible transactions traded and booked in the unsecured overnight interbank market between 8am and 6.15pm in Singapore are required to be provided by all banks as per the MAS. MAS will then validate the data and calculate the volume-weighted average rate of all eligible transactions, using the formula referring to the SORA Index for the computation of Compounded SORA. This formula is used for the 1-month, 3-month and 6-month compounded SORA rates.

When will the SORA rate increase or decrease?

In Singapore, the SORA rate will tend to go up when there's inflation and go down when there’s a recession. It can fluctuate according to other trends and changes in political and economic policies as well.

Are SORA-pegged home loans better than those linked to SIBOR?

Yes and no. This really depends on your threshold for taking risks. SORA is definitely more stable than SIBOR due to its calculation methodology and it being regularly validated by the Monetary Authority of Singapore. Even though SORA is based on backward-looking overnight transactions which is less volatile and less risky than SIBOR that is based on forward-looking future transactions, this doesn’t make SORA risk-free.