* The SIBOR/SOR rate for the month is based on the rate as of the first business day of the month.
The SIBOR (Singapore Interbank Offered Rate) and SOR (Swap Offer Rate) rates are benchmark rates for property loans in Singapore (both residential and commercial) that are most popular among consumers due to its open and transparent concept. The rates can be found on major financial papers including The Business Times as well as financial websites like Bloomberg. Unlike "Variable" rates or "Internal-Board Rates" which are used by some banks, the SIBOR and SOR rates are shared across multiple banks and hence offer the concept of unity and shared risk. No bank can "go astray" from the pack.
In Singapore, the SIBOR and SOR based home loan packages are quoted as one or three month SIBOR/SOR + "a spread" (e.g. 1mth SIBOR + 0.75% or 3mth SOR + 0.80%). The summation of the SIBOR/SOR rate and the spread gives the total interest the bank will charge for the applicable duration.
While both the SIBOR and SOR rates can technically come in the form of one, two, three, six, nine or twelve month formats (the number of months determines the duration the pre-determined rate will be used before it refreshes to the new prevailing rate), most banks in Singapore offer only one or three month SIBOR/SOR rates.
The SIBOR is generally determined by the demand and supply of funds in the Singapore interbank market and the SOR is generally influenced by external factors such as the USD interest and exchange rates. This results in the SIBOR being more stable than the SOR; which tends to be more volatile because exchange rates as well as USD money market rates tend to fluctuate more.
Most consumers who take up SOR packages are consumers with higher risk-profiles who wish to take advantage of the SOR’s ability to drop to levels way below the SIBOR while also being able to confidently ride through the period when it’s above the SIBOR.
It is important to note that while the SIBOR and SOR reference rates are affected by different factors, ultimately, they trend in the same general direction together. Whatever the local or global situation is, if the SIBOR were to go up, the SOR will follow suit. There will never be a situation where the SIBOR and SOR rates go in complete opposite directions over a period of time. If you are confused about how SIBOR and SOR can affect your payments, you can use the MoneySmart Home Loan Wizard to see the latest home loan packages offered by banks in Singapore. The wizard also helps you calculate your monthly payments and overall interest. Try it now!