sibor vs. sor based home loans in singapore

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SIBOR Vs. SOR Based Home Loans in Singapore

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SIBOR (Singapore Interbank Offered Rate) and SOR (Swap Offer Rate) are benchmark rates for property loans in Singapore

What Are SIBOR and SOR?







• SIBOR and SOR are two different reference rates for home loans

• Most home loans in Singapore are based on one of these two reference rates

• Both SIBOR and SOR have some advantages as well as drawbacks







The interest rate in Singapore is determined by world moneymarkets

There is a correlation between the US interestrates and that of Singapore's







What is Singapore Inter-bank Offered Rate (SIBOR)?

• It is the interest rate at which banks and financial institutions in Singapore borrow from each other

•SIBOR is announced daily through the mainstream media

•SIBOR varies according to the tenor period, The longer the tenor the higher the rate is

•The majority of home loan packages in Singapore are based on SIBOR







What is Singapore Swap Offer Rate (SOR)?

• SOR is based on the foreign exchange rate with the US dollar

•It projects what the interest rate would cost if the same amount of money were borrowed in US dollars

• SOR is derived using the following formula: USD/SGD Forward Rate = USD/SGD Spot Rate +/- SWAP Pts

•SOR is responsive to the current state of the US economy. At present, only two banks in Singapore offer SOR based home loans







How SIBOR / SOR is Factored into a Home Loan

SIBOR and SOR are stated as a single percentage For example

3 Month SIBOR = 0.378%

What does this mean?This means that the SIBOR rate is 0.378%, and that the rate is updated every

three months







The interest rate for the loan is defined as spread + SIBOR or spread +SORFor Example

If the 3 Month SIBOR = 0.378% and 3 Month SIBOR + 0.70%

What does this mean?•The 3 Month SIBOR rate is 0.378%•The loaning bank has a fixed spread of 0.70%•The total interest for the month: 0.378% (3 Month SIBOR) + 0.70% (fixed spread) = 1.078%







0.75% + 1-Month SIBOR First Year

0.75% + 1-Month SIBOR Second Year

0.75% + 1-Month SIBOR Third Year

1.00% + 1-Month SIBOR Fourth Year

1.25% + 1-Month SIBOR Thereafter

The spread is usually revised upward, after the first few years of the loan start-date.

For Example

Bank X SIBOR LoanPeriod Interest Rate (p.a.)







Advantages and Disadvantages of SIBOR and SOR•Borrowers with a SOR-pegged package will NOT necessarily enjoy lower rates than with a SIBOR pegged loan

•Because exchange rates and the American money market fluctuate more, SOR is more volatile than SIBOR

• BUT SOR can fluctuate above or below SIBOR (as seen in the next few slides)

• Borrowers can save a lot of money when SOR rates plummet, compared to SIBOR’s small dips

• HOWEVER SOR can also rise faster than SIBOR making it inappropriate for risk-averse







Thus, borrowers should focus on the spread instead. They should opt for packages with a reasonable spread







Summarizing the features of both SIBOR and SOR

•Shorter tenor SIBOR has usually lower rates than the longer tenor SIBOR, because it is riskier and there is a higher opportunity cost for longer term lending

• Shorter tenor SIBOR is usually more volatile than the longer tenor SIBOR

• SIBOR fluctuates less than SOR

Thus, more risk-averse borrowers may prefer SIBOR loans as they provide more stability.







Thus, more risk-averse borrowers may prefer SIBOR loans as they provide more stability.

But what tenor of SIBOR should they choose?







Good News

Banks Started Offering 1-month SIBOR Packages To Borrowers

(This means an increased administrative cost for the banks)

Let`s explain in details through the following graphs







From Figure 4, a 1-month SIBOR is generally lower than a 3-month SIBOR as seen over the past 20 years

As a Result

Borrowers may want to consider a 1-month SIBOR if the spread being offered is also attractive.

What Figure 4 says







When To Choose Between 1-month SIBOR And 12-month SIBOR?







While a shorter tenor SIBOR may mean lower interest, but borrowers have to contend with greater instability as rates are

revised at shorter intervals

For a 1-month SIBOR the rate revision period can vary between 1 or 3 months, depending on the financing institutions

With a 12-month SIBOR the borrowers may have to pay higher interest but the rate remains constantfor 12 months







When deciding on the best loan package, the borrower may

prefer to seek experts' advice, like the free professional help available at

www.iCompareLoan.com







About Property Buyer Mortgage Consultants

Property Buyer Mortgage Consultants is a research focused independent mortgage broker. We emphasize a consultative approach where we match our client’s financial situation with the best fit mortgage loan, not simply a cheap loan.

We also help property buyers in their buying process helping them avoid pitfalls from unscrupulous property agents. (We are not property agents, therefore there is no conflict of interests.)

We also developed our proprietary home loan reporting tool which provides amongst other things, 23 years Sibor history as well as 6 years worth of SOR.

Our service is free to you as banks pay us a commission on loan deals completed. Banks in turn save on staffing cost as we are not on their payroll. www.PropertyBuyer.com.sg/mortgagewww.SingaporeHomeLoan.netwww.iCompareLoan.com/consultant/




http://www.icompareloan.com/consultant/

http://www.propertybuyer.com.sg/mortgage

http://www.singaporehomeloan.net/

http://www.icompareloan.com/consultant/




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