Home loans in Singapore: Answering 7 Frequently Asked Questions of SORA

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Home loans in Singapore: Answering 7 Frequently Asked Questions of SORA

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The terms SIBOR, SOR, SORA, can get confusing, especially as they all sound somewhat alike. All 3 are different benchmarks for interest rates. When you’re buying a new home, these benchmarks can help you assess your home loan. 

Each of these benchmarks tracks something different; for example, SORA tracks transactions. SORA-pegged home loans in Singapore will soon become much more common. That’s because Singapore is in the midst of a transition to SORA being the new interest rate benchmark by the end of 2021. 

In this article, we compile and answer the frequently asked questions about SORA. 

Learn more about why SORA is replacing SIBOR here.

FAQ 1: What is SORA, and what does it mean?

SORA refers to the Singapore Overnight Rate Average (SORA). SORA provides a volume-weighted average rate of all borrowing transactions within the unsecured overnight interbank SGD cash market in Singapore. 

This volume-weighted average is measured daily between 8:00am and 6:15pm. As a transaction-based benchmark, SORA is monitored to reflect the daily conditions in SG money markets. 

It’s also supported by the strong foundations of an overnight funding market with a large volume of transactions and a balance between buyers and sellers that keeps the market stable. 

Compounded overnight, SORA rates are also backward-looking overnight rates. This is considerably stable, especially when valued against forward-looking term rates. 

Selected as the new benchmark rate in Singapore, SORA is set to replace SIBOR in Singapore over a 4-year transition period from 2021 to 2024. SORA is administered by the Monetary Authority of Singapore (MAS).

The earliest available data for SORA starts in October 2005. This means that there’s a relatively long historical timeline for you to analyse. You might want to analyse the history for asset-liability purposes, trading, and general risk management. 

READ: SIBOR, SOR, and SORA explained 

FAQ 2: What is 3M Compounded SORA Rates? (SIBOR, SOR, SORA)

When you see the term 3M compounded SORA, it simply refers to the act of compounding the published SORA rate in advance over a historical 3-month period. 

If you see a 3M compounded SORA rate on a particular day, it just means that MAS has published the 3-month Compounded Singapore Overnight Rate Average from that day. 

With the 3M compounded SORA rates, any upward shifts in SORA rates will be dampened downwards as it’s averaging past data from the last 3 months. 

This is advantageous and different from SIBOR, where your home loan will get repriced almost immediately, at newer and higher rates.

A similar definition exists for 1M compounded SORA, which is a rate compounded over a historical 1-month period. 

Given how averages work, 3M compounded SORA is naturally less volatile than 1M compounded SORA. And in that same manner, 1M compounded SORA is less volatile than a daily SORA reading

Couple researching on the SORA rates and historical data on their laptop

FAQ 3: As a soon-to-be homeowner, can I find SORA rates and historical data?

Whether you’re trying to decide on a home loan in Singapore or are simply curious, you’ll be able to find rates and data online. 

MAS publishes the SORA rate, and the 3M compounded SORA rate at exactly 9am on every business day in Singapore. You can then download the rates on the MAS website

You’ll be able to view your findings by SORA value date and SORA publication date on the website, sorting the start year and month that you’d like to see your data from. 

MAS has also indicated on the website that “the SORA Publication Date is the same date as the SORA Compounded Index Value Date”.

FAQ 4: What’s the difference between SORA and SIBOR? 

As much as SIBOR, SOR, and SORA sound similar, they fundamentally all have different definitions. 

The SORA rate is a volume-weighted average of unsecured overnight interbank SGD transactions brokered in Singapore. 

On the other hand, the SIBOR rate is the rate when Singapore banks borrow money from each other. As opposed to SORA rates, SIBOR rates are derived from the average rates of not more than 10 banks, out of a possible pool of 20. 

While MAS administers SORA, SIBOR is administered by the Association of Banks in Singapore (ABS).

Both these definitions take effect differently and have different effects on home loan rates. 

Take a look at some of these differences in the table below: 

SORASIBOR
How it’s determinedSORA is determined based on real-life transactions, and is supported by a deep, liquid interbank funding market. SIBOR is determined based on panel banks’ submissions of the rates they’d borrow funds at in the interbank market.
How its operationalisedWhen SORA is compounded, it’s derived from daily realised SORA rates over a historical period.
 
This means it’s backward-looking.
SIBOR reflects the market expectations of an interest rate over a future period. 

This means it’s forward-looking.
Does it have a credit and term premium?SORA has a short overnight tenor, making its credit risk insignificant. It’s also a near risk-free rate.

Since compounded SORA is backward-looking, it doesn’t include a term premium.
SIBOR includes a premium because of the credit risk associated with interbank lending over agreed periods.

The term premium that SIBOR has as a forward-looking rate is compensation for uncertainty over how much interest rates might fluctuate in the future period.
What’s next for the mortgage rate? SORA is the new benchmark rate for interest rates in Singapore. 

This means it will eventually replace SIBOR. 
The 3-month SIBOR will soon be discontinued by the end of 2024. 

FAQ 5: What are the 3M Compounded SORA loan packages launched this time? 

Banks have begun to diversify with a larger number of SORA-pegged loans, with loan packages using 3M compounded SORA as a benchmark. 

And as lock-in periods on loans continue to expire, we’re only going to continue seeing banks migrate existing SIBOR-pegged home loans to SORA. 

Banks will also use screen rates of 3M compounded SORA, derived directly from the MAS website. 

And much like the past 3M SIBOR packages, it will be every 3 months that a revision of the 3M compounded SORA is conducted. 

FAQ 6: Do I need to do anything about my property loan pegged to SOR or SIBOR? 

If you have a current property loan that’s SOR-pegged or SIBOR-pegged and is out of its lock-in period, it’s a good idea to reprice or refinance your loan to a package that references SORA. 

This is an eventuality, as SIBOR and SOR get discontinued. 

And where existing SOR or SIBOR loans are concerned, banks will begin initiating transitions and contacting you with migration offers in due time. 

You’ll be given appropriate time to consider your switch to a SORA loan package or perhaps some other pricing options. 

Learn more about what you should do for your home loan here.

Young couple holding a cut-out paper house, showing that they are getting their first home and looking into Singapore's mortgage rates

FAQ 7: How will SORA affect my home loan? 

The transition to SORA being a benchmark interest rate is going to affect everyone! 

With the potential to be a robust replacement for SIBOR, it’s to your advantage to stay on top of market trends and make a home loan decision that saves you a substantial amount of money in the years to come. 

So if you’re unhappy with your current home loan, make sure to consider refinancing it before existing SIBOR-pegged home loans are converted to SORA ones. 

And if you’re going to be taking a home loan soon, make sure to keep a SORA bank loan in mind and weigh its advantages above an HDB loan. 

Get professional advice from mortgage brokers on SORA rates

Deep-diving into SIBOR, SOR, SORA isn’t easy. 

It can be a confusing mess of definitions and numbers, which is exactly what you don’t need when you’ve got a million other things to handle in your life. 

Here at FinanceGuru, we know these differences very well. We’re homeowners ourselves, with the same concerns and pains that you have. 

Let us help you! We’d be happy to help make sure that you’re making only the best home loan decision. 

Contact us for free, non-obligatory advice today

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Learn more about how a mortgage broker can help you with your home loans in Singapore here. 

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