RESIDENTIAL PROPERTY | Contributed Content, Singapore
Susan Teo

Deciphering SIBOR- and SOR-based Home Loans


Less than a decade old, SIBOR- and SOR-linked home mortgages appeared in the Singapore's banking landscape only in 2007; after a series of complaints from frustrated borrowers over the erratic changes in the rates of their loans.

Before 2007, the interest rates on floating rate housing loan packages are bench-marked against the banks' board rates which are based on different industry rates. The opacity of these rates led to confusion amongst borrowers, prompting the financing industry to introduce mortgages pegged to more transparent rates.

Thus SIBOR (Singapore Interbank Offered Rate) and SOR (Singapore Swap Offer Rate) home loans came about. SIBOR and SOR are deemed transparent since they are set by the Association of Banks in Singapore and announced daily through the mainstream media.

Distinguishing Between SIBOR and SOR

SIBOR is the interbank borrowing rate for Singapore's banks while SOR is the cost of borrowing via a swap out of US dollar. It is akin to a currency swap in which a bank in US provides US dollar in return for SingDollar from a bank in Singapore. This way the banks have cost-savings due to comparative advantage.

As SOR depends on exchange rate movements, it is generally more volatile compared to SIBOR.

Both SOR and SIBOR come in tenure of 1-, 3-, 6- and 12-month, which correspond to the cost of borrowing for that duration.

Characteristics of SIBOR and SOR

  • Shorter tenure SIBOR/SOR usually has lower rates than the longer tenure SIBOR/SOR (Because it is riskier and there is a higher opportunity cost for longer term lending). See Figure 1 and 2. (Source: www.iCompareLoan.coSource:

  • SIBOR fluctuates less than SOR. As seen in Figure 3. (Source: Also the standard deviation (a common measure for volatility) is 0.352% for the 3-month SOR and 0.257% for the 3-month SIBOR. I am using as example the 3-month tenures as they are most commonly used in mortgages.


SIBOR- and SOR-pegged Home Loans

Floating (variable) interest rate loans in Singapore make use of SIBOR or SOR as the variable component in the interest rate.

The interest rate on these loans is then XX-month SIBOR or SOR + spread

For example, 3-month SIBOR + 1% where the 1% is the spread or the margin that the bank adds to the loan. The spread is usually revised upward, after the first few years of the loan start-date.

Deciding Between SIBOR- and SOR-pegged Loans

Currently only two banks offer SOR-pegged home loans, and only 3-month SOR. There are Australia and New Zealand Banking Group Limited (ANZ) and Bank of China (BOC).

As mentioned above, SOR tends to fluctuate relatively more and it is difficult to predict its direction. During any interest rate environment, it can fluctuate above or below SIBOR, this makes it difficult to say whether a SOR- or SIBOR-based loan will generate greater interest saving.

With a SOR-pegged loan, it is possible that rates may fall below SIBOR - sometimes even by a wide margin- when that happens you can enjoy huge savings. But beware! It could also exceed SIBOR. So if you are prepared to bear the risk of incurring hike in interest payment and unstable monthly instalment then you can consider it.

Or you can consider a loan pegged to the average of SOR and SIBOR. So far ANZ is the one bank in Singapore offering this.


Deciding Factor

Risk appetite aside, you should also look at the spread on the loan. Opt for a reasonable spread.

Besides the interest costs, of course, there are many other considerations in choosing a mortgage like the lock-in period, conversion option and others. But these are beyond the scope of this article.


Choosing the Tenure of a SIBOR–pegged Loan

During a low interest rate environment, you want to enjoy interest-saving but you are worried about the instability in the monthly instalment that comes with a floating rate loan.

In that case, you can opt for a 12-month SIBOR loan (however fewer banks offer it). Although the rate tends to be higher than a shorter tenure SIBOR, however it is only revised after 12 months. In other words, you can know with certainty the interest and principle payments you have to bear for the 12-month period.

With a 1-month SIBOR, the rates are adjusted either every month or after a 3-month interval - it varies with each bank. A 3-month SIBOR is usually adjusted every 3 months.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.

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Susan Teo

Susan Teo

Susan Teo is a writer for research-focused Singapore mortgage consultancy firms: Property Buyer, iCompareLoan and Singapore Home Loan, which offer free professional advice and use reports from Singapore's best loan analysis system (exclusive to them) to help borrowers select the best property loan.

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