SORA, Not SIBOR, Could Be The New Norm For Housing Loans In Singapore

Si Jie Lim

Si Jie Lim

Last updated 20 August, 2020

SIBOR has a new competitor: SORA. Here’s what home buyers need to know about SORA. 

If you haven’t already heard, the Monetary Authority of Singapore (MAS) has recently introduced a new benchmark interest rate known as SORA to replace SOR. This is a seismic shift in the financial industry that will soon see housing loans be pegged to a new benchmark interest rate other than the SIBOR that you might have been familiar with. 

If you are planning to refinance or pick up a new housing loan in the next few months, then be sure to read this primer if you want to be grabbing the best deal available.

What is SORA?

SORA, or Singapore overnight rate average, is a new alternative benchmark interest rate that was recently introduced to the market. Benchmark interest rates like SORA and SIBOR are used to reflect the cost of borrowing in the market. Up until recently, the only benchmark rates that were used in housing were the SIBOR and SOR.

How is SORA different from SIBOR?

For homeowners, it is always good news when you have an extra choice to choose from. However, the question is, how is SORA different from SIBOR? More importantly, how can you benefit from the new alternative benchmark interest rate?

#1: SORA offers more stability 

The nature of SORA benchmark rate is that there is much less subjectivity in determining the housing loan interest rate that you are paying for. With a lookback period of 90-day, borrowers will not be overly affected by a sudden change in interest rate. Any sudden change in interest rate will be gradually introduced to borrowers over the next 90-days instead.

#2: Backward looking vs forward looking

One of the biggest differences between SORA and SIBOR is the way it is being calculated. 

SIBOR is set  by getting all 20 banks in Singapore to submit their bank’s individual SIBOR rates. The Association of Banks in Singapore (ABS) will then collect and collate them through Thomson Reuters. They then use a pre-determined calculation methodology to calculate the daily SIBOR rate. 

In other words, the daily SIBOR rates that you are seeing is an average of each bank’s forward projection of the SIBOR rates.

Unlike SIBOR, term compounded SORA is backwards-looking. The 3-month compounded SORA is calculated using the compounded methodology of the daily SORA rate over a historical 3-month period.

#3: SORA-pegged housing loans have greater transparency

Another difference between SIBOR and SORA is the level of transparency. There’s simply no way for you to know whether the 3M SIBOR rate that you are looking at is transparent or not. 

That’s because the SIBOR rate is calculated by polling each bank’s forward projection of their individual SIBOR rates. This involves some form of expert judgement, which can lead to the possibility of manipulation if banks choose to work together to prop up the SIBOR rates. This is exactly what happened to the London Interbank Offer Rate (LIBOR) back in 2012.

In contrast, 90-day SORA is calculated on all the transactions that took place in the past 90 days. This makes it much less susceptible to manipulation and promotes greater robustness and transparency. The daily SORA rates are also available on the MAS website where you can do your own fact check.

Goodbye SIBOR, hello SORA?

According to a consultation paper, three financial industry groups are recommending the banking industry to adopt a single rate with SORA. 

t The groups cited that using a single interest rate benchmark like SORA will make loans more transparent for borrowers. Borrowers will have an easier time when comparing across different loan providers. At the same time, it will also encourage more efficient risk management for lenders when comparing the risk across different loans that are pegged to the same benchmark rate. 

Where can you get SORA-pegged housing loans?

At the moment, OCBC is the first and only bank to offer a SORA-pegged housing loan. 90-day SORA home loans from OCBC are for completed properties and properties under construction. It is applicable to both new home loans and repricing of existing home loans.  

In the foreseeable future, we might see other banks playing catchup to OCBC. Who knows, they might even extend the SORA-pegged housing loans to HDB.

For homeowners who are on the verge of refinancing, perhaps it pays to be a bit more patient to wait for the development of SORA-pegged housing loans before making your next move.

Looking for the best housing loan deal? Keep track of the latest home loan rates using SingSaver’s loan comparison tool to compare housing loan options across different providers.

Read these next:
How To Buy A House In Singapore: A Complete Guide
HDB Loan Vs Bank Loan: Which One Should You Go For?
HDB BTO Launches In 2020
What Type of HDB Flats Can Single Singaporeans Buy?
How Much Can You Borrow For Your Home Loan?

Most people think personal finance is dry, boring and full of confusing jargon. But the fact is it can be simple and interesting. That’s why Si Jie is passionate about turning personal finance into an easy and fun topic that everyone can relate to.


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