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What is SIBOR?

SIBOR stands for Singapore Inter-bank Offered Rate. It is the average rate derived from the lending and borrowing rates quoted by financial institutions, and announced by The Association of Banks in Singapore (ABS) on daily basis. The rates are published after 7 days at 11.30am on ABS website. SIBOR is mainly affected by two factors, namely the US Fed interest rates and liquidity in Singapore banking sector. (Note: SIBOR will be phased out and replaced by SORA by 2024. Currently, banks are no longer offering loans referencing SIBOR. Existing housing loans that are pegged to SIBOR can continue until such time when existing financiers offer other loan packages as replacement.)

 

What is SORA?

The Singapore Overnight Rate Average or SORA is the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore between 8.00am and 6.15pm. This benchmark rate is published by MAS since 1 July 2005. Since 6 August 2020, MAS also publishes the Compounded SORA for 1-month, 3-month and 6-month. Latest rates are available on MAS website by 9am on the next business day.

 

What is 1-Month Compounded SORA?

The 1-Month Compounded SORA (1MSORA) is computed by compounding the daily published SORA rate over the historical 1-month period. For mortgage loans that are pegged to 1-month Compounded SORA (1MSORA), interest rate is reviewed on monthly basis.

 

What is 3-Month Compounded SORA?

The 3-Month Compounded SORA (3MSORA) is computed by compounding the daily published SORA rate over the historical 3-month period. For mortgage loans that are pegged to 3-month Compounded SORA (3MSORA), interest rate is reviewed on 3-monthly basis.

 

Differences between SIBOR and SORA

For those familiar with SIBOR, you may wonder how SORA is different from SIBOR and what to expect from SORA. The main difference is the nature of the rate itself. SIBOR is derived from forward-looking rates quoted by banks, while SORA is the volume-weighted average rate based on actual transactions done. SORA is actually a more reliable and transparent benchmark rate than SIBOR.

For the past trend of both SIBOR and Compounded SORA, check out the historical chart.

 

Differences between 1MSORA and 3MSORA

From the chart, it can be observed that 3MSORA is less volatile than 1MSORA. This is mainly due to the  smoothening effect over a longer interval for 3MSORA which tracks the daily SORA for past 90 days as compared to 1MSORA which tracks the daily SORA for only past 30 days. When SORA is trending up, there is a tendency for 1MSORA to be higher than 3MSORA due to rising SORA rates in the past 30 days. Likewise, 1MSORA tends to be lower than 3MSORA when SORA is trending down.

 

How do Mortgage Loans pegged to 1MSORA and 3MSORA work?

Mortgage loans that are referencing 1MSORA are reviewed on monthly basis while those pegged to 3MSORA are reviewed on 3-monthly basis.

When SORA is trending up, if your housing loan is pegged to 1MSORA, you will find your housing loan rate moving up earlier as compared to mortgage loan pegged to 3MSORA. On the other hand, when SORA is trending downwards, you will pay lower interests earlier as compared with loans pegged to 3MSORA.

Housing loan that is pegged to 3MSORA may be perceived as more stable relative to 1MSORA as banks only review the interest rate every 3 months, or 4 times a year. When SORA is trending up, if your housing loan is pegged to 3MSORA, you will see the revised higher rate only in the next review. Likewise, when SORA is trending down, the savings in interest will also be delayed.