Home loans in era of SORA

In perhaps the biggest shake-up for the mortgage landscape, the Monetary Authority of Singapore (MAS) launched the landmark interest rate in 2021 – SORA (Singapore Overnight Rate Average). This shift is considered a massive game-changer, and could have major impacts on existing home-owners and home buyers. So read on to find out what is this SORA is all about and how it may affect your financial decisions if you are looking at taking new home loans, refinancing or repricing of home loans.

Thus far, the US Federal Reserve has hiked interest rates by a total of 0.75% in 2022. Against the backdrop of record inflation rates in US, the Federal Reserve has also signalled their intention to increase interest rates further in the coming months. Incidentally, the rising interest rates take place at a time when MAS mandates the roll-out of SORA and discontinuation of SIBOR (Singapore Interbank Offered Rates) by 2024.

In the past, the volatility of US interest rates usually led to corresponding volatility in the SIBOR rates. However, with SORA, the situation has changed a fair bit as SORA works quite differently to SIBOR.

Before proceeding to explain what is exactly the difference between SORA and SIBOR, you should take note of the key dates:

31 March 2022 – 6-month SIBOR have ceased

31 Dec 2024 – 1-month and 3-month SIBOR will cease

Those who were on 6-month SIBOR home loans should have been notified by their banks to convert their loans. Anyway, the demands for 6-month SIBOR were typically not high. Thus, the affected borrowers should be quite few. For borrowers on loans that reference 1-month or 3-month SIBOR, details of your loan conversion will be released in due course, given that these benchmarks will only be discontinued after 31 December 2024. In any case, all banks have ceased issuing new loans under SIBOR since end-September 2021.

Note that this is not a sponsored article. I am writing this article to document my property journey and for future reference. As such, readers should not take this article as a form of financial advice.

Why the need for SORA?

The change to SORA is due to the discontinuation of the LIBOR (London Interbank Offered Rate triggered by alleged cases of traders manipulating and fixing the rates.

In Singapore, SIBOR is controlled by a panel of banks which contribute rates for the Singapore Interbank Offered Rate (SGD SIBOR) for deposits. Think of this group as an exclusive “rich man club”. The group appoints The Associate of Banks in Singapore (ABS) Benchmarks Administration Co Pte Ltd (ABS Co.) to manage the SIBOR rates. However, ABS Co. has appointed Refinitiv (formerly known as Thomson Reuters) to calculate and determine the Benchmarks on its behalf.

Given that ABS is an association making up of representatives from the industry, SIBOR is essentially driven by the banks and not regulated by the authorities. In my opinion, this is akin to asking the fox to guard the hen house. For example, how do the member banks determine the contribution rates for the SIBOR for deposits? Furthermore, SIBOR may not be always fully backed by transactions. As such, we would not know the actual basis for deriving the SIBOR rates. Naturally, the banks would want to set the SIBOR to be in their favour. After all, they are all profit-driven entities.

With SORA, there is much more transparency as the benchmark is administered by MAS. You may check out the SORA rates over here. More importantly, SORA is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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