If you have a floating-rate home loan, you need to know that the Singapore Overnight Rate Average (SORA) will replace the Swap Offer Rate (SOR) and the Singapore Interbank Offered Rate (SIBOR) as the main interest rate benchmark for SGD loans and other financial products.
If your current home loan is benchmarked to the Swap Offer Rate (SOR), you will have to convert your loan to a new package. If you are applying for a new home loan, banks will offer home loan packages benchmarked to the Singapore Overnight Rate Average (SORA).
Table of Contents
What Will Happen Next?
For SOR borrowers
Option 1: Accept the SORA Conversion Package
Your bank will convert your Swap Offer Rate (SOR) home loan package to a Singapore Overnight Rate Average (SORA) package by adding a standard Adjustment Spread (Retail) to your original loan margin.
Compared to SOR, SORA does not have term and credit risk premiums, so an adjustment spread needs to be added during the home loan package conversion to reflect these risk premiums—this is why SORA is generally lower than SOR.
The Adjustment Spread (Retail) is calculated based on the average difference between the SOR and the 3-month compounded SORA over the past three months, with a minimum of zero.
If you switch to the SORA Conversion Package offered by your existing bank, there are no additional conversion fees or lock-in periods.
| Before (SOR Loan) | After (SORA Conversion Package) | |
| Reference Rate | 1-month SOR, 3-month SOR, or 6-month SOR | 3-month Compounded SORA |
| Spread | Your existing SOR loan spread | Your existing SOR loan spread + Adjustment Spread (Retail) |
Option 2: Switch to any other existing loan package offered by the bank, such as
- Fixed-rate home loans;
- Floating-rate home loan packages pegged to the bank’s Board rate or Fixed deposit rates.
Please contact your bank as soon as possible to understand how to convert your Swap Offer Rate (SOR) home loan to avoid any disruption to your loan from the discontinuation of SOR.
Related Articles:
For SIBOR Borrowers
If your package is pegged to the 6-month Singapore Interbank Offered Rate (SIBOR), your bank should have already contacted you about available options. If not, you should contact your bank immediately, as the 6-month SIBOR has been discontinued since 31 March 2022.
If your package is pegged to the 1-month SIBOR or 3-month SIBOR, details of your loan conversion will be announced in due course, as these two benchmarks will be discontinued after 31 December 2024.
⚠️Note
To facilitate the industry-wide transition, affected borrowers converting to a Singapore Overnight Rate Average (SORA) package with the same financial institution will not need to recalculate the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR).
If you refinance your property loan with another financial institution (subject to that institution’s terms and conditions), you should check if any other TDSR exemptions apply. For example, owner-occupier borrowers are exempt from recalculating the TDSR when refinancing their home loans.
Key Dates to Note
31 March 2022 — Discontinuation of 6-month SIBOR
30 June 2023 — Discontinuation of SOR
31 December 2024 — Discontinuation of 1-month and 3-month SIBOR
What is SORA?
The discontinuation of the Swap Offer Rate (SOR) and the Singapore Interbank Offered Rate (SIBOR) aligns with the global trend of financial markets shifting towards interest rate benchmarks calculated from transaction data in interest rate markets. For example, the SOR, which references the US Dollar London Interbank Offered Rate (LIBOR) in its calculation, was discontinued along with the USD LIBOR from 30 June 2022.
SOR and SIBOR will eventually be replaced by the Singapore Overnight Rate Average (SORA).
⚠️Note
The Swap Offer Rate (SOR) reflects the cost of borrowing SGD synthetically by borrowing USD for the same period and swapping it for SGD in the foreign exchange market.
The Singapore Interbank Offered Rate (SIBOR) is the estimated rate at which one bank would need to pay to borrow Singapore dollars from another. It is calculated based on daily interbank lending rates submitted by a select group of banks and may not always be based on actual transactions.
The Singapore Overnight Rate Average (SORA), administered by the Monetary Authority of Singapore (MAS) since 2005, is the volume-weighted average rate of borrowing transactions in Singapore’s unsecured overnight interbank SGD cash market. Unlike SIBOR, which is based on estimates from Singapore’s interbank banks, SORA is based on actual market transaction data and is published daily at 9 a.m. on the MAS website.
SORA loan packages are priced using the compounded average of daily SORA over the past one, three, or six months. As the calculation is based on an average over a past period, the interest rate tends to be less volatile.
In contrast, loan rates based on SIBOR and SOR are determined by the prevailing rate on a single day and can change suddenly in the event of rate fluctuations on the rate reset day.
Related Articles:
For further enquiries, please get in touch:
WeChat: sgleokwek
Telegram: sgleokwek
WhatsApp: Message us
