Whether you’re looking for a new home or just browsing, you’ve likely come across some version of this term: Singapore Overnight Rate Average (SORA) home loan. What is SORA? How does it compare to other benchmark rates? And what does SORA mean for your home purchase in Singapore or refinancing?
What is the Singapore Overnight Rate Average (SORA)? How is it calculated?
SORA is the volume-weighted average rate of actual borrowing transactions in the unsecured overnight interbank cash market in Singapore. It is administered by the Monetary Authority of Singapore (MAS) and published at 9 a.m. on the next business day in Singapore.
The phrase “volume-weighted average” might sound intimidating, but it simply means that the actual amounts lent are factored into the calculation.
Think of it this way: when calculating SORA, the interest rate of a S$100 million transaction is five times more significant than the rate of a S$20 million transaction.
Why is there so much focus on SORA?
It is the new benchmark interest rate introduced by the MAS that will replace the Singapore Interbank Offered Rate (SIBOR) and the Swap Offer Rate (SOR), which are being phased out by 2024. Even if your existing home loan is pegged to SIBOR or SOR, you will have to switch to a SORA-based loan when your loan tenure ends after this period.
How are SORA and SIBOR Home Loans Different?
Both SORA and SIBOR are floating interest rates. The most common floating loan packages offered by banks are the 3-month SORA and 3-month SIBOR.
Here’s how they compare:
A Forward-Looking Comparison of 3-Month SORA and 3-Month SIBOR
| 3-Month SORA | 3-Month SIBOR | |
| What is it? | The SORA rates published over the past 3 months.
SORA is the volume-weighted average rate of actual borrowing transactions in the unsecured overnight interbank cash market in Singapore. |
The SIBOR rates published over the past 3 months.
SIBOR is the average rate at which banks in Singapore predict they can borrow from each other in the interbank market. No actual transactions need to occur. What matters is the rate that the 20 member banks of The Association of Banks in Singapore (ABS) believe they can get.
|
| How is it calculated? | Reporting banks provide data on all eligible transactions traded and booked within the window of 8:00 a.m. and 6:15 p.m. (inclusive).
The MAS validates the data and calculates the volume-weighted average rate of all eligible transactions. |
The 20 member banks of the ABS are surveyed for their interbank lending rates before 11 a.m. Singapore time.
These rates are ranked, the top and bottom quartiles are removed, and the average of the remaining rates is calculated. |
| When is it published? | The MAS publishes the SORA rate on its website at 9 a.m. daily. | The SIBOR rate is published on the website of The Association of Banks in Singapore 7 days later.
|
| Rate Type | Floating;
Based on actual interbank lending transactions from the previous day. |
Floating;
Based on a survey of interest rate forecasts from the 20 member banks of the ABS. |
Other Considerations When Deciding on a SORA Home Loan
Whether you are buying a new home or considering refinancing, a SORA home loan offers you another option. However, as other types of home loans are available, here are some additional factors to consider before signing up for a SORA home loan package.
1. Affordability
Planning ahead is especially important when purchasing a high-ticket item like a property. Choosing a home loan package with a low interest rate can save you money on your monthly mortgage installments.
Furthermore, the floating nature of SORA means you need to ensure you can afford the monthly mortgage payments even when interest rates fluctuate.
2. Fixed Rate vs. Floating Rate?
Generally, home loans come with two types of interest rates: fixed and floating.
With a fixed-rate home loan package, you repay your loan at the same interest rate for the first few years. If you prefer certainty in budgeting for your monthly installments, a fixed rate might be more suitable for you. It’s important to note that fixed rates are often slightly higher than floating rates, as you are paying a premium for certainty.
For a floating-rate home loan package, you need to be prepared for any changes in the interest rate. When the rate goes up, your monthly installments will also increase. Similarly, when the rate falls, your monthly installment amount will decrease.
Ready to Get Started?
Want to know how much you can save by refinancing your home loan? AnjiaSG has in-house mortgage specialists who work closely with all major banks in Singapore to help you choose the right home loan package. Feel free to contact us!
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