Should I Move to a Private Property?
TLDR When considering an upgrade from HDB to private property in Singapore, it's essential to understand the differences and implications....
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TLDR
The article discusses the transition from SIBOR and SOR to SORA as the new benchmark rate in Singapore’s banking system. It explains the significance of SORA, its calculation, and the advantages of opting for a SORA home loan. The TLDR also touches on the differences between 1M SORA and 3M SORA packages, the benefits of a floating rate home loan, and the reasons why considering a SORA home loan in 2023 is beneficial. Additionally, it highlights the role of MAS in administering SORA and SIBOR, respectively, and recommends considering a SORA home loan from major banks like DBS, Citibank, OCBC, UOB, Maybank, HSBC, Standard Chartered Bank, or RHB Singapore for tailored financial advice and mortgage packages.
Beginning the journey of house buying can be a daunting task, especially if you’re not well-versed with mortgage terms like Singapore Overnight Rate Average (SORA), Singapore Interbank Offered Rate (SIBOR) and Singapore Swap Offer Rate (SOR).
But don’t be intimidated, we’ve got you covered. If you want to get a better understanding of these loan-related concepts, you’ve come to the right place!
Discover Why SORA is the Highly Recommended Benchmark
Singapore is moving away from SIBOR and SOR, two of its industry-wide benchmark interest rates that are used to determine the floating interest rates of bank loans.
Taking their place will be SORA, which will be the standard benchmark rate starting from 2022. So, if you’re planning on taking out a loan, chances are, it will be a SORA-pegged loan in the future! Good news for Singaporeans: a reliable, transparent, and trustworthy banking system.
If you’re a future homeowner looking to take out a floating rate bank loan, you’ll have a range of SORA (and maybe SIBOR) packages to choose from.
And if you already have a SIBOR-linked loan, you can consider switching to SORA, as SIBOR is being phased out.
Before that, let’s get to know what exactly SORA and SIBOR are all about!
What Is SORA?
The SORA rate, a volume-weighted average of Singapore’s unsecured overnight interbank SGD cash market, is what determines your bank loan’s interest rate. Generated between 8am and 6.15pm, this rate is then published on the Monetary Authority of Singapore’s website the next day, at 9am sharp.
1M SORA Vs 3M SORA
If you select the floating rate SORA packages, you have the option of selecting a 1-month compounded (1M SORA) or 3-month compounded (3M SORA) loan.
The difference? You get to choose the frequency of your loan interest rate ‘renewal’!
Let’s explore why you should consider a SORA home loan – but first, let’s break down the interest rates.
If you opt for a 1M SORA package, you’ll receive monthly interest payments that fluctuate depending on the SORA rates compounded within the month.
With the 3M package, this occurs every three months.
Now that you have an understanding of the SORA interest rates, let’s discover the advantages of a SORA home loan!
Floating Vs Fixed Rate Home Loans: Which to Pick?
Are you a first-time homeowner buying a private property, or an existing homeowner considering refinancing your home loan?
Regardless of your situation, you’ll have to decide between various home loan packages, including floating rate packages like SORA home loans.
So, what should you go for – floating rate or fixed rate?
Ultimately, it all comes down to your unique financial situation and the current market outlook.
What Is the Benefit of a Floating Rate Home Loan?
When considering a floating-rate house loan like SORA, bear in mind that it could present some great savings opportunities!
As interest rates can fluctuate, you could benefit if they fall during a recession. However, taking a chance on this type of loan requires a degree of risk-tolerance, as the ever-changing monthly interest rates might only be suitable for those with an appetite for it.
As the US Federal Reserve raised interest rates on 14 December 2022 for the seventh time this year, sending benchmark borrowing rates to a range of 4.25% to 4.5%, Singapore’s mortgage interest rates naturally followed suit, including the SORA rates.
Consequently, home loan rates for both fixed and floating home loans have experienced a notable upsurge.
As interest rates steadily climb, those who opted for floating-rate housing loans are facing greater costs – for the time being. However, Property Market Outlook 2023 predicts that mortgage interest rates should see some moderation in the second half of the year.
Why You Should Consider a SORA Home Loan in 2023
SORA home loans offer many benefits, so why not consider one for your next loan? Here’s why SORA is the way to go.
1. The Era of SIBOR and SOR is Coming To An End
As previously noted, SIBOR and SOR will both be gone by 2024 and 2021 respectively.
With the USD London Interbank Offered Rate (LIBOR) no longer available after June 30th, 2023, the future of your home loan is uncertain if it’s pegged to one of these benchmarks.
So, what happens when these benchmark rates cease to exist?
If you’re looking to buy a home, your bank could offer you a floating rate package like SORA home loan – although you may have to commit to a longer lock-in period than desired, and be subject to any prevailing fees.
Or, you could go out in search of another mortgage package – but this could leave you with an interest rate that doesn’t quite fit your financial needs or goals. Either way, don’t take the risk of being left scrambling to find the best deal!
When you have the opportunity, don’t hesitate to select a SORA home loan; otherwise, you may be ensnared by technicalities if the benchmark rate is eliminated – and nobody wants to have to grapple with the extra paperwork that could cause!
2. Discover the Possibility of Greater Savings with SORA Home Loans
Mortgage packages with compounded rates, such as SORA home loans, tend to experience slower and more stable fluctuations in interest rates.
For example, on December 14th 2022, the 3M Compounded SORA reached 3.0937%, significantly higher than the 0.1949% on January 4th 2022, the first SORA publication date of the year.
Conversely, the 3M SIBOR was 4.25179% on December 7th 2022, as compared to 0.437% on January 3rd 2022.
If you’re an existing homeowner with a SIBOR home loan, your net loan rate has likely risen above 4.5%, including the bank’s interest spread.
We understand that this can be a struggle – but don’t worry!
Mortgage experts are here to help. Get in touch with me and I will connect you with my trusted mortgage broker where they will review your mortgage packages and show you how to save on interest or explore the option of a SORA home loan – all for free!
3. Introducing SORA – A Comprehensive, Transparent And Robust Benchmark For Mortgage Loans
The Monetary Authority of Singapore (MAS) administers SORA, while the Association of Banks in Singapore Benchmarks Administration Co. (ABS Co.), made up of 17 banks, computes SIBOR.
SORA is a backward-looking rate, based on the average rate of interbank lending transactions the day prior, while SIBOR is forward-looking, reflecting the borrowing rates of major banks.
SIBOR may not give the full picture of the banking landscape in Singapore due to it taking the average from just a few banks, disregarding lower and higher percentile/values.
In contrast, SORA is not dependent on international rates, making it more reliable and trustworthy. It serves as a level playing field for borrowers who are looking to compare mortgage packages, offering greater transparency than SIBOR.
SORA Home Loans in Singapore
If you’re looking for a mortgage that fits your personal financial situation and the current market outlook, you should consider a SORA home loan from one of the following banks: DBS, Citibank, OCBC, UOB, Maybank, HSBC, Standard Chartered Bank, or RHB Singapore. All of them offer different mortgage packages – explore your options and find the right fit for you!
I have access to a powerful comparison tool to help you find the right mortgage package across major banks with competitive interest rates.
If you’d like more information or tailored financial advice, contact me and I can introduce you to my trusted network of mortgage broker experts – all at no cost!
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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