The difference between SIBOR and SOR rates


Singapore Interbank Offered Rate (SIBOR)
Singapore Interbank Offered Rate is fixed by the Association of Banks in Singapore. It represents the unsecured funds/rates that banks and financial institutions in Singapore lend to each other. Local housing loan interest rates track movements in the Sibor.

Singapore Swap Offer Rate (SOR)
Swap offer rate is fixed by the Association of Banks in Singapore. It represents the average cost of funds used by banks in Singapore for commercial lending. 

How does SIBOR and SOR work?
In Singapore, most banks offer housing loan packages pegged to either SIBOR or SOR. You can think of it as the "cost price" for the bank. They then add a margin on top of their cost price, this is called a spread. (eg. 3 month Sibor + 1%)

There are a few different SIBOR and SOR options available. You have 1 month, 3 month, 6 month, 9 month and 12 month SIBOR and SOR Rates respectively. Generally speaking the longer the term the higher the rate, but the more stable it is. So for example, 1 month SIBOR could be at 0.2%, and 12 month SIBOR could be at 1%. However, 1 month Sibor is more subject to fluctuations, and you can expect it to go up and down more frequently. The best option between stability and low rates is generally the 3-month SIBOR or 3-month SOR option.

HSBCStandard CharteredDBS and Citibank are popular with their SIBOR-pegged packages, UOB and OCBC offer packages that are pegged to SOR.

ANZ which is a recent entrant in the housing loan market has come up with a combo-rate which takes the average of the 3-month SIBOR and SOR rates. So if 3-month SIBOR is at 0.5 and 3-month SOR is at 0.3, the average rate is 0.4%. 

To view the latest rates offered by these banks, you can use the SmartLoans Home Loan Calculator. It's a simple wizard that guides you through the options and shows you all the latest rates offered by the banks. The rates are updated regularly, and you can even use the site to connect directly with a bank representative to find out more. Using SmartLoans not only reduces your research time and makes it more convenient, but it also will let you know if you qualify for preferential which are rates not publicised by the banks. 

SIBOR and SOR vs Bank Board Rates
When taking up a home loan from the bank, you would have to choose between fixed or floating rate packages. And if you make a choice of floating rates, you have to consider taking up a package that is pegged to SIBOR, SOR or rates that fluctuate according to the bank’s board rate at its sole discretion.

SIBOR rates are likely to be more stable as compared to SOR as the latter is influenced by a Forex component, which in the last few years, have been badly affected due to the erratic world economy and international exchange market. 

Although SOR rates have been relatively lower than SIBOR rates for the past couple of months this year (2011), SOR has gone through rapid movements and at times, was at a much higher rate than SIBOR. This makes SIBOR generally more “stable” for those who are aware of the unpredictable economic changes and on par with market conditions.

The current world economic environment has impacted our local economy and growth forecast, so to decide on what interest rates you would be comfortable with depends on your knowledge on the property market and economy.

TIP: Always choose a bank or financial institution that is transparent with their interest rates before you decide on anything. Choosing a floating rate package pegged to board rates set by the banks can be risky. 

How do I choose between SIBOR or SOR?
The decision boils down to your appetite and view on the market in the future. 

If you are investing on a property and know your budget well, it would not be risky to take up a loan that is pegged to SOR, as long as you are not locked in for too long.

On the other hand, if you are buying a property for occupation, in a long term, picking a loan with fixed rates or maybe SIBOR-pegged rates would be a better choice for you.

To see the difference and how it impacts current loan packages, you can use the SmartLoans Home Loan Calculator for easy home loan comparison online. 


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