Ask Mr. Propwise #4 – SIBOR vs SOR mortgage loans

Have a question about Singapore property? Ask Mr. Propwise (AMP)!

Hi Mr. Propwise,

Can you elaborate on the SOR?

I’m about to sign up for an SOR tagged home loan.

Is this likely to rise more or less compared to an SIBOR tagged loan?

Thanks in advance

Mrs. Tan

Hi Mrs. Tan,

This is going to be quite technical, but here goes:

SIBOR (Singapore Interbank Offered Rate) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market (or interbank market).

SOR (Swap Offer Rate) is the effective cost of borrowing SGD synthetically through borrowing USD for 3 months and swap out the USD in return for SGD for the same maturity.

The Association of Banks in Singapore is the fixing authority for both rates.

Some of the differences between the two:

1. SIBOR is determined by the demand and supply of funds in the Singapore interbank market, whereas SOR is more influenced by external factors such as USD interest and exchange rates.

2. SOR tends to be more volatile because exchange rates and USD money market rates are more volatile.

3. SOR has been relatively lower than SIBOR for over a year, but is less stable. For example the 3-Month SIBOR is currently 0.44% while the 3-Month SOR is 0.27%.

As to which one you should take, if you’d like to go for the cheapest rate you can consider the SOR pegged loan, but if you want a rate that is less volatile you can consider the SIBOR one.

But honestly, I think the difference between the two is marginal. Also, no one can predict where these interest rates will go in the future or what the correlation between the two will be like.

To wisdom and beyond,

Mr. Propwise

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