Switching from SOR and SIBOR to SORA: What you need to know

couple moving house

19 Nov 2021 | 3 min. read

If you have a floating rate property loan, you need to know that SORA will be replacing SOR and SIBOR as the key interest rate benchmark for Singapore Dollar loans and other financial products.

If you are currently on a SOR (Singapore Dollar Swap Offer Rate) property loan, you will have to switch your loan to a new loan package. If you are looking to take up a new property loan, a floating rate package based on SORA will be available among the banks' loan packages.

What to expect

For SOR borrowers

Option 1: Take up the SORA Conversion Package

  • Your bank will switch your SOA loan to a SORA loan by applying a standardised Adjustment Spread (Retail on your original loan margin. An adjustment spread is necessary to account for term and credit risks, which SOR factors in but SORA does not – this is why SORA is typically lower than SOR. 
  • The Adjustment Spread (Retail) is computed based on the average difference between SOR and 3-month SORA compounded-in-advance over the last three months, subject to a floor of zero.
  • You will incur no additional fee or lock-in if you switch to the SORA Conversion Package offered by your existing bank. 
Before (SOR loan) After (SORA Conversion Package)
Reference Rate 1-month SOR, 3-month SOR, or 6-month SOR 3-month Compounded SORA
Loan Margin Your existing SOR loan margin Your existing SOR loan margin + relevant Adjustment Spread (Retail)

Option 2: Change to any other loan package currently offered by you bank, such as 

  • fixed rate property loan
  • floating rate property loan based on bank's board rate or fixed deposit rates

Contact your bank early to consider your options, and to avoid any disruptions to your loan when SOR ceases.

 

For SIBOR borrowers

 

For borrowers on loans that reference the 6-month SIBOR (Singapore Interbank Offered Rate), you should have been contacted by your bank regarding the available options. Otherwise, you should contact your bank immediately as 6-month SIBOR will be discontinued by 31 March 2022.

 

For borrowers on loans that reference 1-month or 3-month SIBOR, details of your loan conversion will be released in due course, as these benchmarks will only be discontinued after 31 December 2024. 

Note

To facilitate industry-wide transition, the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) will not need to be re-computed for affected borrowers switching to a SORA package with the same financial institution.

 

If you initiate a refinancing of your property loan with another financial institution (which will be subject to the financial institution's terms and conditions), you should check if any other TDSR exemptions apply. For example, borrowers who are owner-occupiers are exempted from TDSR when refinancing their property loans.

Key dates to note

31 March 2022 - 6-month SIBOR will be discontinued

30 June 2023 - SOR will be discontinued

31 Dec 2024 - 1-month and 3-month SIBOR will be discontinued

What is SORA

The impending discontinuation of SOR and SIBOR is in line with a shift in financial markets worldwide towards interest rate benchmarks that are computed based on transaction data. For instance, SOR which relies on USD LIBOR in its computation, will be discontinued on 30 June 2022, alongside the discontinuation of USD LIBOR.

 

SOR and SIBOR will eventually be replaced by SORA.

 

Note

SOR is the effective rate of borrowing Singapore dollars synthetically, by borrowing US dollars and converting them to Singapore dollars in the foreign exchange market.

SIBOR is what a bank estimates it will have to pay another bank to borrow Singapore dollars. It is calculated based on daily submissions by a panel of contributor banks and may not be always fully backed by transactions.

 

SORA, which has been administered by MAS since 2005, is the volume-weighted average borrowing rate in Singapore's unsecured overnight interbank cash market.

 

Unlike SIBOR, which is based on estimates from Singapore banks, SORA is based on transaction data and is published on the Monetary Authority of Singapore website at 9am daily.

 

SORA loan packages are priced using the compounded average of the daily SORA rate over one, three, or six months. Because the calculation is based on an average over a period, interest rates tend to be less volatile.

 

In contrast, interest payments on SIBOR-based and SOR-based loans are determined by the prevailing rate on a single day and could change abruptly in the event of interest rate fluctuations on interest reset dates. 

Last updated on 05 May 2022