The choice between SIBOR and SOR rates

SIBOR VS SOR

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. 

In Singapore, most banks offer housing loan packages pegged to either SIBOR or SOR, with none offering packages on both rates. While HSBC, Standard Chartered and DBS are popular with their SIBOR-pegged packages, UOB and OCBC offer packages that are pegged to SOR.

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 is most 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 (August – October 2009), SOR has gone through rapid movements and at times, has a much higher rate than SIBOR. This makes SIBOR 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.

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.

TIPS: Always choose a bank or financial institution that is transparent with their interest rates before you decide on anything.