Singapore might be a land of expensive real estate and service, but you can be sure all your property investments are of the best possible quality. A new condominium, apartment, traditional house, or HDB flat is made from the market’s best materials. However, you’ll need to use different financial products to purchase your home.
All home loans tie their interest rates to the Singapore Interbank Offered Rate (SIBOR) or Swap Offered Rate (SOR) except for HDB properties. Both SIBOR and SOR fluctuate because of the economy, but their respective major interest rate anchors differ exponentially. In this short guide, you’ll learn more about these two rates, their interaction with Singaporean mortgages, and home loan effects to help you make the best home loan borrowing decision.
What is SIBOR?
The Singapore Interbank Offered Exchange Rate (SIBOR) is parallel to the London Interbank Offered Rate (LIBOR) in the United Kingdom. Both function in the same way: any bank in the country can borrow money from another bank to fulfill a certain purpose, such as maintaining their operations or providing better profit opportunities. All banks treat borrowing banks as customers, meaning all interbank loans have accompanying interest requiring repayment. SIBOR is the average interest rate banks impose on borrowing banks.
Virtually every bank has deep financial reserves. However, they offer many products aside from home loans, ensuring they can reach their reserve’s red zones regularly. Borrowing from other banks allows them to keep their services running and using every profitable opportunity possible. All borrowers, especially SIBOR-linked home loans, will pay for the SIBOR rate plus profit percentage banks impose above the financing. We’ll discuss more about this later.
How Does It Differ From SOR?
Swap Offered Rate (SOR) functions similarly to SIBOR. However, it does not reflect the average bank-borrowing interest rates. Instead, it focuses on the current exchange rate between the Singapore Dollar (SGD) and the U.S. Dollar (USD).
Because it’s an outward economy with hundreds of thousands of foreign workers, Singapore has an extremely international market. Therefore, dozens of international banks and multinational companies have made Singapore their home, making SOR a viable interest rate link for numerous banks.
SOR has more or less the same rate as SIBOR because both link themselves to bank activities. However, SOR rates can decrease once a major difference margin between the SGD and USD happens. On the other hand, during a recession, currency hoarding will decrease SIBOR’s interest rates, possibly collapsing the Singaporean financial market if it reaches an extremely high level.
Often, Singaporeans mistake SOR for Singaporean Overnight Rate Average (SORA). However, SORA affects both SIBOR and SOR in a variety of ways. It measures the volume or number of bank-to-bank transactions overnight or in a single day. It is an index reflecting all Singaporean bank activity between 8:00 AM to 6:15PM, the market’s respective opening and closing period.
What Are 1-Month and 3-Month SIBOR Interest Refresh Home Loans?
All SIBOR-linked home loans allow borrowers to choose to refresh their interest rates between 1-3 months. Both a 1-month and 3-month SIBOR rate refreshes have significant differences, such as lock-in periods and possibly lower payments. Truthfully, there’s no significant advantage between the two unless borrowers predict interests to remain low during their chosen period.
For example, borrowers who choose 1-month SIBOR rate lock-ins benefits if the SIBOR rates fall after one month. On the other hand, if the SIBOR rate continues to rise in the coming months, it can mean higher bank payments.
Alternatively, 3-month SIBOR lock-ins allow borrowers to stick with a low-interest rate much longer. For example, if home loans had a SIBOR rate of 4.88% + 0.8%, borrowers will continue to pay that rate even if the interest changes to 5.62% + 1.25% in the following month and lower in the consecutive period.
Both 1-month and 3-month SIBOR rate lock periods function similarly to fixed-interest rate home loans. Flexibility can be effective if you’re well-versed in anticipating SIBOR changes. However, if you’re much more focused on predictable rates for your budget, fixed rates or 3-month SIBOR lock-ins work best for you.
SIBOR Rate Historical Chart from 2015-2020
Using data collected from SIBOR’s 2015-2020 historical chart, SIBOR’s rates have continued to rise double its rate in 2015. Truthfully, borrowing from SIBOR is highly likely ill-advisable, although the small interest percent decreases from January 2020 shows a slightly downward interest rate SIBOR trend.
Truthfully, the interest rates look highly in favor of 1-month SIBOR borrowers.
SIBOR Rates As of Dec 2020
Any home loan borrower planning to use SIBOR to their advantage in January 2021 should take note of SIBOR’s rates by the last month of the year. Truthfully, SOR offers lower interest rates, but the unpredictable relationship between SGD and USD can quickly turn the tide against borrowers despite the low historical data interest dates below.
**For the latest SIBOR and SOR rate, you can check at Sibor.sg.
Should You Consider SIBOR-Linked or Fixed-Rate Home Loans?
If you’re a borrower focused on stability and predictability, both a SIBOR rate and fixed-rate home loan can work for you. Both SIBOR and SOR-linked home loans are effective during a bear economy because of the projected low interest rates. On the other hand, if you project that interest rates will increase because of increasing borrowing stimulus, it’s best to stick with a fixed-rate home loan. Alternatively, both 6 and 12-month SIBOR lock-in periods (where applicable as it is rare) are excellent choices. These allow you to adapt to changing economic situations effectively.
Factors To Consider To Make The Best Decision For Home Loans
Honestly, it takes a great level of research and data study to anticipate the best SIBOR lock-in period suitable for you. Then again, the most diligent borrower always gets the best deals. It takes more than a comparison website and filter algorithm to find the best SIBOR-linked home loans and choose the right SIBOR lock-in periods.
Below, you’ll find our ideal guide to find the right SIBOR lock-in period suitable for your financial situation. We’ll discuss predicting the possibility of current, future, and yearly market conditions affecting SIBOR, using bundled home loan promotions to your advantage, understanding lock-in periods and early-payment penalties, and the perfect financial situation for borrowing.
It pays to understand both SIBOR and SOR’s relationship with their respective market. Here are two examples to help you understand the market condition’s effects on both.
During economic downturns, loan applications are few and far in between. Therefore, banks in Singapore possess little reason to borrow from each other, driving down SIBOR rates. If you possess financial stability during the worst market conditions, you have the perfect opportunity to take on a SIBOR-linked home loan. Many well-known investors who have made a success in real estate investment have used this strategy to their advantage.
In Swap Offered Rate’s case, the higher the Singaporean dollar’s value against the U.S. Dollar, the higher the SOR in local banks. On the other hand, you can have excellent SOR from international banks during this period. Choosing the perfect circumstance to use a local or international bank will become the basis of your SOR-linked investment decisions.
Packaged Home Loans
Some packaged home loans are an all-in-one solution, such as a home loan complete with payment protection insurance and automatic refinancing during refreshes. Both local and international banks in Singapore can offer varying discounts with packaged home loans. To make this easier, you can use loan comparison websites for easy matching.
Lock-Ins and Penalties
Numerous SIBOR or SOR-linked home loans and packages have 0-year lock-ins. Truthfully, lock-in periods have zero advantages for borrowers. However, you’ll need to open a new bank account with your chosen lender if you choose to use their services, and its service charges might offset any advantages or savings your home loan choice might possess.
Your Financial Situation
Your current financial stability is of utmost priority before finalizing your loan application decision. It’s convenient to find the best SIBOR or SOR-linked home loan deals and packages. However, if your financial situation has your budget in the red, it’s better to let this deal go. You can trust us when we say you’ll still find an excellent deal in the future.
Making The Right Decision Requires Having The Right Data All The Time
SIBOR and SOR-linked home loans are excellent options for active borrowers keeping an eye on the changing Singaporean economy. However, if you’re looking for a simple-termed, easy-to-handle loan, you can never go wrong working with Loan Advisor’s loan comparison service.