What is Sibor and SOR?
News media have been publishing about Sibor or SOR hitting the roof or going rock bottom, so what has it got to do with housing loan?
Let me explain here,
Singapore Inter-bank Offer Rate (Sibor) is a reference index that defines the interest rate the banks is going to charge when they lend money to each other for a fixed period of time, e.g 1 month or 3 months etc. The rates are set daily by the Association of Banks in Singapore (ABS) based on individual banks offering rate for loans.
Let’s say 2 banks in London wanted to borrow-lend in SGD, they can choose to use Sibor as the reference rate instead of their own LIBOR (London Inter-bank Offer Rate). So the usage of Sibor is not restricted to just Singapore alone. It is also widely used in Asia by other entities, however these entities have no way of influencing or setting the Sibor itself. In 2007, Singapore banks have started pegging their home loan rates to Sibor due to its transparency.
Most commonly used fixed period are: 1 Month, 3 Month and 12 Months
Q: Remember, Sibor is posted daily, so, how is Sibor determined for Singapore housing loan? which day’s rate should be used for the computing housing loan?
A: It has become an industry practice for the banks to define the month’s Sibor rate as the first business day of the month at 11 am fixing.
Swap Offer Rate (SOR) is the US Dollar version of Sibor. As it is currency linked, it will be more volatile than Sibor.
A simple way to putting it across is, the loan is borrowed in USD and is to be repaid in SGD. So if USD strengthens, more repayment in SGD (SOR ↑), vice versa, if USD weakens, it means less SGD in repayment (SOR ↓).