Adrian was one of the early birds who proactively made the switch from a Singapore Interbank Offered Rate (SIBOR) home loan to a Singapore Overnight Rate Average (SORA) one in 2020, when it was announced that SIBOR would be discontinued and replaced with SORA.
The 31-year-old fintech professional had bought a condo in District 21 in 2018, just before the global pandemic hit.
“In view of the COVID-19 pandemic and market uncertainty, I wanted more predictability to manage my loans and make partial pre-payments if necessary,” Adrian said of his decision.
Therefore, rather than waiting for SIBOR to be discontinued, he decided to reprice his $800,000 loan from a 3M SIBOR + 0.45% package to 3M Compounded SORA + 0.80%.
While at the time SORA was still adjusting downwards in 2020, he decided to make the switch early so that he can have more control over his home loan.
As with Adrian’s case, those with a home loan that references SIBOR can proactively transition their contract before 30 April 2024.
Read on to learn about the options you have and why it’s better to act now.
SIBOR to SORA: The Deadline is Approaching
Any home loans that reference SIBOR can be converted to an alternative package by 30 April 2024.
If no action is taken by then, those home loans will be automatically converted to the SORA Conversion Package (SCP) starting from 1 June 2024.
After 31 December 2024, SIBOR will be discontinued, and SORA will become the key interest rate benchmark for SGD transactions.
Why is SIBOR Being Replaced With SORA?
Before we dive deeper into the options for converting a SIBOR-pegged loan, let’s take a look at the two reference rates and the reason for the change.
SIBOR is what a bank estimates it will have to pay another bank to borrow Singapore dollars.
It is administered by ABS Benchmarks Administration Co (ABS Co) and is calculated based on daily submissions by a panel of contributor banks.
SORA reflects the average rate of overnight SGD interbank market transactions.
In essence, banks in Singapore report all eligible transactions to the Monetary Authority of Singapore (MAS) on each business day.
The MAS uses this data to calculate the volume-weighted average rate and publishes SORA the next business day at 9am.
The transition from SIBOR to SORA is in line with global interest rate benchmark reforms to improve the robustness and integrity of financial benchmarks.
Because compounded SORA’s calculation is based on an average over a period, interest rates on loans based on compounded SORA tend to be less volatile.
“When we compute the daily movement of both rates, we notice SIBOR is more volatile than compounded SORA. This is partly because SIBOR is forward-looking, based on estimates made on the day of its publishing, while compounded SORA is backward-looking, based on an average of actual transacted rates over a period,” explains Paul Wee, Vice President – PropertyGuru Finance.
I Have A SIBOR-based Home Loan. What Are My Options?
If you have a SIBOR-pegged loan, there are three options you can take.
1. Switch to a prevailing package offered by your bank
You can reprice your home loan by taking up an alternative package offered by your bank. Banks offer different types of packages, such as fixed rate, floating rate (including board rate), or hybrid.
Compare the best mortgage rates in Singapore on PropertyGuru.
2. Switch to the SORA Conversion Package (SCP) before 30 April 2024
Those with existing SIBOR-based loans can transition to the SORA Conversion Package (SCP) offered by banks without incurring any additional charges or extending their current lock-in period.
The SCP is made up of three components, as illustrated in the graphic above. The first part is the 3M Compounded SORA, which is the floating interest rate. The second part is the loan margin from your existing SIBOR package. The third part is the adjustment spread, which accounts for differences in the levels of SIBOR and 3M Compounded SORA. The last two remain fixed during the tenure of your loan.
If you convert to the SCP before 30 April 2024, your adjustment spread will be calculated under the spot-spread approach, which takes the average difference between SIBOR and 3M Compounded SORA in the preceding three-month period.
The spot-spread is published by ABS Co on the first business day of each month during the active transition phase (1 September 2023 to 30 April 2024) and will apply for customers transitioning to the SCP in that particular month.
| Date | 1M SIBOR to 3M Compounded SORA | 3M SIBOR to 3M Compounded SORA |
| September 2023 | 0.2983 | 0.4042 |
| October 2023 | 0.3023 | 0.3746 |
| November 2023 | 0.3170 | 0.3547 |
3. Wait until 1 June 2024 to be automatically converted to the SCP
If you don’t take any action before 30 April 2024, your SIBOR-pegged loan will automatically be converted to the SCP starting from 1 June 2024.
Those who are automatically converted during this period will have an adjustment spread that is calculated under the historical median approach, which takes the historical median between SIBOR and 3M Compounded SORA over the period 30 June 2018 to 30 June 2023.
The historical median spread has been set and published upfront by ABS.
| Date | 1M SIBOR to 3M Compounded SORA | 3M SIBOR to 3M Compounded SORA |
| June 2024 | 0.2426 | 0.3571 |
Reasons to Act Now: More Options and More Control
Now that you’ve learned about your options for converting your SIBOR-pegged home loan, you’ll want to speak with your bank as soon as possible so that you have more time to consider your decision.
As mentioned before, waiting until 1 June 2024 will leave you with only one option – an automatic conversion to the SCP at the historical median spread – whereas acting earlier will give you more choices.
To make an informed decision, you need to take into consideration several factors including the different packages on offer, your financing preferences, and the terms of your current package.
Let’s take a look at an example, assuming the existing loan margin on your 3M SIBOR package is 0.50%.
Using the floating rates, your existing loan margin, and the applicable adjustment spreads, you can make calculations to understand what your loan would look like if converted to SCP, depending on when you make the switch.
By monitoring the spot-spread from now until April, you could compare it with the historical median spread that would be applied in June and potentially lock-in a lower adjustment spread.
You could also compare the SCP with the prevailing packages offered by the bank.
One benefit of the SCP is that it allows you to carry over your existing loan margin. If your existing loan margin and the applicable adjustment spread, added together, are lower than the current margins offered by your bank, the SCP would be more favourable.
Conversely, if the margins offered in the packages at your bank are lower, it would make sense to go with a non-SCP package.
The switch to the SCP is available at no additional fee or lock-in period, and without the need to recompute the Mortgage Servicing Ratio (MSR), Loan-To-Value (LTV), and Total Debt Servicing Ratio (TDSR).
Different terms and conditions may apply if you’re intending to refinance your loan with another bank.
SIBOR to SORA: Final Considerations
The decision of how you convert your SIBOR loan ultimately depends on your financing preferences, whether you value stability or flexibility.
By taking proactive steps, homeowners can navigate the transition to SORA smoothly and effectively, capturing an opportunity to explore a wider range of loan options and optimise their financial strategy.
Ready to act now?
- Speak with your bank
- Visit the ABS website to access comprehensive information on SORA
- Check out PropertyGuru’s mortgage comparison tool or seek guidance from our mortgage experts
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