Following the 90-Day SORA home loan launch in July, OCBC launches Singapore’s first compounded SORA home loan
OCBC Bank has scored another first in launching a new SORA-based home loan referencing the 3-month Compounded Singapore Overnight Rate Average (SORA) published by the Monetary Authority of Singapore (MAS).
It is another step by OCBC Bank to contribute to Singapore’s development of new SORA markets On 13 July 2020, OCBC Bank had launched Singapore’s first SORA-based home loan. Interest rates for this loan were based on a simple average of the daily SORA rates in the preceding 90 calendar days. In the first two weeks of its launch, more than $50 million of such loans were approved.
With the launch of the new OCBC 3-month Compounded SORA home loan package, the OCBC 90-Day SORA (Simple Average) home loan package will no longer be offered.
Customers of the 3-month Compounded SORA home loan will benefit from the availability of the Compounded SORA rates that MAS has started to publish since 5 August 2020, which provides users with a transparent and convenient reference to track their loan rates.
The OCBC 3-month Compounded SORA Package The OCBC 3-month Compounded SORA Home Loan is available for all loan types: Completed properties, properties under construction, new home loans and repricing of existing home loans.
The package has a two-year lock-in period, which means customers can choose to switch to another home loan package after two years. Customers would be able to make pre-payments of up to 50% of the loan amount in the first two years with no penalty.
A summary of the key differences between the 3-month SIBOR home loan package and a 3-month Compounded SORA home loan package is set out below:
3-Month Compounded SORA
What is it
Pegged to the 3M SIBOR.
Rate reviewed every 3 months.
Instalments can increase or decrease depending on the SIBOR rate.
The 3M Compounded SORA is published by MAS at 9:00 am on all business days in Singapore and is computed by compounding the published SORA rate over the historical 3-month period.
How is the reference rate determined
SIBOR is based on interest rates used by banks in Singapore when lending unsecured funds to each other. Simply put, SIBOR reflects how much it would cost banks to borrow from each other.
SIBOR is administered by the ABS Benchmarks Administration Co Pte Ltd (ABS Co.).
On a daily basis, the rates from a panel of 20 banks are compiled and the compiled rates are then ranked. Those on the upper and lower quartiles are trimmed from the list before the remaining rates (which should come from at least ten banks) are averaged to make the day’s SIBOR.
SORA is the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore between 8.00 am and 6.15 pm.
The 3M Compounded SORA is computed by compounding the daily published SORA rate over the historical 3-month period.
If the 3M Compounded SORA is less than zero, zero will be applied.
Flexibility to prepay up to 50% of the loan amount within the lock-in period
• 2-year lock-in period
• Year 1: 3M SIBOR + 1.00%
• Year 2: 3M SIBOR + 1.00%
• Year 3: 3M SIBOR + 1.00%
Thereafter: 3M SIBOR + 1.00%
• Flexibility to prepay up to 50% of the loan amount within the lock-in period
• 2-year lock-in period
• Year 1: 3M Compounded SORA + 1.20%
• Year 2: 3M Compounded SORA + 1.30%
• Thereafter: 3M Compounded SORA + 1.40%
Mr Sunny Quek, Head, Consumer Financial Services, OCBC Bank, said, “We received a positive response to the industry’s first retail SORA-pegged home loan that was launched last month with more than $50 million in loans approved in its first two weeks of launch. This shows that consumers are receptive to SORA as the new interest rate benchmark for SGD markets. With MAS’ publication of the key features and calculation methodology of SORA as well as the actual compounded SORA rates, consumers should be even more open to adopting SORA as the transparency and data availability are further enhanced.
“Therefore, we are confident that this first compounded SORA home loan launched by OCBC will do even better than the earlier SORA-based home loan using simple average calculation. We now offer the most comprehensive range of home loan options in the market.”
How the 3-month Compounded SORA package works
MAS publishes SORA for a given business day in Singapore by 9.00am on the next business day in Singapore. Alongside SORA, the Compounded SORA rates for the 1-month, 3-month and 6-month tenors are also published.
The OCBC 3-month Compounded SORA Package will reference the 3-month Compounded SORA rate, published by MAS, to compute the monthly loan instalment. The rate will be updated every month instead of every three months as is the case for the 3-month SIBOR-based home loan.
The first applicable 3-month Compounded SORA rate will be the one published by MAS on the date that the bank disburses the loan, and will apply for a period of one month. If the 3-month Compounded SORA is less than zero, zero will be applied.
For each subsequent 1-month period, the applicable 3-month Compounded SORA will be the rate published by MAS on the first day of the 1-month period (rate review date) and will apply for such subsequent 1-month period.
This provides certainty to the customer as the customer will be notified at the start of the month of the applicable interest rate and instalment amount that will be charged at the end of the month. This arrangement helps the customer better plan his or her finances.
The 3-month Compounded SORA rate applicable on a Saturday, Sunday and Public Holiday would be the last published 3-month Compounded SORA rate. For example, if the rate review date falls on a weekend, the 3-month Compounded SORA rate applied for the next 1-month period would be the 3-month Compounded SORA rate published on the working Friday of that week.