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1M Vs 3M SORA: The #1 Reason Why Singaporeans Should Choose a SORA Home Loan in 2024

1M Vs 3M SORA: The #1 Reason Why Singaporeans Should Choose a SORA Home Loan in 2024
1M Vs 3M SORA: The #1 Reason Why Singaporeans Should Choose a SORA Home Loan in 2024

Comparing 1M Vs 3M SORA rates is something you need to know if you’re thinking of taking on a SORA home loan to finance your property. Home financing in Singapore can be intimidating, especially if you’re unfamiliar with home loan acronyms.

Whether you are taking up a mortgage with a bank for the first time or looking to refinance your home loan, you’ve come to the right place. Aside from explaining the differences between the 3-month SORA and 1-month SORA rates, we’ll also break down how SORA-pegged mortgages work, what the SORA rate today is, and our PropertyGuru Finance experts’ mortgage rates outlook 2024.

For those with SIBOR-pegged loans, we’ll also cover what you can do when the reference rate is phased out at the end of the year. If you are thinking of saving money on your home loan through refinancing, you could use the PropertyGuru Finance mortgage calculator and apply the best SORA rate today to see how much you could potentially save.

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Introduction to SORA Rates

If you’ve only got two minutes, here’s a quick video explaining SORA rates by Ethan Tan, Team Lead – Mortgages, PropertyGuru Finance.

What Are SORA Rates?

SORA reflects the volume-weighted average rate of borrowing transactions in Singapore’s unsecured overnight interbank SGD cash market between 8am and 6:15pm. This rate is published on the Monetary Authority of Singapore’s website at 9am the following day, which serves as the basis of your bank loan’s interest rates.

SORA has been the standard benchmark interest rate used for mortgages since 2022.

1M Vs 3M SORA Rates

If you’re new to bank loans, you may be unsure of the difference between 1M vs 3M SORA rates. But it’s easy enough to understand. Being clear about the differences between the 3-month SORA and 1-month SORA rates can help you pick the right loan.

Banks usually offer 1-month compounded (1M SORA) or 3-month compounded (3M SORA) rate home loans.

Choosing a 1M SORA rate package means your interest rates are ‘refreshed’ monthly, and your mortgage payment will vary monthly. Picking a 3M SORA rate home loan translates to your interest rates being ‘updated’ every quarter. Consequently, your monthly mortgage payment changes every three months.

When comparing 1M vs 3M SORA rates, you’ll notice the 1M SORA rates see more movement and seem more ‘reactive’. That’s because the 3-month SORA rates experienced a slight lagged effect.

Paul Wee, Vice President – PropertyGuru Finance explained, “SORA rates are formulated by actual transactions in the past 24 hours. Benchmark rates like SIBOR, however, are based on projections of market interest rates. This means that while SORA rates have been increasing recently, SIBOR rates have increased overall faster.”

If you search for “SORA rate today”, you’ll get varying answers. As of 7 March 2024, the 1M compounded SORA rate is 3.67%, and the 3M compounded SORA rate is 3.64%. You can track the compounded SORA rate today online.

SIBOR Vs SORA

There are also other benchmark interest rates, such as SIBOR. When you compare SIBOR and SORA, it is clear there are a few advantages of taking a SORA-pegged loan over a SIBOR-pegged loan.

Firstly, SORA is administered by the MAS, whereas SIBOR is computed by the Association of Banks in Singapore Benchmarks Administration Co. (ABS Co.), which currently comprises 17 participating banks. Secondly, SORA is a backwards-looking rate as it uses the average rate of actual interbank lending transactions that happened the day before. Meanwhile, SIBOR is a forward-looking rate because it considers the rates major banks intend to borrow at.

This means that SIBOR may not accurately reflect the actual expectations among all the banks across Singapore; SIBOR takes the average of a few banks, ignoring the lower and higher percentile/values.

Moreover, unlike SIBOR, SORA does not depend on international interest rates. This makes SORA more stable and accurate than SIBOR. As such, SORA is more transparent and serves as a uniform benchmark that borrowers can use to compare various mortgage packages easily. Additionally, mortgage packages that have interest rates based on compounded rates (i.e. SORA home loans) tend to see more gradual change and be less volatile than other benchmark rates.

What Does This Mean If You Still Have a SIBOR Loan?

If you’re feeling confused, here’s the good news: chances are, you’ll only need to think about SORA-pegged bank loans very soon. SIBOR will be phased out and cease after 31 December 2024.

As part of the SORA Conversion Package, your SIBOR-pegged home loan will be automatically converted from 1 June if you have not switched to a loan by 30 April.

Should the new SORA home loan offer an interest rate that is unfavourable to your financial needs and goals, you have little choice but to accept. Plus, you may get caught in technicalities when SIBOR is phased out (read: lots and lots of paperwork to deal with while having to secure a new home loan).

Ideally, you should begin searching for a new home loan before the transition occurs. You want to pick a SORA home loan when you can and not when you must.

SIBOR to SORA: What Can You Do? (2024)

  • Pro-actively transition to the SORA Conversion Package before 30 April 2024

  • Don’t do anything, and be automatically converted from 1 June 2024

  • Reprice with your existing bank

  • Refinance to the best home loan for your financial needs and goals

As advised by Paul Wee, above are some actions you can take to make the SIBOR to SORA transition for home loans a smooth one.

By pro-actively transitioning to the SORA Conversion Package, you doing so with no additional charges incurred and without extending your existing lock-in period. You’ll also likely save more money in the long run.

If you convert your loan before 30 April 2024, your adjustment spread will be calculated under the spot-spread approach. This method uses the average difference between SIBOR and the 3M Compounded SORA in the preceding three-month period. If you wait to be automatically converted in June, your adjustment spread is calculated using the historical median approach.

If you decide to reprice your home loan, you’re choosing to take up a new mortgage package from your current bank. Aside from getting a SORA home loan, you could choose between fixed or floating rate packages or a hybrid loan type.

However, you could also choose to refinance your home loan. When refinancing your home loan, you switch to a mortgage package with a different bank.

Perhaps your financial goals and situation have changed from when you took on your initial home loan. In that case, you can use this opportune time to browse the best mortgage packages on the market. Not only will you be able to explore options, but also optimise your financial strategy.

Some banks with SORA home loans include DBS, Citibank, OCBC, UOB, Maybank, HSBC, Standard Chartered Bank, and RHB Singapore. If you’re not sure where to start, you can use our mortgage comparison tool to get the most updated interest rates across all major banks.

Will Mortgage Rates Go Down in 2024?

Singapore’s mortgage interest rates tend to follow global interest rates, including SORA rates. On 30 January 2024, the US Fed maintained the interest rates at a benchmark of 5.25% to 5.5%.

While the US Fed rates remain at a 22-year high, this marks the fourth consecutive meeting where they have held rates steady. Three cuts are expected this year, and correspondingly, mortgage interest rates are expected to dip, albeit modestly.

Some experts believe the 3-month SORA will fall to 3.28% by Q4 2024, which is good news for those on a floating rate home loan package. What this means for first-time homeowners is you are likely to get your pick of various SORA floating rate packages to finance your home. And if you’re an existing homeowner with a SIBOR-pegged package, you can consider switching to a SORA-pegged loan.

Paul advises, “Fixed rate packages with 1-year or 2-year lock-in periods, as well as floating rate packages, may be better presently, to prioritise flexibility to capitalise on interest rate changes.”

If you would like to refinance your home loan, contact one of our friendly PropertyGuru Finance Mortgage Experts today. They can assess your financial situation, compare the various refinancing loan options across all major banks in Singapore, and help you land the best home loan refinancing offer – all free!

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