To ease the financial system’s impact on COVID-19, the US Federal Reserve has lowered its benchmark interest rates to near zero. Interest rates in Singapore have also dramatically dropped to their lowest levels in years. Both a blessing and a curse.
To stay up with inflation, we’d have to shift some of our capital into other instruments like cash management accounts or endowment plans because we’re seeing lower returns on our savings and fixed deposits.
Business owners and homeowners who want to borrow money to expand their enterprises or save money on their existing mortgages will benefit from the low-interest-rate environment.
The low-interest rates on SIBOR/SOR-pegged home loans may pique your curiosity. You must know SIBOR and SOR before contacting your trusted mortgage broker or bank and how these rates may affect your loan package in the future.
SIBOR and SOR: What Are They?
There are two important benchmarks for the cost of borrowing in Singapore’s financial system: the Singapore Dollar Swap Offered Rate (SOR) and the Singapore Inter-Bank Offer Rate (SIBOR).
The median short-term interest rate (SIBOR) in Singapore is the rate at which banks borrow and lend money to one another. Based on the SGD-USD exchange rate and the USD London Interbank Offered Rate, the Singapore Interbank Offered Rate (SOR) is an important interest rate benchmark in Singapore (Libor).
Specifically, how do SIBOR and SOR affect home loan rates?
The 3-month SIBOR is a popular benchmark in floating rate mortgage pricing, while SOR-pegged mortgages are also available. SIBOR + 0.3 signifies that the interest rate you’ll be paying is the current SIBOR rate, plus 0.3 percent. For example,
Which Home Loans Are Affected?
Although SOR-pegged mortgage packages are available, the 3-month SIBOR is the most often utilized benchmark for pricing floating-rate home loans. SIBOR + 0.3 signifies that the interest rate you’ll be paying is the current SIBOR rate, plus 0.3 percent. For example,
RedBrick has put together a list of current home loan offers from various banks.
A bank’s board or fixed deposit rate could be used to tie other floating-rate loan packages.
SIBOR/SOR rates will fall, which means lower interest rates for you. As rates rise in the future, you will be responsible for greater monthly payments and a larger interest bill overall.
It is possible to have your mortgage tied to a certain SIBOR/SOR period, such as one month or three months. The more unpredictable your monthly interest rates will be, the more sensitive your home loan rates will be to movements in SIBOR/SOR.
Low-Interest Rates Will Not Be Around Forever.
Singapore could be in a recession for an entire year, and homeowners should know that a low-interest-rate environment is unlikely to endure for the next 3, 5, or even ten years.
If you can handle your SIBOR/SOR-pegged mortgage payments in the face of possible swings, now is a wonderful time to refinance. Instead, a fixed-rate mortgage may be a better option if you want to know your monthly payment.