In recent years, you may have seen articles talking about SORA but you are still not entirely sure what it means for you and your home loan. Perhaps the articles were too long or that the terms could be rather technical or confusing. If this rings true for you, continue reading as I summarise what is important for you to know if you are still servicing a SIBOR mortgage loan.
What is SORA?
SORA is the volume-weighted average borrowing rate in Singapore’s unsecured overnight interbank cash market.
SIBOR is what a bank estimates it will have to pay another bank to borrow Singapore dollars. It is calculated based on daily submissions by a panel of contributor banks and may not be always fully backed by transactions.
In another words, SORA is based on transaction data and SIBOR is based on Singapore banks’ estimates.
SORA is based on backward-looking overnight transactions which is less volatile and less risky than SIBOR that is based on forward-looking future transactions.
From June 2024, for bank customers who are servicing SIBOR loans that has not opted to switch to SORA, will automatically converted to SORA. This includes both mortgage and personal loans.
Can I just let my existing SIBOR loan automatically convert to SORA when June 2024 comes?
Yes, you can but you may be subjected to what will be offered to you by your bank, along with potential fees and new terms.
What are the benefits if I choose to switch to SORA before vs. the automatic conversion on June 2024?
- There will no need to re-compute your Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) if you switch to SORA with the same bank.
- There will be no conversion fee to switch early with the same bank.
- Explore options to re-finance and/or to choose a loan package of your choice before the imminent conversion.
What are the points to consider when making the switch?
- Compare the SORA floating rates with your existing rates, and calculate if it makes financial sense for the next following 10 months if you convert early.
- Look at the loan package as a whole, factoring lock-in periods, restrictions, fees and charges.
- Explore fixed rate with a shorter lock-in period as an alternative.
- Ensure you speak to a trusted mortgage broker.