SIBOR to SORA: More to gain for homeowners who act before April 30

Do you have a home loan that was signed more than two-and-a-half years ago?

If the answer is yes and if the interest rate is pegged to the Singapore Interbank Offered Rate (SIBOR), now may be the best time to contact your bank and explore your options for an alternative loan package. 

This is because SIBOR, which is used to calculate interest payments, will cease to exist after this year, in line with the global shift towards benchmarks that use actual transactions in their calculations. 

By looking into alternative loan packages before the end of April, you will have more time to decide on a home loan package that suits your needs. There are no fees if you switch out of your SIBOR-based home loan to any other prevailing home loan package offered by your bank.

The phasing out of SIBOR, an interest rate derived from estimates provided by banks that has been used for decades, started in 2020 when the Steering Committee for SOR & SIBOR Transition to SORA (SC-STS)’s mandate was expanded to oversee the industry-wide shift from the Singapore Dollar Swap Offer Rate (SOR) and SIBOR towards a new interest rate benchmark.

SORA, which refers to the Singapore Overnight Rate Average, is the key interest rate benchmark that Singapore banks now use to price most floating-rate loans. It is calculated using the rates financial institutions pay one another to borrow money that will be returned the next day. Singapore banks stopped offering new SIBOR-based housing loans in October 2021, and are currently helping homeowners transition from their existing SIBOR-based loans to an alternative loan package of their choice. 

To ensure a smooth transition, homeowners with existing SIBOR-based loans are encouraged to take the time to reach out to their banks and explore alternative loan packages before the end of April, or have their loans automatically converted to the SORA Conversion Package from June 1. The SORA Conversion Package used by Singapore banks is designed to minimise changes in home loan borrowers’ all-in loan payment at the point of conversion of the loan.

Mrs Ong-Ang Ai Boon, director of The Association of Banks in Singapore (ABS), believes that it is beneficial for homeowners to be proactive in securing a new home loan during this transition.

“A home loan is probably one’s most significant financial responsibility, hence it is crucial for individuals to proactively manage it, regardless of interest rate movements.

“With the transition deadline fast approaching, borrowers are strongly encouraged to contact their banks’ mortgage specialists sooner rather than later, to get advice on alternatives which would best suit their finances and preferences,” she says.

Homeowners with existing SIBOR-based loans need not worry about adhering to the tighter lending requirements introduced in recent years if they choose a replacement loan from the same financial institution.

ABS says the Monetary Authority of Singapore (MAS) will not require banks to re-compute the loan-to-value ratio (LTV), mortgage servicing ratio (MSR) and total debt servicing ratio (TDSR) “as the need to replace the SIBOR-based property loan with an alternative loan package is necessitated by the discontinuation of SIBOR on Dec 31, 2024”.

The exemption also applies to buyers of investment properties who are making the switch with the same financial institution. 

While more than half of the homeowners with SIBOR-based loans have transitioned out since January 2022, there were still some 54,000 homeowners as at end-December 2023 who have yet to convert their existing SIBOR-based loans. 

“Homeowners should act quickly and approach their banks well before the end-April deadline, so as to allow themselves more time to decide on an alternative home loan package,” says Mrs Ong.