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Switch from SIBOR to SORA before April 30: Act now to give yourself more time to choose new home loan
Whether it's a fixed-rate loan, floating-rate loan or the SORA Conversion Package, speak to your bank early to find an alternative package that meets your needs
Affected homeowners who approach their banks before the end of April this year will be allowed to choose from a range of different loan packages.
PHOTO: SPH MEDIA
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Finance professional Sophia Tan (not her real name) and her sister took up a new loan for their three-bedroom condominium at the end of last year.
They were previously on a floating-rate home loan based on the Singapore Interbank Offered Rate (SIBOR) but made the switch after their bank told them SIBOR will be discontinued after Dec 31, 2024.
After speaking with their bank’s home loan repricing specialist about their options, the sisters decided on a two-year, fixed-rate home loan at 3 per cent per annum. As the need to reprice their loan with their bank arose from the impending discontinuation of SIBOR, they did not incur any of the usual repricing fees nor was there any re-computation of their Total Debt Servicing Ratio (TDSR), Loan-To-Value (LTV), and Mortgage Servicing Ratio (MSR) requirements.
Shares Ms Tan: “The process was quite smooth and fuss-free. The whole process, from the first discussion with the bank’s home loan repricing specialist to the time taken to consider our options, and the eventual repricing, took about two weeks in total.
“And as our relevant information was already with the bank, the specialist was able to do the sums and simulate the monthly repayments across the different home loan packages for us.”
Ms Tan is among over 70,000 homeowners who have taken active steps to switch out of their SIBOR-based loans, ahead of the discontinuation of SIBOR at the end of this year. Currently, almost 50,000 homeowners have yet to switch. They are strongly encouraged to contact their banks before the end of April this year to understand their options and ensure a smooth transition.
Transition from SIBOR to SORA
- The phasing out of SIBOR, an interest rate derived from estimates provided by banks, started in 2020. This is in line with the global shift towards benchmarks that use actual transactions in their calculations.
- SORA, which refers to the Singapore Overnight Rate Average, is the key interest rate benchmark that Singapore banks now use to price 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 supporting homeowners on existing SIBOR-based loans to transition to an alternative loan of their choice. The options available to customers include the SORA Conversion Package, other floating rate packages, fixed rate packages and hybrid loan packages.
- Banks sent out letters to affected homeowners in August 2023 and had recently sent reminders from late January to February 2024.
More choices before April 30
Affected homeowners who approach their banks before the end of April will be allowed to choose from a range of different loan packages, including the SORA Conversion Package, which is designed to minimise changes in home loan borrowers’ all-in loan payment at the point of conversion of the loan.
SORA, which refers to the Singapore Overnight Rate Average, is the interest rate benchmark that Singapore banks now use to price floating rate loans. The Monetary Authority of Singapore (MAS) publishes SORA daily on its website, along with the compounded average SORA for the past one-, three- and six-months, which are more stable than the daily figure. The 3-month Compounded SORA is the most common reference rate for floating-rate home loan packages offered by banks in Singapore.
Customers will not incur any switching fees so long as they stay with the same bank.
“If we didn’t take any action last year, we wouldn’t have known that repricing to another home loan would result in lower monthly instalments. A little goes a long way, so I’m glad we started early,” Ms Tan says, noting that the 3 per cent interest rate she’s currently paying was lower than the 3-month Compounded SORA rate at that time.
“The certainty of fixed monthly home loan payment gives us peace of mind, while the shorter lock-in period provides some flexibility as we can consider repricing again in two years,” she adds.
What happens if I don’t switch out of my SIBOR-based home loan by April 30, 2024?
- Homeowners who do not approach their banks before April 30 will have their loans automatically converted to the SORA Conversion Package from June 1.
- Homeowners whose loan packages are automatically converted to the SORA Conversion Package will still be entitled to a fee-free switch to any of their bank’s prevailing packages before Dec 31, 2024.
Better to act quickly
Mrs Ong-Ang Ai Boon, director of The Association of Banks in Singapore (ABS), says borrowers of SIBOR-based home loans should talk to their banks and consider their various options as soon as possible, just as Ms Tan and her sister had done.
“Borrowers are encouraged to proactively contact their banks, particularly if their mortgage payments constitute a big part of their monthly expenses.
“The discontinuation of SIBOR is an opportunity for borrowers of SIBOR-based home loans to look at an alternative loan package without incurring any fees,” she adds.
