SORA interest rate benchmark
What is the SORA interest rate benchmark?
Similar to Singapore Interbank Offered Rate (SIBOR) and the Singapore Dollar Swap Offer Rate (SOR), the Singapore Overnight Rate Average (SORA) is also used as a reference rate for interest rates in Singapore. Banks use these rates to determine the sorts of floating-rate home loans they provide.
The Monetary Authority of Singapore (MAS) has been managing the volume-weighted average borrowing rate (SORA) since 2005. SORA can be found in Singapore’s unsecured overnight interbank cash market between 8.00 am and 6.15 pm and is calculated using transaction data.
What’s the difference – SORA vs SIBOR & SOR?
A backwards-looking interest rate benchmark is based on past transactions, and SORA is an example of this. SORA measures actual bank-to-bank transactions that occurred in Singapore between 8 am and 6:15 pm.
Unlike SIBOR or SOR, which are forward-looking and based on future transactions, SORA is based on overnight transactions that have already occurred. If you opt for a home loan with an interest rate linked to any of these interest rate benchmarks that change daily, your loan repayments will also fluctuate.
To achieve greater consistency in your loan repayments, you can select a loan package where the interest rate “refreshes” less often, for example, once every three months.
How would SORA interest rates affect me?
If you’re in the market for a mortgage, whether for a new home purchase or to refinance your existing one, you will likely consider both fixed and floating rate options. Currently, most floating-rate mortgages are connected to SIBOR, but this will be phased out by 2024.
As a result, banks are starting to issue more home loans that are linked to SORA to replace the older SIBOR-based loans that were previously available to homebuyers. This means that even if you currently have a mortgage tied to SIBOR or SOR, you will eventually switch to a SORA-based mortgage when your loan term is up, or you can switch to a fixed-rate mortgage.
What are the current SORA rates?
After the banks have submitted the data, MAS will verify it and determine the volume-weighted average rate for all transactions that meet the criteria. The derived rate will then be published on the MAS website the next morning at 9am.
What factors affect SORA rates?
SORA rates are influenced by several factors, including;
- The volume of eligible transactions (which must have a minimum value of $1 million and come from at least five reporting banks).
- Singapore’s economic outlook (whether it is experiencing a boom or bust) plays a role in determining the SORA rates.
- The credit quality of the reporting banks is also considered, with a higher borrowing rate indicating a weaker credit rating. All of these factors are based on the previous day’s transactions.
