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SIBOR vs SORA vs FHR vs Fixed Rates

SIBOR vs Fixed Deposit Linked Rates for Singapore Property Loans
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1. What is Reference Rate in Home Loan?

2. What is SIBOR Rate?

3. What is SORA Rate?

4. What is FHR Rate?

5. What is Mortgage Board Rate?

6. What is SOR Rate?

7. What is Combo Rate?

8. What Type of Home Loan is Best?


What is Reference Rate in Home Loan?

SIBOR, Fixed Deposit Linked Rates and Board Rates are some of the most common reference rates that Singapore banks peg their floating rate loans to. Other reference rates include SORA, SOR and Combo Rates. The reference rates are updated daily and may be the average of 1 month rates, 3 month rates, 6 month rates or even 12 month rates.

Generally the shorter the time period the reference rate is based on, the lower and more volatile the reference rate.

Choosing a loan with the right reference rate can help a borrower save on loan repayments every month. Let us breakdown the differences between the various reference rates and compare them against each other.


What is SIBOR Rate?

SIBOR or Singapore InterBank Offer Rate is the interest rate that Singapore banks borrow from each other and is widely regarded as the most transparent rate due to its widespread use among banks. It is affected by the liquidity in the Singapore banking system which is in turn affected by the liquidity in the global banking system. It usually rises and falls in tandem with US interest rates. The 1-Month SIBOR rate is most commonly used for home loans due to its lower rates even though the 3-Month SIBOR rate was more popular in the past due to its higher stability. SIBOR is expected to be discontinued by 2024 as the industry makes way SORA as a common benchmark reference rate.


What is SORA Rate?

SORA or Singapore Overnight Rate Average is the average interest rate of unsecured overnight interbank SGD transactions brokered in Singapore. It is similar to SIBOR in terms of transparency and liquidity in the system but with one key difference that it is based on recorded past transactions and hence is backward looking as compared to SIBOR which is based on banks expected future transactions and hence forward looking. This advantage SORA have over SIBOR makes it more predictable and less volatile. SORA has replaced SOR in 2021 and will be replacing SIBOR by 2024 and become the common benchmark reference rate for banks to peg their loans to. Currently, only OCBC and UOB offers SORA home loans and it remains to be seen if consumers will benefit as more SORA loans are introduced to the market.


What is FHR Rate?

FHR or FDR or FDPR or FDMR is the fixed deposit rate (could be 6-month or 8-month or 18-month or 24-month or 36-month or any number of months depending on the bank) for the particular bank you are applying the loan from. It tends to be the least volatile as compared to other reference rates as banks usually adjust their fixed deposit interest rate last even in a period of volatile interest rates. It was the most popular reference rate few years ago due to the low fixed deposit rates but has lost its popularity due to its non-transparency and the rapid changes in interest rates in the last year or so. Different banks have different acronyms for Fixed Deposit Linked rates but they are essentially the same. Borrowers should be aware that fixed deposit rates can be changed anytime at a bank's discretion and is less transparent as compared to reference rates like SIBOR which is set daily by the Association of Banks in Singapore.


What is Mortgage Board Rate?

Board rates / Mortgage Rates / Mortgage Board Rates are set internally by banks according to their own funding or benchmark rates and the overall loan rate is computed using banks’ board rates minus a discount or a mortgage rate set by the banks themself. Similarly to Fixed Deposit Linked rates, board rates can be changed anytime at a bank's discretion and is less transparent as compared to reference rates like SIBOR. There is an increasing trend of banks offering loan packages linked to Board Rates to replace loan packages that were originally Fixed-Deposit Linked or SIBOR Rates. This comes as a detriment to borrowers as Board Rates are the least transparent among the various reference rates with banks being able to price them as they please even at short notices.


What is Combo Rate?

Combo rate is the average of SIBOR rate and SOR rate and provides borrowers the advantage of a reference rate that is in between SIBOR and SOR. Borrowers will borrow at a rate that is lower than SIBOR in periods of decreasing interest rates and borrow at a rate that is lower than SOR in periods of increasing interest rates. This reference rate caters mostly to customers who cannot decide between SIBOR and SOR. Similarly to SOR, Combo rates have become somewhat obsolete and are unlikely to be re-introduced in the future as the industry moves to a common benchmark rate.


What is SOR Rate?

SOR or Swap Offer Rate is basically the interest rate that you will pay if you were to borrow in US dollars. Unlike most reference rates which depend mostly on the liquidity in the banking system, SOR is also heavily influenced by the exchange rate movement of USD/SGD. This is the main reason why SOR is the most volatile among the mentioned reference rates. SOR is usually lower than SIBOR in periods of decreasing interest rates due to Singapore Dollar's appreciation and higher than SIBOR in periods of increasing interest rates due to Singapore Dollar's deppreciation. SOR has become somewhat obsolete in recent years and has been discontinued in 2021.


What Type of Home Loan is Best?

All the above mentioned reference rates usually move in the same direction as they are all mainly affected by the liquidity in the banking system and economic situation in Singapore. In periods of decreasing interest rates, borrowers will do well to borrow in SIBOR as it is the most responsive rate. In periods of rising interest rates, it will be more advisable to choose fixed interest rate loans as it helps consumers to borrow at  previously lower rates. Consumers can also look forward to SORA loans which will be the norm over the next few years as SIBOR loans slowly get phased out. The introduction of SORA loans could ignite a price war between the banks as they compete for market share and indirectly benefit consumers.

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