SIBOR vs SORA vs FHR vs Fixed Rates

Last updated on 2022-09-14

1. What is Reference Rate in Home Loan?

2. What is SORA Rate?

3. What is SIBOR 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?

SORA, 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 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 SORA Rate?

SORA or Singapore Overnight Rate Average is the average interest rate of unsecured overnight interbank SGD transactions brokered in Singapore. It is widely regarded as the most transparent rate due to its widespread use among banks. 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 displaced SIBOR and SOR to become the common benchmark reference rate for banks to peg their loans to.

 

What is SIBOR Rate?

SIBOR or Singapore InterBank Offer Rate is the interest rate that Singapore banks borrow from each other. 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. SIBOR is expected to be discontinued by 2024 as the industry makes way SORA as a common benchmark reference rate.

 

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. 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 refers to any reference rates that is a combination of any of the mentioned Floating or Fixed rates and provides borrowers the advantage of a reference rate that is in between 2 rates. This reference rate caters mostly to customers who cannot decide between the available rates.

 

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 SORA 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.