SORA is a benchmark interest rate used to market various financial products, including housing loans. This rate can impact the interest rate charged on home loans, as it is used as a benchmark by banks when setting interest rates for home loans.
When SORA rates rise, it becomes more expensive for banks to borrow funds in the interbank market, and as a result, they may increase the interest rate charged on home loans to compensate for the higher cost of funds.
Conversely, when SORA rates fall, it becomes cheaper for banks to borrow funds, and they may decrease the interest rate charged on home loans.
If you plan to get a home loan, staying informed about changes in SORA rates and other economic indicators is crucial. This article will help you get familiar with the SORA benchmark and how it could affect your home loan and borrowing decisions.
What is SORA?
SORA, or the Singapore Overnight Rate, Average is defined as the volume-weighted average of borrowing transactions in Singapore’s unsecured overnight interbank SGD cash market between 8:00 a.m. and 6:15 p.m.
This interest rate benchmark was introduced by the Monetary Authority of Singapore (MAS) in 2020 as a replacement for the benchmark rate SIBOR (Singapore Interbank Offered Rate) and SOR (Singapore Overnight Rate). This change aims to provide a more robust and transparent benchmark rate for loans, bonds, and other derivatives.
How Do SORA Rates Affect You?
The exact impact of the SORA rate in 2023 on home loan borrowers is challenging to predict, as it will depend on various factors, including the overall economic conditions, credit risk, and monetary policy.
However, it is clear that if SORA rates continue to rise in 2023, financial institutions may also increase the interest rate charged on home loans resulting in higher monthly mortgage payments for home loan borrowers.
Depending on the current rates, borrowers may consider managing their home loans by fixing their interest rates for a specified period to help manage the risk of rising interest rates.
Current SORA Rates
As of June 2024, the 1-month SORA is at 3.6367%, while the 3-month SORA is at 3.6769%. In contrast, in June 2023, the 1-month SORA rate was 3.7522%, and the 3-month SORA rate was 3.7514%. The current rates show a slight decrease from the same period last year, reflecting changes in the economic landscape and monetary policies.
(source: Monetary Authority of Singapore)
1-Month Compounded SORA Vs. 3-Month Compounded SORA
SORA rates come in three tenures: 1, 3, and 6-month; but the most common forms are the 1-month, and 3-month compounded SORA.
1-Month Compounded SORA
The 1-Month Compounded SORA represents the average rate banks can borrow or lend funds overnight in the Singapore interbank market, compounded over one month. It is the reference rate for pricing short-term financial products such as overnight deposits and short-term loans.
3-Month Compounded SORA
3-Month Compounded SORA represents the average rate banks can borrow or lend funds overnight in the Singapore interbank market, compounded over three months. It is the reference rate for pricing medium-term financial products such as three-month deposits and medium-term loans.
In summary, 1-Month Compounded SORA is used for shorter-term financial products, while 3-Month Compounded SORA is used for medium-term financial products.
What Is The Outlook For 3-Month Sora?
In June 2023, the 3-month SORA stood at 3.7514%, reflecting a year of gradual increase from its low of 0.194% at the beginning of 2022. By the end of 2023, it had stabilized at 3.746%. This increase was influenced by various economic factors, including the global response to inflation and monetary policies.
As of June 2024, the 3-month SORA has slightly decreased to 3.659%. This minor reduction indicates a period of stabilization following the sharp increases observed in the previous year. The stability in the SORA rates suggests that the market has adjusted to the new economic conditions post-pandemic and amid ongoing global inflation concerns.
Looking ahead, the 3-month SORA is expected to maintain a steady level. While no significant increases are anticipated, the rate’s stability offers a predictable environment for borrowers.
This outlook is influenced by several factors:
- US Federal Reserve Policies: The expectation that the US Fed might decrease interest rates less than what is currently forecasted by the market plays a crucial role. The Fed’s focus on achieving a 2% inflation target could limit significant changes in global interest rates, including SORA.
- Global Economic Conditions: With the peak of inflation likely behind us, the focus shifts to maintaining stability. The global economic environment, particularly the actions of major central banks, will continue to influence SORA.
- Local Market Dynamics: In Singapore, the housing market and mortgage landscape remain sensitive to interest rate changes. The stabilization of SORA provides a more predictable environment, potentially offering some relief to homeowners and potential buyers.
For borrowers, the stabilized 3-month SORA means more predictable mortgage repayments and interest costs. While significant decreases in the SORA are not expected, the modest improvements in mortgage rates could provide some financial relief. Homeowners and potential buyers in Singapore can benefit from this stability, planning their finances with more confidence.
What is the SORA Forecast for 2024?
- General Decline Expected: Following the Federal Reserve’s anticipated rate cuts in 2024, the SORA rate is expected to trend downward. This correlation is due to the alignment of Singapore’s interest rates with US monetary policy, despite Singapore’s central bank managing monetary policy via exchange rate adjustments.
- Current and Projected Rates: As of early 2024, the SORA rates have been fluctuating around the 3.5% to 3.8% range. For example, in January 2024, the 3-month compounded SORA hovered around 3.703%, and by June 2024, it remained relatively stable within the 3.6% to 3.7% range.
- Forecasted Decline: Maybank economists predict a fall in the 3-month SORA rate from 3.8% in 2023 to 3.25% by the end of 2024, with a further decrease to 2.6% by the end of 2025. This indicates a gradual easing of borrowing costs over the next two years.
Implications for Home Loan Borrowers
Explore how changes in the SORA rate could affect home loan borrowers, from the potential for lower repayments to strategic refinancing opportunities.
Potential for Lower Loan Repayments
As the SORA rate declines, home loan interest rates tied to this benchmark are also expected to decrease. Borrowers can anticipate lower monthly repayments, improving affordability and potentially stimulating more borrowing and home purchases.
Refinancing Opportunities
With the projected fall in interest rates, existing homeowners should consider refinancing their loans to take advantage of the lower rates. This can result in significant savings over the loan’s tenure.
Strategic Financial Planning
Borrowers should closely monitor SORA trends and market forecasts. Planning for potential rate changes can help in making informed decisions about loan commitments and managing interest rate risks.
SORA Rates (2022-Present)
| Months for SORA(first business day of a month & in reverse order) | Compounded 1-Month SORAs | Compounded 3-Month SORAs |
| Jun 24 | 3.6857% | 3.6602 |
| May 24 | 3.5128% | 3.6508% |
| Apr 24 | 3.7501% | 3.6838% |
| Mar 24 | 3.6691% | 3.6519% |
| Feb 24 | 3.6164% | 3.6524% |
| Jan 24 | 3.6486% | 3.7012% |
| Dec 23 | 3.6538% | 3.7432% |
| Nov 23 | 3.7622% | 3.7556% |
| Oct 23 | 3.7773% | 3.6980% |
| Sep 23 | 3.7108% | 3.6974% |
| Aug 23 | 3.6034% | 3.6706% |
| Jul 23 | 3.7735% | 3.6600% |
| Jun 23 | 3.6354% | 3.6313% |
| May 23 | 3.5454% | 3.6075% |
| Apr 23 | 3.6798% | 3.5907% |
| Mar 23 | 3.5511% | 3.2206% |
| Feb 23 | 3.4266% | 3.1525% |
| Jan 23 | 2.5722% | 3.0166% |
| Dec 22 | 3.3321% | 2.9442% |
| Nov 22 | 3.1233% | 2.4705% |
| Oct 22 | 2.4708% | 2.0851% |
| Sep 22 | 1.9200% | 1.6164% |
| Aug 22 | 1.8332% | 1.2830% |
| Jul 22 | 1.1383% | 0.8089% |
| Jun 22 | 0.9329% | 0.5278% |
| May 22 | 0.3603% | 0.3252% |
| Apr 22 | 0.3239% | 0.2815% |
| Mar 22 | 0.3021% | 0.2511% |
| Feb 22 | 0.2381% | 0.2086% |
| Jan 22 | 0.2314% | 0.1949% |
(Source: www.mas.gov.sg)
The SORA rate forecast is private as it is based on market conditions that are subject to change and, therefore, difficult to predict. However, market participants can monitor the daily SORA rate and make informed decisions based on current market conditions and expectations for future interest rate changes.
It is important to note that while SORA is anchored to the MAS’ policy rate, the rate can still fluctuate based on market conditions and the supply and demand of funds in the interbank market. As such, market participants should monitor SORA regularly and be prepared for potential changes in the benchmark rate.
Additionally, borrowers will be notified of any revisions made to your monthly installments, if any.
While the exact SORA rate forecast is uncertain, market participants can make informed decisions based on current market conditions and expect the rate to be influenced by changes in the interbank market and the MAS’s policy rate.
SORA-Pegged Home Loans
| Banks | SORA types | 1st Year | 2nd Year | 3rd Year & after that | Loan details |
| DBS | 3M | 0.75% | 0.75% | 0.75% |
|
| Maybank | 1M | 0.8% | 0.8% | 1.75% |
|
| OCBC | 3M | 0.65% | 0.65% | 1% |
|
| Standard Chartered | 3M | 1% | 1% | 1% |
|
| UOB | 3M | 0.70% | 0.70% | 0.80% |
|
Good To Know
How is SORA Computed?
The SORA rate is the volume-weighted average rate of borrowing transactions in Singapore’s unsecured overnight interbank SGD cash market between 8:00 a.m. and 6:15 p.m. Reporting banks provide data and are required to submit daily all eligible transactions traded within this time window.
MAS conducts thorough data validation checks and computes the SORA rate daily, wherein the average is based on all eligible transactions. This calculation is done daily, and the average daily rates over a given period is used as the benchmark SORA rate.
However, this calculation takes into account a range of factors, such as:
- Supply and demand of funds in the interbank market
- Credit risk of counterparties
- Overall financial stability of the market
Taking all these into account makes SORA a more robust and transparent benchmark rate than the previously used SIBOR and SOR, which were based on subjective assessments and limited transaction data.
Why are SIBOR and SOR replaced by SORA?
SIBOR and SOR were the benchmark interest rates used in Singapore before the introduction of SORA but were replaced due to concerns about robustness and transparency. Anchored to the MAS’s policy rate, it provides greater certainty to market participants. Other benefits which make SORA a more reliable and credible benchmark rate for the country are:
Increased Transparency
SORA rates are based on actual transactions in the interbank market, are published daily by the MAS, and reduce subjective assessments.
Reduced Volatility
SORA rates are based on overnight transactions, which are less volatile than longer-term transactions and reduce the risk of sudden spikes or drops in interest rates.
Improved Price Discovery
The accurate reflection of the actual cost of funds in the interbank market improves price discovery and reduces the risk of manipulation in the benchmark-setting process.
Enhanced Market Liquidity
By relying on actual transactions in the interbank market, SORA rates can enhance market liquidity and encourage greater participation in the market.
See Also: How to Buy a House in Singapore and Repricing vs Refinance Home Loan
Closing
Changes in SORA rates can impact the interest rate charged on home loans and, therefore, on borrowers’ monthly mortgage payments. As such, borrowers should stay informed about changes in SORA rates and consider options for managing their home loans to help manage their financial risk.
Key Takeaways
- Banks and other financial institutions use SORA as a reference rate for pricing financial products such as loans and bonds in the country.
- SORA is a more transparent, liquid, and robust benchmark rate than other benchmarks like SOR and SIBOR.
- SORA rates are less susceptible to bank manipulation.
- The SORA benchmark is a more transparent derivative as it is published daily.
- As SORA interest rates may remain high this 2023, borrowers should be prudent and plan appropriately before getting a home loan.
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