So you’ve decided to get your home loan from a bank and now you’re shopping around for the best home loan rates.. You’ve seen all the websites – including this one – and are wondering what the different rates mean, what’s SIBOR, SORA, etc. Well look no further! With our beginner’s guide to the different home loan interest rate types in Singapore!
Fixed Rate Home Loans
Using a fixed interest rate, means that interest rates won’t move while you’re under that package. That being said, Fixed Rate home loan packages aren’t fixed forever! Fixed rates are usually offered for a short period of time (1 – 3 Years) before they shift to floating rates.
In the majority of these situations, the rates of the home loan package are fixed in line with the lock-in period of the bank packages. This means that when the fixed rates end, you can refinance your home loan with another bank (at no penalty) in order to gain a fixed rate again.
Floating Rate Home Loans
The vast majority of home loan packages fall under the umbrella of Floating Rate Home Loans. That being said, the underlying rate behind home loan packages can make a big difference in terms of volatility and cost. Below we cover the four most common types of floating rate home loan underlying rates.
The Singapore Interbank Offered Rate (SIBOR) is a measure of how much interest banks expect to pay when they borrow money from other banks. It should be noted that SIBOR can refer to
- 1 Month SIBOR
- 3 Month SIBOR
- 6 Month SIBOR
- 12 Month SIBOR
The difference between the 1 Month SIBOR (0.30%) and 6 Month SIBOR (0.59%) can be large, so the type of SIBOR rate can influence the volatility and value of each rate.
As a general guide, the longer the period (E.g. 6 Month SIBOR vs 1 Month SIBOR), the higher but also the more stable the interest rate.
Although relatively unknown till recently SORA was actually introduced by MAS in 2005 and is slated to act as a replacement for SIBOR and SOR which are scheduled to be phased out by 2024.
It’s calculations are similar to SIBOR in that it’s based on the average interest rates that banks use when they perform interbank loans. However instead of using interest rate expectations, SORA uses past transaction data to provide a more accurate result. Additionally SORA is also administered by MAS unlike SIBOR which is administered by SORA.
It should be noted that like SIBOR, SORA has multiple variants based on different time periods as well. These include the
- 1 Month SORA
- 3 Month SORA
- 6 Month SORA
As with SIBOR, the longer the SORA rate the higher but generally more stable the interest rate is.
Board Rates are rates decided by the banks and not pegged to any external indicator such as SIBOR/ SORA. Most home loan packages that use Board Rates as an underlying take a Board Rate and reduce it by a certain percent (E.g. Board Rate – 1%)
Board Rates can be quite low however they are generally viewed as being the most volatile as they are not subject to any outside review and can be raised/ lowered at the bank’s discretion.
Fixed Deposit Rates
These rates are based on the bank’s fixed deposit rates that are offered to customers (E.g. Standard Chartered’s 48 Month Fixed Deposit Rate) and usually means that your rates are subject to less volatility as every rate increase that you go requires that the bank pay a higher interest rate to it’s customers.
Different interest rate types carry different advantages and disadvantages, having a hard time to decide? Why not speak to the unbiased expert advice of people from within the mortgage industry? Get the best rates and the best advice with Keyquest Mortgage.