Switch from SIBOR to SORA before April 30: Act now to give yourself time to decide on a the right home loan

Sophia Tan, a finance professional (not her real name) and her sister got a new mortgage for their three-bedroom apartment at the end last year.

They were previously on an adjustable-rate home loan that was which was based on Singapore Interbank Offered Rate (SIBOR) but made the switch after their bank told them SIBOR will cease to exist at the end of December 31, 2024.

The sisters spoke with the expert in repricing home loans at their bank about their options and ultimately decided to take out a fixed-rate, two-year home loan at 3 percent per year. Because the need to revise their loan with their lender resulted from the impending discontinuation of SIBOR. However, they did not pay any of the typical repricing fees nor was there any re-computation of their Total Debt Servicing Rate (TDSR), Loan-To-Value (LTV) and Mortgage Servicing Ratio (MSR) requirements.

“The entire process was simple and easy,” says Ms Tan. It took about two weeks to finish the whole procedure. This included the initial meeting with the repricing expert at the bank, as well as the evaluation of our options and the final repricing.

The specialist did the calculations and then simulated the monthly payments for all of the home loan packages.

Ms Tan is one of more than 70k homeowners who took proactive steps to get rid of their loans based on SIBOR, in advance of the dissolution of SIBOR at the end of the year. Nearly 50,000 homeowners are still waiting to make the change. They are strongly advised to call their banks before the close of April to understand the options available and ensure a smooth change.

Transition from SIBOR to SORA

• In the year 2020, the elimination of SIBOR (an interest rate derived by estimating the bank’s needs) started. This is in line the worldwide trend toward benchmarks which utilize actual transactions to calculate their rates.
• SORA (Singapore Overnight Rate Average) is the benchmark interest rate Singapore banks currently use for pricing floating rate loans. It is calculated based on the rates that banks are willing to pay each other for borrowing funds that are returned the next day.
• Singapore banks will not offer new SIBOR home loans based on SIBOR after the end of October in 2021. They are now assisting homeowners with existing SIBOR based loans switch to an alternative loan. The choices available to customers include the SORA Conversion Package as well as other floating rate packages, fixed rate packages and hybrid loan bundles.
• Banks have sent letters to homeowners affected between August 2023 and the end of January 2024.

Find out more about: Lentor Hills Residences Pricing

There are more choices available prior to April 30

Affected homeowners who approach their banks prior to the end of April will be allowed to choose from a range of different loan packages, including the SORA Conversion Package, which is designed to minimize changes in home loan borrowers’ all-in loan payments at the time of conversion of the loan.

SORA that is the Singapore Overnight Rate Average is the interest rate benchmark that Singapore banks are currently using to determine the cost of floating rate loans. The Monetary Authority of Singapore publishes SORA on its website each day along with the average SORA multiplied over the past three, four and six months that is much more steady than the daily numbers. The 3-month Compounded SORA is the most common standard rate of reference for floating-rate home loan packages that banks offer in Singapore.

Customers do not pay any charges for switching as long as they remain with the same bank.

“If we hadn’t taken any actions this year, we would not have known that repricing to a different home loan could lead to lower monthly payments. “A tiny amount goes a long way. I’m happy we started earlier,” says Ms Tan noting that she’s paying 3% in interest in comparison to the Compounded SORA rate for the three-month time frame at the time.

“The assurance of a monthly fixed mortgage payment provides us with peace of mind, while the shorter lock-in period provides some flexibility since we can consider repricing again in two years’ time,” she says.

What will happen if I do not switch my SIBOR-based mortgage by the 30th April in 2024?

• Starting June 1 homeowners who don’t contact their bank prior to April 30, will automatically have their loan changed to the SORA conversion package.
• In the months prior to the 31st of December. 31st, 2024 homeowners whose loans were automatically converted into SORA Conversion Packages will be able to switch for free to any package currently that their bank offers.

Better to act quickly

The Association of Banks in Singapore’s (ABS) director, Mrs Ong-Ang Ai Boon has stated that borrowers who take out home loans based upon SIBOR should speak to their bank and research the options as quickly as possible.

“Borrowers are urged to actively get in touch with their banks, especially in the event that mortgage payments are a big part of their monthly expenses.

The discontinuation of SIBOR offers borrowers of home loans that are based on SIBOR an opportunity to consider an alternative package of home loans without having pay any fees,” says Ms. Addison.