3 Features of a SORA-pegged Property Loan & What Homeowners Think About It

ABS SORA home loan property loan

This post was written in collaboration with The Association of Banks in Singapore (ABS). While we are financially compensated by them, we nonetheless strive to maintain our editorial integrity and review products with the same objective lens. We are committed to providing the best recommendations and advice in order for you to make personal financial decisions with confidence. You can view our Editorial Guidelines here.

You may have noticed that some major banks have started rolling out Singapore Overnight Rate Average, or SORA-pegged property loans in the past year.

SORA is an interest rate benchmark that will be replacing SOR (Singapore Dollar Swap Offer Rate) and SIBOR (Singapore Interbank Offered Rate). SOR and SIBOR were previously commonly used by banks in their floating rate property loan offerings.

  • SOR is the effective cost of borrowing Singapore Dollar (SGD) by borrowing US dollar (USD) and then converting it to SGD, while SIBOR is based on the interest rates at which banks expect SGD to borrow from another bank.
  • SORA is the average cost of actual overnight borrowing transactions in the SGD interbank market, and it is administered by the Monetary Authority of Singapore (MAS).

From October 2021, banks have stopped offering new SIBOR-pegged property loans while issuance of new SOR-pegged property loans had already stopped since May 2021. Those of us with existing SOR- and SIBOR-pegged property loans will need to eventually switch to other loan packages, for instance one of the new SORA-pegged property loans:

  • For existing borrowers with SOR-pegged property loans, you should contact your bank immediately to explore options for switching to an alternative loan package. 
  • For existing borrowers with property loans that reference the 6-month SIBOR, which will discontinue by 31 March 2022, you should contact your bank immediately.
  • For existing borrowers with property loans that reference the 1-month or 3-month SIBOR, banks will be contacting affected borrowers in due course, to provide them with options for replacing their SIBOR loan with other loan packages. The 1-month and 3-month SIBOR will only be discontinued after 31 December 2024.

Read more: Have an Existing Property Loan? Here’s What Will Happen When SOR/SIBOR are discontinued and SORA becomes the new Singapore dollar interest rate benchmark

SOR, SIBOR and SORA are different benchmarks for Singapore dollar interest rates. SORA has been around since 2005, and is a transparent and robust benchmark.

Read more: SIBOR, SORA and SOR Rates Explained — How They Affect Your Home Loans

With this in mind, what do people like you and me think about the change to the SORA interest rate benchmark? What benefits are there in getting a SORA-pegged property loan?

Here are 3 features of a SORA-pegged property loan. We’ve also spoken to homeowners to find out what they think about it.


1. A SORA-pegged property loan comprises compounded SORA + loan margin, allowing for better comparison of loan packages

A floating rate property loan package typically comprises a reference benchmark such as SORA, plus a pre-determined loan margin. This pre-determined loan margin follows the schedule set out by the bank.

For example, when looking for a property loan, you might see:

XX Bank’s 3-month compounded SORA property loan package

Year 1 3M Compounded SORA + 0.80% p.a.
Year 2 3M Compounded SORA + 0.98% p.a.
Year 3 3M Compounded SORA + 1.60% p.a.
Thereafter 3M Compounded SORA + 1.60% p.a.
Rate reset Every 3 months

For the month of September 2021, the 3-month compounded SORA interest rate has been around 0.13% p.a.


You’ll notice that in the above illustration, the schedule provides different loan margins as the loan progresses, and that the first 2 years have a lower ‘promotional’ pre-determined customer margin which increases in later years. This is a common feature across various bank loan packages, so it’s important to also watch out for the loan margins in later years when one compares different product offerings.

In the above example, the rate used to compute the mortgage repayment is refreshed every 3 months based on the applicable 3M Compounded SORA rate on the rate reset date.

Read more about SORA on our dedicated MoneySmart microsite.


Homeowners whom MoneySmart spoke to have welcomed the transition.

Rachel Lee, 32, said: “I think it’s good that, moving forward, property loans will now rely on SORA, which I feel is much more grounded in actual transaction data rather than an arbitrary figure that not everyone is privy to. And since SORA is based on data from banks in Singapore, it’s more relevant to the Singapore market.”

She added that SORA hardly feels foreign. If anything, it is not dissimilar to any other floating rate loan that homeowners are already familiar with — it’s a better benchmark used for computing one’s property loan.


2. SORA is a transparent benchmark rate

The transparent nature of SORA enables borrowers to easily understand how their interest payments will change in response to the interest rate environment. This offers more transparency than board rates, which are set internally by a bank and can be revised over time at the bank’s sole discretion.

SORA is administered by MAS and published on the MAS website. To determine SORA, a group of banks in Singapore are required by MAS to report their data on all eligible transactions on a daily basis. At the end of the day, MAS checks that the banks’ submissions are valid and calculates the average rate (weighted by volume) of all these transactions. Hence, SORA is fully backed by overnight borrowing transactions by banks in Singapore.

In addition, you can obtain the 1-month, 3-month and 6-month compounded SORA rates online every day on MAS website. Compounded SORA is computed using the compounded average of the daily published SORA rate over a historical period of time, usually for one, three or six months. Banks typically offer SORA loan packages using compounded SORA rates.

Anna Khoo, 35, said that “SORA loan packages tend to be less volatile, and are more reflective of our local loan market.”

She added that it’s also more reliable and robust as it is based on actual borrowing rates.

Mary Wu, 36, notes: “I feel more confident with MAS administering SORA. Being a public agency, MAS acts like a neutral referee in a sea of financial institutions. I also like that I can easily check the rate on the MAS website, look for any trends through plotting historical data, doing calculations and drawing my own conclusions before I make an informed decision on going through with a SORA-pegged property loan package.”

Being able to know what the prevailing interest rate will be, you can better budget your finances for your mortgage — helpful when you’ve got other big ticket items to buy or other loans to repay too.


3. Changes in interest payments are more gradual

Those taking SORA-pegged home loans could see more gradual changes in interest payments as compared to the previous SOR- and SIBOR-pegged property loan packages as most banks use 3-month compounded SORA to price their property loans.

As the rate of your property loan is based on an average of the past 90 days, it is less reflective of day-to-day market fluctuations. So with a SORA-pegged property loan, there’s more time to prepare for interest-rate changes and make sure you don’t overspend in the months ahead.

Yam Sing Hwee, 29 noted: “Being one of the biggest loans I’ve ever taken in my life, a property loan is a long-term commitment that requires sufficient planning and budgeting each month.”

He adds: “I’m glad that if there are any changes, it won’t impact me suddenly, and the changes will be more gradual so that I’d see the interest rate moving up slowly instead of a sharp increase.”


A smooth process ahead

The Association of Banks in Singapore (ABS) and its member banks are all working together to ensure a smooth transition. Existing homeowners on SOR-pegged can look forward to an easy and smooth transition from their SOR- and SIBOR-pegged property loans.

Regarding the transition, Tony Tay, 35, says: “I was initially worried when the announcement about the shift to SORA was made. However, after receiving news from fellow homeowner friends, reading articles online and even being reassured by my bank when I called, I’m sure that when I refinance my property loan, it’ll just be like how I refinanced my property loan in the past.”

Whether you have an existing SOR- or SIBOR-pegged home loan which will have to be transitioned to SORA, or you are about to take up a new SORA-pegged loan for your new home, it’s best to start planning your budget early and find out more information from your bank.

Reach out to your bank to find out more.