Switch to SIBOR to SORA by April 30 Now is the time to act to give yourself time to select a new home loan

Sophia Tan, a finance professional (not her actual name) and her sister got the loan for their three-bedroom home at the end of last year.

They previously had an interest-free home loan that was based on the Singapore Interbank Offered Rate (SIBOR) however they made the change after their bank informed them that SIBOR will be discontinued at the end of December 31, 2024.

The sisters talked to the repricing expert for home loans at their bank about their options and decided to get the fixed rate, two-year home loan that was 3 percent annually. Since the requirement to reprice the loan they had with their bank resulted due to the imminent discontinuation of SIBOR, they did not pay any of the typical repricing fees nor was there any revision to their Total Debt Servicing Rate (TDSR), Loan-To-Value (LTV) and Mortgage Servicing Ratio (MSR) requirements.

Shares Ms Tan: “The process was very smooth and easy. It took us two weeks to complete the whole process. The process included an initial conversation with the repricing of home loans expert from the bank, consideration of our options, and finally the repricing process itself.

The expert did the calculations and simulated the monthly payments for all of the loan options for homes.

Ms. Tan is one of the more than 70,000 homeowners who have took steps to switch out of their SIBOR loan at the closing date. At present, more than 50k homeowners are yet to change. It is highly recommended that they contact their bank before the end of April in this year to understand all choices and ensure smooth transfers.

Transition from SIBOR to SORA

• The gradual elimination of SIBOR, an interest rate derived from estimates from banks, started in 2020. This follows with the global trend towards benchmarks which utilize actual transactions to calculate their rates.
• SORA that is the Singapore Overnight Rate Average, is the primary interest rate benchmark that Singapore banks now use to price floating-rate loans. It is calculated using the rates financial institutions each other pay to borrow money that will be later returned.
• Singapore banks will no longer offer new SIBOR home loans based on SIBOR until the end of October in 2021. They are now helping homeowners who have existing SIBOR based loans to switch to an alternative loan. The options for clients include the SORA Conversion Package as well as other floating rate plans as well as fixed rate and hybrid loan options.
• Banks sent letters to homeowners affected from the month of August 2023 until late January 2024.

Find out more about: Tembusu Grand Pricing

More options available until April 30

The homeowners affected who go to their banks prior to the close of April will be able to select from a selection of loan packages which includes the SORA Conversion Package, which is designed to limit the impact of home loan borrowers’ all-in loan payment at the point of conversion of the loan.

The Singapore Overnight Rate Average (SORA) is the benchmark interest rate that Singapore banks currently use to determine the cost of floating-rate loans. The Monetary Authority of Singapore publishes SORA on its website each day, as well as the average SORA that has been compounded in the last one, three, and six months, that is much more steady than daily figures. The three-month Compounded SORA is the most commonly used reference rate for floating-rate home loans offered by banks in Singapore.

As long as customers stay with the same institution They will not be billed any fees to switch banks.

“If we didn’t take any actions in the last year, we may not be aware that resizing to a home loan might result in lower monthly payments. A tiny amount of money can make a difference, so I’m glad we began early,” Ms Tan says, noting that the 3 percent interest rate she’s paying now is lower than the three-month Compounded SORA rate at that time.

The shorter lock-in periods provide flexibility, as we can reprice the same time in two years.

What will happen if I don’t make the switch out of my SIBOR-based home loan by April 30, 2024?

• From June 1, homeowners who don’t contact their bank by April 30, will automatically have their loan transformed to the SORA conversion package.
• Homeowners whose loan packages are automatically converted to the SORA Conversion Package are still be able to make a cost-free change to any of their current packages with their bank prior to the 31st of December, 2024.

It is better to act fast

The Association of Banks in Singapore’s (ABS) director Mrs. Ong-Ang Boon, says that those who have home loans based on SIBOR must speak with their bank and look into the options as quickly as they can.

“Borrowers are encouraged to proactively contact their banks, particularly when mortgage payments make up a big part of their monthly costs.

The discontinuation of SIBOR gives home loans based on SIBOR an opportunity to think about an alternative home loans without having to pay any charges,” says Ms. Addison.