Man pointing in his temple with two small wooden houses in front of him.

SINGAPORE: A substantial number of homeowners in Singapore are opting to switch from their current Singapore Interbank Offered Rate (Sibor)-linked loans to alternative packages. On Friday, Dec 8, the Association of Banks in Singapore (ABS) revealed that between January and October, approximately 30,000 SG homeowners with Sibor mortgages made the transition, but a notable 57,000 are holding on to their Sibor-based loans, The Business Times reports.

By the end of 2024, Sibor will be discontinued. Its predecessor, the Singapore dollar swap offer rate (SOR), already concluded on Jun 30, 2023. Taking the reins is the Singapore Overnight Rate Average (Sora), emerging as the new benchmark for pricing floating-rate mortgages.

XW Yu, a 35-year-old public sector worker, recently converted her Sibor loan in early November, citing the delay caused by awaiting the temporary occupation permit for her condominium project. ABS has set a deadline of Apr 2024 for homeowners yet to transition. During this “active transition period,” they can opt for the Sora conversion package (SCP) or choose from prevailing fixed, floating, or hybrid home-loan packages offered by their banks.

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The SCP facilitates the conversion of existing Sibor-based loans by calculating the one- or three-month Sibor, considering the existing Sibor loan margin, the three-month compounded Sora rate, and an adjustment spread or the difference between Sibor and Sora rates. ABS publishes adjustment spreads monthly, with no additional fees or lock-in period for those transitioning to the SCP by April’s end. Notably, the adjustment spread is 0.3015% for a one-month Sibor-pegged home loan in December, and 0.3331% for a three-month Sibor.

However, homeowners selecting their bank’s loan packages might encounter a lock-in period, while those refinancing with another institution could face re-computed property loan limits and additional fees.

For those yet to make a decision by April’s end, ABS announced an automatic move to the SCP in June. The calculation of their SCP will include the existing Sibor loan margin, the three-month compounded Sora rate, and an adjustment spread based on the five-year historical median. The five-year historical median is 0.2426% for a one-month Sibor package, and 0.3571% for the three-month Sibor.

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Ms Yu admitted the process was confusing but found clarity through consultation with a mortgage broker who provided a concise overview of available options.

ABS urged homeowners to consider their financing preferences and opt for a fixed-rate package if prioritising interest rate payment certainty. Yu, for instance, chose a two-year fixed-rate package with UOB at 3%, allowing her to convert her home loan package penalty-free after one year, anticipating potential interest rate decreases.

Additionally, homeowners are advised to scrutinise the all-in interest rates of different loan packages for effective comparison and accurate financial planning. ABS emphasised that such comparisons enable borrowers to make informed decisions stating, “The all-in interest rate comparison (enables) borrowers… to compare loan offers effectively, and plan their finances more accurately.”/TISG