SIBOR stands for the Singapore Interbank Borrowing Offer Rate and is the rate at which banks conduct unsecured lending to one another. The rate is publicly available in Business Times, and the web.

SOR stands for Swap Offer Rate and it represents the cost of borrowing SGD synthetically through borrowing USD and swap out in return for SGD for the same tenor. Sounds complicated? Basically SOR rates are very much affected by the US dollar strength and interest rates.

How does SIBOR and SOR work?

Both SIBOR and SOR comes in tenure of 1/3/6/12 months, with 1 month and 3 months more commonly found. The longer the tenure of SIBOR and SOR usually results in higher rates.

The banks will peg a spread to the SIBOR and SOR rates.(Eg: 1 -month SIBOR + 1% and 1-month SOR + 1%, if 1 month SIBOR is 0.5%, then you will end up paying 1.5% interest)

The tenure you select also determines how often your interest payments fluctuate.

If you select the 1 month SIBOR, then your monthly repayments will change every month. If you select the 3 month SOR, your monthly repayment will be fluctuate only every 3 months.

SIBOR vs SOR vs Bank Board rates

When you take up a floating rate package from the bank, you will have to decide between SIBOR, SOR and the bank board rates.

Both SIBOR and SOR are very transparent as compared to the bank board rates as the banks can at their own discretion adjust the board rates. This board rate option can be a very risky one as there is lack of transparency into how the rates are set.

SIBOR tends to be more stable with less fluctuation and will appeal more for home owners and those who do not have too huge a risk appetite.

In recent years, SOR has been lower than SIBOR. However, this lower rate is compensated by the wild fluctuations of SOR and there has been historical instances where SOR rates were much higher than SIBOR.

This option will be more recommended for investors or the financially savvy who have done their sums and can stomach increase in payments should SOR rates increase rapidly.

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