SIBOR and How You Can Master It

If you’re getting a home loan in Singapore, then you have to know what SIBOR is. It doesn’t matter which bank you get your home loan from. It doesn’t even matter if you’re looking for a fixed rate or floating rate, all home loan interest rates in Singapore are essentially based on SIBOR.

What is SIBOR?

SIBOR is short for Singapore Interbank Offered Rate. It is the average interest rate which banks in Singapore lend money to each other. It is also public knowledge, since it is published daily on the Association of Banks in Singapore (ABS) website. This makes home loan rates based on SIBOR the most transparent and fairest of all home loan rates, compared to board rates.

Will SIBOR increase in 2020?

Our expert opinion is no, and here's why. SIBOR is closely linked to external factors, the biggest influence being the US Federal Rate.

In fact, for almost 8 years between 2008 and 2015, SIBOR remained below 1% and home loan interest rates remained low. This was due to the global economic recession. However, from 2016 to 2019, SIBOR has been slowly climbing and reached 2%. This reflected the growing confidence in the world economy.

In March 2019, the US Federal Reserve announced that they were no longer increasing their rates. This was followed by five US Fed Rate cuts over the next 12 months, the last two being an emergency response to COVID-19 in 2020. Currently the US Fed Rate is hovering between 0% and 0.25% and will probably remain at this level for the rest of the year.

SIBOR too began to fall, and is currently below 1%. Economic recessions are cyclical, so this downturn was easily predicted since the start of 2019. If you had taken a SIBOR package in the past year, you would definitely find some comfort knowing that your home loan interest rates are low now. In fact, after the global real estate bubble (when SIBOR exceeded 3.5% in 2006) and subsequent mortgage crisis of 2008, steps have been taken to ensure we never see SIBOR rising to those extreme levels ever again.

What is a SIBOR home loan rate?

This is a home loan rate pegged to SIBOR and usually looks something like this:

3M SIBOR + X%.

Let’s break each element down for you, so you know what it represents.

What is 3M SIBOR?

3M SIBOR is short for 3 month SIBOR and refers to how often your home loan rate is refreshed - in this case, it’s every three months. That means, every three months, on the first business day of the month, the bank will check what the latest rate is and update your home loan package accordingly. 3 month SIBOR and 1 month SIBOR home loan packages are the most common in the industry today.

Is 1M SIBOR better than 3M SIBOR?

Traditionally, 1 month SIBOR is lower than 3 month SIBOR, but is more volatile since it changes more often. If your bank offers you a choice of 3 month SIBOR or 1 month SIBOR with the same spread, then the choice depends on whether you expect interest rates to rise or fall quickly for the duration of your home loan package.

In a falling interest rate environment like what we're enjoying in 2020, then of course it will make more sense to choose a 1 month SIBOR, but first, do consider if you're comfortable paying a different rate each month.

X% refers to the bank’s spread

Think of this as the bank’s surcharge. Remember, since SIBOR is the same regardless of which bank you get your home loan from, banks have to compete to offer you the best home loan rates by adjusting their spread. Depending on your home loan package, the spread may change from year to year.

This is why spread is important

You'll ideally want to get a spread that is as low as possible, which is why the best time to choose a SIBOR package is when the rate is starting to drop.

For example, as late as March of 2020, banks were offering packages as low as 3M SIBOR + 0.25% for the first three years. This is because 3M SIBOR in March was 1.58%, so banks had to offer a lower spread to stay competitive. Just two months later, 3M SIBOR is now below 0.8% - that's almost half! In response, banks are now offering packages like 3M SIBOR + 0.75%.

And this is something we've already seen in 2015, so we know it's cylical.

Is it safe to choose a SIBOR home loan rate?

SIBOR home loans are the most transparent and fairest of all home loan rates. Compared to board rates or fixed deposit-linked rates, both of which are controlled by a single bank, SIBOR is closely linked to an external factor - the US Federal Rate as we mentioned earlier.

Why should you choose a SIBOR home loan rate in 2020?

2020 is a low interest rate environment and with the COVID-19 pandemic leading to a possible global recession, we can confidently predict that rates will remain low for the rest of the year. This means that you should be looking for home loan packages that offer you the lowest interest rates.

SIBOR home loan rates are easily the cheapest in the market right now, which means you will definitely benefit from refinancing if your loan amount is more than $300,000 for HDB, or more than $500,000 for private property. At those loan amounts, the banks will be more than happy to subsidise your refinancing costs.

But that doesn’t mean that if your loan amount is below $300,000 then you shouldn’t go for a SIBOR home loan rate. When your loan amount is lower, the overall interest you’re paying is significantly smaller and you can afford to weather the fluctuating SIBOR over the long term.

You don’t have to make this decision by yourself!

If you’re looking to get a home loan in Singapore, don’t feel pressured into thinking you have to know everything about home loans before you can make a decision. At Mortgage Master, our mortgage specialists have years of experience in the industry and are happy to answer all your questions about home loans in Singapore. We will even be able to advise you on the best home loan in Singapore based on your financial situation.

Best of all? Our service and advice is free!

So drop us a WhatsApp message or fill up our enquiry form and let us help you confidently make this important decision in your life.

Want to read more about home loan interest rates in Singapore?

• Choosing Fixed Rate Home Loans in Singapore
• Board Rate? What Does This Mean and Should You Take One?
• Three Reasons to Take a Floating Interest Rate Today
• Fixed Deposit Linked Rates - The Secrets Within