The main obstacle in choosing between Singapore home loan packages is the knowledge that most borrowers have about SIBOR and the influence of SIBOR in interest rates. SIBOR is a daily reference rate that banks used to set as a base value on their home loan packages. This is the usual rate used by banks in setting the rate for unsecured borrowings including the wholesale money market. In Singapore, most banks and lending companies used the SIBOR more often than the LIBOR. However, when settling for floating interest rates during the trading hours in Asia, the LIBOR is being used as the basis for pricing while during the trading hours in the Pacific, the SIBOR is being used as the basis for pricing. The Association of Banks in Singapore sets the rate of SIBOR every day, making the reference rate as a benchmark among borrowers and lenders that were involved, directly or indirectly, with the financial market. A 12 month SIBOR may be created depending on the chosen package or loyalty period. LIBOR is the reference rate most banks in London used for home loan packages. The Singapore Swap Offered Rate known as the SOR is a combination of the SIBOR and the lending cost. The banks add the lending costs incurred by them to the loan rate. The setting of the SOR pegged home loan rate is still done by the Association of Banks in Singapore.
Which one is best for you?
Interest rates may work for us or steal our wealth away. When applying a loan in Singapore, you may have noticed that the interest rates are typically pegged to the SOR or SIBOR reference rate. The spread is the lending cost of the bank added to your expense. Generally speaking, we only need to observe the history of the SOR and SIBOR rates and then take note of the percentage spread the banks are adding to the reference reference rates. Normally, we have a 1, 3, 6, 9, or 12 months rate packages. The longer the term, the higher would be the spread because of the buffer rates banks used to set in case of rate fluctuations. The best option is the shortest term that your pocket can afford. I can not say 3 or 4 months. We need to know how comfortable you would be in paying the monthly amortization in a certain SIBOR or SOR pegged rate. Learning from history, the SIBOR rate typically fluctuates less than the SOR. If you feel comfortable with the SIBOR pegged rate, then choose the short term SIBOR pegged home loan package.