What Is Singapore Interbank Offered Rate?
Singapore Interbank Offered Rate is a benchmark for borrowers and lenders involved in an Asian financial market, either directly or indirectly. It is set daily by the ABS (Association of Banks in Singapore) and is the place where large loans to businesses in the Asian area and interest rate swaps between businesses belonging or participating in the Asian economy will be quoted or denominated. It basically constitutes the unsecured funds that banks and other financial institutions in Singapore lend to each other. Home loan interest rates track changes in the SIBOR.
What Is Singapore Swap Offer Rate?
The Swap Offer Rate constitutes the cost of borrowing SGD through borrowing USD for three months and swapping the USD for SGD for the same maturity. It is basically the average funds used for commercial lending by banks in Singapore. Like the SIBOR, it is also set by the Association of Banks in Singapore. The Swap Offer Rate is more volatile, seeing as exchange rates fluctuate more, and the same is true for the US dollar market.
What Is the Difference Between the Two?
The Singapore Interbank Offered Rate is typically influenced by the supply and demand of funds in Singapore interbank market. In comparison, the SOR is determined according to factors external to Singapore, such as USD interest and exchange rates. Consequently, the SIBOR is more stable than the SOR, as the latter is more volatile. Would be home buyers that choose SOR packages typically have high-risk profiles, and their goal is to profit as a result of SOR’s potential to drop below the SIBOR, although they do risk periods in which the it will rise above it.
However, regardless of the differences between the interest rates of each, both rates trend in the same direction when it comes to the economical situation, which means that a change that forces the Singapore Interbank Offered Rate to drop will ultimately make the Swap Offer Rate drop, as well, and this is unchangeable, which is to say that this rule does not allow exceptions.
So, SIBOR or SOR?
This is a decision that needs a fair amount of research, so make sure you do it before choosing one or the other, but ultimately it is about your needs.
If, for instance, you wish to invest in a property, as long as you are not embarking on a lengthy loan, choosing SOR is not risky. However, if the purpose of your property is occupation, SIBOR is the better decision.