The dangers posed by a Sibor hike have been overblown

THE recent spike in the Singapore interbank offered rate (Sibor) is not anything homeowners need to be alarmed about.

At first glance, the jump in the three-month Sibor rate from about 0.45 per cent on Jan 2 to 0.62 per cent on Jan 6 looks like it could be a big problem. Such a move might be seen to imply that a borrower who is paying floating interest at that rate now faces the reality of a 38 per cent hike in interest payments. But the truth is that most borrowers do not pay just the Sibor rate on their loans. Sibor after all is the interbank rate - unless one is a bank, chances are that one borrows at a spread over the benchmark rate.

Concerns about widespread defaults by homeowners are, therefore, overblown. The prevailing spread for a floating-rate 30-year loan for a private apartment is about 80 to 90 basis points over the benchmark rate. The 17-basis-point increase in the three-month Sibor rate over the weekend, therefore, would translate to less than a 20 per cent increase in interest payments for the typical homeowner. That is significant, but still manageable for most mortgagors. The spreads for unsecured loans are often significantly higher. Of course, there will be defaults at the margin. Interest rates may rise further in anticipation of the US Federal Reserve raising short-term rates later this year, meaning that the interest burden for borrowers will get even heavier. But there is no near-term prospect of this.