Close to two-thirds of home owners with Sibor mortgages yet to switch as deadline looms

Many home owners with mortgages pegged to the Singapore Interbank Offered Rate (Sibor) have switched to alternative loan packages, but far more are resisting the move despite the clock ticking for such loans. 

Around 30,000 mortgage borrowers made the switch between January and October, but 57,000 or so remain on their Sibor-based loans, noted the Association of Banks in Singapore (ABS) on Friday (Dec 8).

Sibor will be discontinued by the end of 2024. The Singapore dollar swap offer rate, known as SOR, ended on Jun 30, 2023.

They are being replaced by the Singapore Overnight Rate Average (Sora) as the main reference rate for pricing floating-rate mortgages. 

XW Yu, who is 35 and works in the public sector, converted her Sibor loan in early November. She delayed getting another loan package because she had to wait for the temporary occupation permit for her condominium project to be issued.

ABS said home owners who have not switched loan packages have until the end of April 2024.

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If they do so during this “active transition period”, they can choose between the Sora conversion package (SCP) or any prevailing fixed, floating or hybrid – a mix of fixed and floating – home-loan packages offered by their banks.

The SCP directly converts the existing Sibor-based loan in the following ways.

The SCP for a home loan on a one- or three-month Sibor will be calculated based on: 

• the existing Sibor loan margin for the individual’s loan, which will remain unchanged; 

• the three-month compounded Sora rate; and

• an adjustment spread, which is the difference between the Sibor and Sora rates.

The adjustment spreads are published by ABS on the first business day of each month and will apply to customers who transition to the SCP during that month. The adjustment spread for a one-month Sibor-pegged home loan in December is 0.3015 per cent, and 0.3331 per cent for a three-month Sibor.

ABS said banks are offering Sibor home loan customers the option to switch to the SCP with no additional fees or additional lock-in period from now until the end of April. However, a lock-in period may apply if customers choose the loan packages offered by their banks.

ABS added that homeowners who opt for a loan package with their current bank do not have to go through the process of calculating their mortgage servicing ratio, loan-to-value ratio and total debt servicing ratio again. These ratios are used to determine the loan amount an individual can take on.

But homeowners who refinance with another bank will be subject to a re-computation of property loan limits. They may also incur fees for refinancing their loan with another financial institution.

Sibor borrowers who still have not converted their loans by the end of April will be automatically moved to the SCP in June.

Their SCP will be calculated based on their existing Sibor loan margin, the three-month compounded Sora rate and an adjustment spread, which is based on the five-year historical median.

The five-year historical median for a one-month Sibor package is 0.2426 per cent, and 0.3571 per cent for the three-month Sibor. 

ABS said that after the switch from the Sibor to Sora package, the adjustment spread will be fixed for the remaining duration of the loan.

Yu said the whole process was very confusing, but she found it helpful to speak to a mortgage broker who gave her a “summary of the various options available to her”.

ABS said homeowners should consider their financing preferences and opt for a fixed-rate package if they prioritise certainty in interest rate payments.

Yu went for a two-year fixed-rate package with UOB at 3 per cent. She can convert her home loan package at the end of one year with no penalties involved.

She opted for this package in the hope that interest rates will go down next year. 

ABS added that homeowners should also look at the all-in interest rate of the different loan packages so they can compare their current Sibor package and bank deals, and decide whether to switch to the SCP by end-April or wait for automatic conversion in June.

“The all-in interest rate comparison (enables) borrowers... to compare loan offers effectively, and plan their finances more accurately,” ABS added. THE STRAITS TIMES