Interest Rates and Loan Packages

Understanding SORA

The Singapore Overnight Rate Average (SORA) is the key benchmark interest rate for home loans in Singapore, administered by the Monetary Authority of Singapore. SORA reflects the average rate of actual unsecured overnight interbank SGD transactions, making it a transparent and objective benchmark. Most new floating rate home loans in Singapore are now pegged to SORA, following MAS's active transition away from bank board rates, which were less transparent and set at the bank's discretion.

Fixed vs Floating Rates

A fixed-rate loan offers certainty with a constant interest rate for a set period, typically two to three years, after which the rate usually converts to a floating rate. Fixed rates are advantageous in a rising interest rate environment as they protect against rate increases during the fixed period.

A floating rate loan pegged to SORA moves in line with market conditions. While SORA-pegged loans offer transparency — borrowers can track the benchmark rate independently — the rate can move up or down over time, introducing variability in monthly repayments. Floating rates have historically offered lower initial rates than fixed packages, but this is not guaranteed.

Lock-In Periods

A lock-in period is a timeframe during which refinancing or fully redeeming your loan triggers a penalty, typically 0.75% to 1.5% of the outstanding loan amount. Lock-in periods commonly last one to three years. While a loan package with an attractive rate may come with a lock-in period, it is important to weigh the benefits of the rate against the flexibility you give up. If you anticipate selling the property, refinancing, or making a full prepayment within the lock-in window, the penalties could outweigh the interest savings.