Singapore, 13 July 2020 – OCBC Bank has launched Singapore’s first home loan package referencing Singapore Overnight Rate Average (SORA).  The OCBC 90-Day SORA home loan package is another first by the Bank in the industry’s transition roadmap towards adopting SORA as a new interest rate benchmark for the Singapore Dollar cash and derivatives markets. SORA is the average rate of unsecured overnight interbank Singapore Dollar transactions brokered in Singapore from 9.00am to 6.15 pm daily and has been published by the Monetary Authority of Singapore (MAS) since 1 July 2005.

The OCBC 90-Day SORA Home Loan is available to buyers of completed private properties with a minimum loan size of S$1 million. The interest rate is calculated based on the simple average of the daily SORA rates over the past 90 calendar days to determine the repayment in advance.  The loan package has a one-year lock-in period, which means customers can choose to switch to another home loan package after the one-year lock-in period at no cost. Customers have the flexibility to make pre-payments of up to 50% of the loan amount in the first year without any penalty fee.  

How the 90-Day SORA interest rate is calculated

SORA is a backward-looking overnight rate as compared to a forward-looking reference rate commonly used for floating home loan packages in Singapore, such as Singapore Interbank Offered Rate (SIBOR) where the interest rate is determined at the start of the interest period.

The OCBC 90-Day SORA home loan interest rate is calculated based on the simple average of the daily SORA rates of the past 90 calendar days in advance of the loan repayment period.

The 90-Day SORA value is updated every month instead of every three months for a particular loan. To determine the interest amount for the first month, the applicable SORA-based interest rate is computed using the simple average of the past 90-day SORA rates from the day of the loan disbursement, which means computation includes the SORA rate on the day of the loan disbursement and the daily SORA rate over the preceding 89 days.

Thereafter, the SORA-based interest rate is calculated again using the simple average of the past 90-Day SORA rates from the first day of the next interest period. This process is repeated every month.  

At the start of every interest period - customers are given advance notice of the SORA-based interest rate to be paid for the coming month. As such, customers know upfront the exact interest rate to be charged for the coming one month and the instalment to be paid. This methodology helps customers better plan their finances. (Refer to Annex A for an illustration on how this works).

Mr Sunny Quek, Head, Consumer Financial Services Singapore, OCBC Bank, said, “We are pleased to launch the first retail SORA-pegged home loan as the industry take steps to move towards referencing overnight risk-free rate which provides for greater stability and transparency. With this launch, we are offering a more comprehensive range of home loan options. As this product is the first-of-its-kind in the market, we would like to give customers the opportunity to discover more about this product, and to better understand SORA as a new reference interest rate.”

The use of SORA calculated over the 90-day period computed on simple average basis has several benefits:

• SORA is publicly available and has been posted on the MAS website daily since 1 July 2005.
• SORA is a transparent and robust benchmark underpinned by a deep and liquid overnight interbank funding market.
• SORA is not susceptible to manipulation.
• Calculation of the simple average over the past 90 calendar days results in a more stable interest rate.

A summary of the key differences between a 3M SIBOR and 90-Day SORA  home loan package is set out below: