Disclaimer (Block 1): This article is for educational purposes only and is intended to assist CEA-registered property agents in understanding regulatory frameworks. It does not constitute financial, tax, or legal advice. LEVR's calculations are indicative only. Always verify rates and eligibility with your bank, HDB, CPF Board, or a licensed financial advisor before advising clients.
What Is SORA?
SORA stands for the Singapore Overnight Rate Average. It is a backward-looking rate published daily by the Monetary Authority of Singapore (MAS) that reflects the volume-weighted average rate of overnight unsecured borrowing in the Singapore interbank market.
Because SORA is based on actual overnight transactions — rather than forward-looking estimates — it is considered a more robust and manipulation-resistant benchmark than the legacy SIBOR (Singapore Interbank Offered Rate) that it replaced.
From September 2024, Singapore banks ceased offering new SIBOR-pegged home loans. All floating rate home loans offered by major Singapore banks are now SORA-based. Existing SIBOR-pegged mortgages have been transitioned to SORA or fixed rates by their respective banks.
How a SORA-Pegged Mortgage Works
A SORA-pegged home loan uses a compounded version of SORA — typically the 3-month compounded SORA — as its floating rate index. The bank adds a spread (also called a margin) on top of this benchmark to arrive at the borrower's applicable interest rate.
For example, if 3-month compounded SORA is 3.00% and the bank's spread is 0.80%, the borrower's effective rate is 3.80% for that rate reset period.
Key structural features of SORA mortgages:
- Compounded SORA: Banks use a compounded average of daily SORA over a defined lookback period (typically 3 months) rather than a single-day rate. This smooths out short-term volatility.
- Rate reset cycles: The applicable rate is typically reset every 1 or 3 months, depending on the loan package. At each reset date, the new compounded SORA figure is applied, changing the borrower's instalment accordingly.
- Bank spread: The spread is set by the bank and may vary by package and lock-in period. Different banks offer different spreads — comparison shopping matters.
- Transparency: MAS publishes daily SORA figures and compounded SORA averages on its website. Borrowers and agents can check the current rate directly.
SORA vs Fixed Rate: Key Trade-offs
Many banks offer both SORA-pegged floating packages and fixed rate packages. The choice affects affordability planning and risk exposure.
- Fixed rate packages: The interest rate is locked for a defined period — typically 2 to 5 years. Monthly instalments are predictable. After the fixed period, the loan typically reverts to a floating rate (often SORA + spread). Fixed packages usually carry a lock-in penalty if the borrower refinances or fully redeems during the fixed period.
- SORA floating packages: The rate adjusts with each reset cycle, so instalments can rise or fall. If SORA falls, borrowers benefit immediately. If SORA rises, instalments increase. Floating packages generally have shorter or no lock-in periods, giving more flexibility to refinance.
- Rate environment matters: In a rising rate environment, fixed packages provide certainty. In a falling rate environment, SORA floating packages may offer lower effective rates without waiting for a fixed period to expire.
Agents should brief buyers that the decision between fixed and floating is a risk management decision, not a mathematical certainty. Neither is universally superior — the right choice depends on the buyer's income stability, holding horizon, and tolerance for payment variability.
SORA and the TDSR Stress Test
For TDSR (Total Debt Servicing Ratio) assessment, MAS requires banks to apply a medium-term interest rate stress test when computing how much a borrower can service. For property loans, MAS has prescribed a minimum stress test rate — banks must assess affordability using a rate of at least 4% p.a. (or the prevailing rate plus a buffer, whichever is higher) even if the current SORA-based rate is lower.
This means a buyer may be approved for a loan when SORA is 2%, but the TDSR computation was done at 4%+ — so the buyer's actual approved loan quantum may be lower than they expect from the current rate alone. Agents should remind buyers that TDSR approval is not purely based on today's rate.
Lock-In Periods and Redemption Penalties
Most SORA home loan packages come with a lock-in period — typically 1 to 3 years. During the lock-in period, partial or full redemption, refinancing with another bank, or converting to another package within the same bank typically attracts a redemption penalty, which is usually expressed as a percentage of the redeemed amount (e.g., 1.5% of loan redeemed).
Buyers who anticipate selling or refinancing within a few years should factor lock-in periods into their package selection. An agent can add value by reminding buyers to check the lock-in expiry date before listing a property for sale, to avoid triggering a redemption penalty at the point of completion.
Agent Guidance at the Buyer Briefing Stage
A property agent's role does not include selecting a loan package for a buyer — that requires the expertise of a licensed mortgage broker or the buyer's banker. However, agents can add significant value by:
- Explaining the difference between fixed and SORA floating packages at a high level so buyers can ask informed questions of their bank
- Reminding buyers that monthly instalments on a SORA package can change at each reset cycle — budgeting should account for the possibility of higher rates
- Flagging the importance of checking lock-in period expiry before listing a property for sale
- Explaining that TDSR approval is stress-tested at a floor rate above the prevailing SORA — so approval quantum may be lower than a raw rate calculation suggests
- Directing buyers to compare packages across multiple banks rather than accepting the first offer, since spreads differ
- Recommending buyers engage a licensed financial adviser or mortgage broker for detailed package comparison and documentation support
Where to Check Current SORA Rates
MAS publishes daily SORA rates and compounded SORA averages on its official website. Agents and buyers can look up:
- Daily SORA (overnight rate)
- 1-month compounded SORA average
- 3-month compounded SORA average
- 6-month compounded SORA average
The 3-month compounded SORA is the most commonly used benchmark for residential mortgages. Individual banks apply their own spread on top — so the published SORA rate is the index, not the borrower's effective rate.
Summary
SORA replaced SIBOR as Singapore's floating rate mortgage benchmark in 2024. SORA-pegged mortgages use compounded overnight rates plus a bank spread, reset periodically — typically monthly or quarterly. The key trade-off against fixed rate packages is rate certainty vs flexibility. TDSR is stress-tested above the prevailing SORA rate, so approved loan quantum may be lower than buyers expect. Agents should ensure buyers understand payment variability, lock-in implications, and the value of comparing packages across banks before committing.
Disclaimer (Block 3): LEVR's calculator outputs are estimates based on inputs provided and current regulatory parameters as known at time of publication. They are not a guarantee of borrowing capacity, stamp duty liability, or CPF eligibility. Regulatory thresholds and rates may change. Always verify with IRAS, your bank, or a licensed financial advisor before making financial decisions.