In contrast, a floating-rate home loan has interest rates that change along with market conditions. A floating-rate home loan's interest rate is usually tied to a reference rate (such as SORA). Thus, the borrower's monthly loan repayments may vary according to fluctuations in the reference rate.
The plus side to opting for a floating-rate loan would be the possibility of making mortgage savings in the occasion of an interest rate fall.
Bank of China offers three-month Singapore Overnight Rate Average (SORA) loan packages.
A SORA-pegged Bank of China loan rate is based on the
SORA - the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore between 8 am and 6.15 pm.
The SORA rate is validated and calculated by the MAS. Bank of China’s three-month SORA package would therefore update interest rates correspondingly every three months.
It is important to understand that the Bank of China would also charge borrowers a spread on top of the three-month SORA rate. A spread is a fixed interest percentage that the bank charges for loaning out its funds. In other words, a spread is a bank’s profit cut from giving borrowers capital to make their property purchase.
As such, the total interest rate of Bank of China’s three-month SORA floating-rate home loan comprises both the three-month SORA rate and the spread charged by the bank. These two interest rates combined will determine how much a borrower has to pay in monthly loan repayments.
