Swap offer rates (SOR) — a rate that signifies the synthetic cost of borrowing Singapore dollars, by borrowing US dollars at similar maturity and exchanging them for Singapore dollars — turned negative two weeks ago as funds seeking safety flooded the local market.
Following this drop, a few banks in Singapore stopped providing SOR-pegged products.
Two banks, however, have decided to implement a floor rate. The first, a Chinese bank, has imposed a minimum floor rate but if SOR falls further under this rate, it will become the effective rate.
Another Australian bank is expected to follow suit soon and will either raise the current floor rate or add the spread.
“SIBOR rates have also dropped following the drop in SOR, the spread portion for most of the SIBOR-pegged packages in the market are normally lower,” said John Lee, Head of LoanGuru.com.sg, a free online home financing service.
With this, the overall effective rate for SIBOR-pegged products could end up lower than SOR-pegged packages.
“My advice to consumers is to be more alert about this minimum floor rate stated in the terms and conditions,” said Lee.
Meanwhile, the effective rate is determined by adding SIBOR (or SOR) and spread (set by individual banks).
As of 25 August 2011, the three-month SIBOR is 0.35 percent, while the three-month SOR is 0.03 percent.
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