If you’re exploring home loans in Singapore, you’ve probably come across the term SORA. Many buyers feel confused at first, wondering:
- What exactly is SORA?
- How does it affect my home loan?
- Is it better than a fixed-rate package?
Don’t worry — SORA can be understood easily once it’s broken down into simple terms.
This guide explains what SORA is, why it exists, and what it means for your mortgage.
What Is SORA?
SORA stands for Singapore Overnight Rate Average.
It is a floating interest rate benchmark used by banks in Singapore to price home loans, business loans, and other financial products.
Here’s the simple explanation:
Every night, Singapore banks lend and borrow money from each other.
- These transactions happen daily.
- The interest rates vary.
- MAS then calculates the average of these transactions.
That average is known as SORA.
In other words:
✔ SORA = the daily average interest rate banks charge each other
✔ Your home loan interest = SORA + bank’s spread
It reflects real, transparent, market-based interest movements.
Why Did Singapore Move to SORA?
Before SORA became the standard, Singapore used SIBOR and other benchmarks.
These older benchmarks were:
- Less transparent
- More volatile
- Based on quotes rather than actual transactions
SORA became the new reference rate because it is:
✔ Based on actual overnight interbank market transactions
✔ Harder to manipulate
✔ More stable due to its averaging method
✔ Globally recognised as a reliable benchmark
How Does SORA Affect Your Home Loan?
If you choose a SORA-pegged home loan, your interest rate will change over time as SORA moves.
When SORA goes up → home loan interest increases → monthly instalment increases.
When SORA goes down → home loan interest decreases → your monthly instalment decreases.
This means:
- You pay more when market interest rates rise
- You pay less when the economy slows and rates fall
SORA makes your mortgage responsive to economic conditions — both good and bad.
Why Is SORA Considered Fairer and More Transparent?
SORA has become popular because it offers several advantages to borrowers.
1. More Transparent
SORA is published daily by MAS (Monetary Authority of Singapore).
It is based on real transactions, not estimates.
2. More Stable
Most banks use 3-month compounded SORA, which means:
- It takes the average of the past 3 months
- This smooths out sudden spikes
- Reduces volatility in your loan instalments
3. Fairer for Borrowers
With SORA:
- Banks cannot arbitrarily adjust the rate
- You get a clearer reflection of true market conditions
- You’re protected from sudden, unfair rate hikes
This makes SORA a more reliable and predictable benchmark for long-term loans like home mortgages.
Fixed Rate vs SORA Floating Rate — Which Is Better?
If you’re comparing mortgage options, these are the main differences:
Fixed Rate
- Locked-in interest for 2–3 years
- Monthly instalments remain the same
- Good for buyers who value stability
- Rates may be higher during high-interest environments
SORA Floating Rate
- Moves with market conditions
- Can be cheaper when interest rates fall
- Offers fair, transparent pricing
- Installments fluctuate over time
Which is better?
It depends on:
- Your financial stability
- Risk appetite
- Income consistency
- Market outlook
Many buyers mix strategies depending on whether interest rates are trending up or down.
SORA Makes Home Loan Pricing More Transparent and Fair
SORA may sound technical, but its purpose is simple:
provide a fair, transparent, market-based benchmark that reflects real interest movements.
For homeowners, a SORA-pegged loan means:
- Greater transparency
- Less volatility
- A fairer reflection of economic conditions
Need help comparing SORA loans vs fixed-rate loans?
Choosing the right package can save you thousands over the years.
📞 Reach out to me, Libin from Instyle Homes Singapore, for a friendly, non-obligatory comparison today! 😊
