Sibor, SOR VS Internal Board Rates

By: Zeng Han Jun, CPCG, Singapore





Home loans have always been pegged to internal board rates and last year banks started pegging to rates like Sibor and SOR. For your information, internal board rates are interest rates that are set and maintained by the bank’s management. Sibor (Singapore Interbank Offer Rate) and SOR (Swap Offer Rate) are interest rates that are directly influenced by market forces. Banks normally structure their housing loan products in following manner:





Determination of first year interest rate = (Internal Board Rate/ Sibor/ SOR) + 0.5%






If Sibor as of today is 0.5%, then effectively the first year interest rate is 0.5% + 0.5% = 1%





The diversification into open rates like Sibor and SOR is largely a response to consumer’s want for higher level of transparency in the make up of the board rates. For rates like Sibor and SOR, you can check the daily movements by checking up on websites such as CPCG’s corporate blog, subscribe to SMS services or simply calling up your banker or broker. What many people do not know is that, internal board rates exhibits more stability, although it’s make up is not as transparent as Sibor or SOR.





If you observe the movements of Sibor and SOR, you will realize that they adjust themselves according to the market on a daily basis. This feature often cause jittery in new home buyers or even investors who rather have stability in order to forecast future earnings clearly. The result of the over hype focusing on the demerits of internal board rates have caused many consumers to totally filter internal board rate deals from their radar screen. Several of my clients in the past clearly expressed their distaste for internal board rates the moment it is being mentioned. However, what they do not understand is that some of these internal board rates have held themselves at their level for the past several years. Some of them have even been constant for almost a decade.





My point of view is that, do not immediately turn down a deal just because someone else said it is a bad one. Spend some time investigating the pros and cons of any deals that are presented to you and weight them against the rumors that are running rampant in the market. You might just stumble onto a deal that is overlooked by most people. That plays a very important part in securing a higher margin in the long run as compared to other investors. Adopting such a mindset is especially important for the real estate investor due to the less liquid market of real estate, as compared to the paper market.


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Do you think internal Board rate will be stable for those 3 years lock-in package?

Do not take internal board rates! Previously, there was no SIBOR, so banks lured customers with low first year rates and slaughtered them the next 2 years cause they are locked in. I was teapped like this like many others. Banks have a clause that allows them to change rates as and when they please. In Malaysia, all banks have to follow the interbank rate so they can't do this. Many Singaporeans complained to MAS. This is why banks offer SIBOR now.
So it's better to have MAS control the rates than the greedy banks!