Interest Rates and Loan Packages

Understanding SORA

The Singapore Overnight Rate Average (SORA) is the key benchmark interest rate for home loans in Singapore, administered by the Monetary Authority of Singapore. SORA reflects the average rate of actual unsecured overnight interbank SGD transactions, making it a transparent and objective benchmark. Most new floating rate home loans in Singapore are now pegged to SORA, following MAS's active transition away from bank board rates, which were less transparent and set at the bank's discretion.

Fixed vs Floating Rates

A fixed rate loan offers certainty with a constant interest rate for a set period, typically two to three years, after which the rate usually converts to a floating rate. Fixed rates are advantageous in a rising interest rate environment as they protect against rate increases during the fixed period.

A floating rate loan pegged to SORA moves in line with market conditions. SORA pegged loans offer transparency, since borrowers can track the benchmark rate independently, but the rate can move up or down over time, introducing variability in monthly repayments. Floating rates have historically offered lower initial rates than fixed packages, though this is not guaranteed.

Lock-In Periods

A lock-in period is a timeframe during which refinancing or fully redeeming your loan triggers a penalty, typically 0.75% to 1.5% of the outstanding loan amount. Lock-in periods commonly last one to three years.

While a package with an attractive rate may come with a lock-in period, it is important to weigh the benefit of the rate against the flexibility you give up. If you anticipate selling the property, refinancing, or making a full prepayment within the lock-in window, the penalty could outweigh the interest savings.

A Special Case: BUC and BTO Properties

If you are buying a property under construction, whether a private new launch (Building Under Construction, or BUC) or a BTO flat, the choice between fixed and floating is largely made for you. Banks only offer floating rate packages for these purchases. Fixed rate packages are not available until the property is completed.

For BTO buyers, this matters less than it sounds. Your loan is only disbursed when you collect your keys, so there are no monthly instalments to worry about during the construction period. Once you take possession and the loan begins, you are free to refinance to another bank or reprice with your existing one, and at that point the full range of fixed rate packages becomes available to you.

This is also why many BTO buyers choose to start with an HDB loan rather than a bank loan. The HDB rate is stable and the process is simpler at a stage when there is no real benefit to shopping around, and they then refinance to a bank loan on key collection if a bank package works out better for them. Note that the move only works in one direction: once you refinance from an HDB loan to a bank loan, you cannot switch back to an HDB loan later.

For BUC purchases, the mechanics are different because of progressive payments. The bank disburses your loan in stages as construction milestones are met, and you only pay interest on the amount disbursed so far, not the full loan quantum. Your instalments therefore start small and step up as the building progresses. Terms vary meaningfully between banks here, including how interest is charged during the construction period and when any lock-in actually begins, so it is worth checking the specific conditions of each package rather than comparing on headline rate alone.

In both cases, the practical takeaway is the same: treat the construction period loan as a temporary arrangement, and plan to review your options properly once the property is completed and the whole market opens up to you.