2 Risks of Sibor-Pegged Home Loan


Much has been mentioned about the “transparency” of Sibor-pegged mortgage loans. But there are TWO risks associated with such loans.

First is of course the possibility that the Sibor rate may go up. And it may shoot up dramatically.

Just 3 years ago, Sibor was hovering around 3.5%. If your bank charges you Sibor + 1.5%, you would be paying 5%. More dramatically, in 1998, Sibor spiked to 9.5%! See also Sibor History.

The second risk is about the “transparency” or lack of it.

Notice that banks always say “Sibor + x.xx%” in their advertisements? The “x.xx%” is the interest margin or spread. Banks currently charge
an interest margin of 1% to 1.5%.

However, the banks DO NOT guarantee that the interest margin will stay fixed. In other words, your bank may increase its spread to squeeze more from you, even if Sibor stays low. [See article in asiaone with comment that “(banks) may increase their (interest) margins to make sure revenue doesn’t drop that much.”]

They have done it before and they will do it again in all likelihood. Banks like DBS and HSBC have increased their advertised spreads previously (see asiaone article).

By inference, it’s highly likely that they are using different spreads for home loan packages taken up at different times. By further inference, they may also increase the spreads anytime simply by giving you notice.

This is not much different from taking up a board rate loan. The “board rate” (BR), or “prime rate”, or whatever they call it, is a mysterious creature. And it’s a scary creature.

I have first hand experience in this about 6 years ago. The bank that I used upped the effective loan rate to more than 7%. All it needed to do was to inform me about the change. No reason was given. Of course. What do you expect.

More evidence of the scary creature: in it’s website, UOB says “the BR offered for your loan package may be different from BRs offered to other customers for different loan packages” and that “the BR can be changed by the bank anytime, by giving 30 days’ notice, depending on market conditions and/or changes in the financial indicator(s) against which the BR is benchmarked. This 30-day notice requirement does not apply to home loans benchmarked against market indices.”

The last sentence sounds scary. Does it mean that they can adjust the Sibor spread every day or even every hour if they want to?

Perhaps your only defence is to take up a loan with no lock-in period and refinance immediately when you notice your bank is pulling a fast one on you.


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  1. Yes agree, 5 yrs ago i signed my housing loan with UOB as they have the most attractive BR+x% package, 2 year later when TOP the BR changed, they told me the same thing that different loan package has got different BR.

    In simple term, it is upto the bank to adjust the BR, it’s a scary loan agreement!

    i have re-financed it twice and now it’s on 3-month SOR+0.85% with 1 yr penalty.

  2. Hihi, read your article and like to give some personal comments of your argument.

    1) Quoting your 1st point: “First is of course the possibility that the Sibor rate may go up. And it may shoot up dramatically.”

    If Sibor goes up, likelihood will be that the other lending rates in Singapore to go up as well. Which pretty much explains how some loan rates can hike up to 6%-7% when Sibor went up to approx 3.5% in 2006.

    2) Quoting your article: “In other words, your bank may increase its spread to squeeze more from you, even if Sibor stays low. [See article in asiaone with comment that “(banks) may increase their (interest) margins to make sure revenue doesn’t drop that much.”]”

    If you have signed up for a package that is eg, Sibor + 1.25%, the margin will stay +1.25% as per contractual agreement. The bank will not increase the pre-agreed margin to + 1.75% from the contractual +1.25%.

    The later packages of +1.75% only applies to NEW applications taken up at that point. It will not affect those who are already on lower margin packages.


  3. Thanks for your comments, Snowy.

    Regarding (2), may I know which bank actually GUARANTEES in its contract that it will NOT increase the spread? If possible, I would like to see the actual contractual terms. Possible to forward me an example?

  4. Regarding (2), I have this concern too when I took up a Sibor pegged package for my mortgage, and it has been confirmed by the banker that the spread will be fixed.

    Although I do not have a specific contractual term that says that the bank will NOT increase the Sibor spread, but I do not recall seeing the one that says it will either. All it states in my Offer Letter is only the spread will be at +XX% till the end of the loan tenor.

  5. If I were you, I would ask the banker to give me a signed black and white confirmation.

    Take a look at the terms at the bottom of this HSBC page. Point (a) suggests that a Sibor-pegged rate can also be called board rate (BR). And point (c) says the BR can be changed anytime “depending on market conditions and/or…”. In my view, these 2 points alone
    grant the bank the right to increase the spread.

    Interestingly, this UOB page uses almost the same wordings.

    So, unless it’s clearly stated in the contract that the bank will not increase the spread, I wouldn’t bet my last dollar that the spread is fixed for the entire duration of the loan.

  6. Hi admin

    You got it wrong there. Snowy is right. The Sibor/ BR part can move but the spread is fixed once you sign, in accordance with what is stated in your letter of offer. The letter of offer will not have wording saying that they guarantee the spread will not increase but it will say the spread is for eg. 1.5% for 1st year, 2% for 2nd year etc. The bank is contractually locked in to charge you a spread of 2% for the 2nd year.

    When you hear of people getting screwed when their mortgage payment rise, it is because of the floating element (Sibor or BR). BR is less transparent than Sibor as you rightly pointed out.

    But instead of 2 risks associated with Sibor loans, I would say there is only 1 risk.

  7. Curious, my experience is contrary to your comment…i bought a house last yr slightly after the bottom in march/april. i am happy since things have picked up! hooray!

    I took a loan on an n-mth sibor with no lock in period. Sibor has stayed the same from that time till end 09, but my bank sent me a letter around nov 09 increasing the overall interest rate by 0.01%, not much, but the bank does have the discretion to up the x.xx in the Sibor + x.xx ….. SCREWY but i’m ready to jump ship since there’s no lock in

  8. Fruitcake, mine varies like yours too. But the thing is to look at the sibor figure they use to calculate. Sibor does move a little (look down the decimal points…) and they use Sibor as at certain dates, specified in your letter of offer. You can ask them to break down the overall interest rate they are charging … it would be the Sibor moving.

  9. The base rate was the one moving. Spread (+xxx%) does not change from what was contractually agreed.
    You will be able to check thru MAS website on historical 3m SIBOR/SOR and 12m SIBOR to see that it has actually moved.
    And by the way, the banks cant co-operate and move SIBOR/SOR… maybe they can impact it indirectly though volumes and bids in the inter-bank market.
    Effectively, Market pegged mortgage rates are the closest you can get to transparent loan rates.
    However, if it was “bank’s reference rate” “Board Rate” “Preferred Lending Rate” etc… those are open to chagne at bank’s discretion.

  10. don’t understand why there’s even any confusion on this topic.

    for those of you who have existing mortgages, READ your mortgage agreement. if it says that the spread is fixed (e.g. you will be charged SIBOR+1.5% from Yr 4 onwards, etc), then contractually the banks CANNOT tweak that spread as long as you continue to service the loan in accordance with the terms of the agreement (i.e. no defaults, etc).

    The articles in AsiaOne and Mocca refer to *NEW* loans, for which banks can raise the spread for *new* customers to compensate for a falling SIBOR, so that they still maintain their margins. If you have an existing loan, it does not affect you.

  11. not lawyer, the agreement does not need to have the word “fixed”. If it states that it is 4%, then it is fixed at 4% unless somewhere else in the agreement it states that it can vary.

    Agree totally with anonymous, really cannot understand why there is any confusion on this topic.

  12. I may be asking different question related to the sibor + xx. I am shopping for a new loan and there few options to go with 1M sibor + XX and 3M sibor +xx.

    Historically 1M is lower or equal to 3M sibor, so would it be more beneficial to go with 1M sibor + xx? what is the downside? thanks.

  13. 1 month spread will always be lesser than 3 month spread at a given point in time (lesser risk/volatility given lower timeframe).

    However if interest rates rise sharply, then your base rate jumps in month 2 and month 3 for the 1 month spread while it remains the same in those months for the 3 month spread. If interest rates are going down, then the base rate will go down in months 2 and 3.

    So in general, the 1 month SIBOR is more volatile and hard to say which is better without more analysis.

  14. just wondering. any advice on what might be the forecast of SIBOR in the next 6 months?

    and also what affect SIBOR Rates?

  15. sibor will remain low, just as libor and fed rates will too. then over 3 to 5 years, rates will be gradually adjusted upwards coinciding with a gradually blooming world economy which will peak in 2017 surpassing the previous peak.

    the future is so easy to predict… 🙂

  16. cos the central bankers think it’s better to err on keeping the rates low than to raise them too early. raising them too early will derail the recovery but raising them too late will lead to high inflation. the central bankers are willing to risk on the inflation side than on spoiling the recovery.

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