Is SIBOR Safer Than SOR (Swap)?

There is a general perception that a home loan pegged to the SIBOR is a stable deal with less risks involved. However, if you have decided on a home loan benchmarked to the SIBOR, there are some things that you should be aware of.

SIBOR fluctuates as well. Although it is more stable in that it fluctuates with much less volatility, tracking SIBOR rate history shows that it hit 9.5% in 1998. That is astronomically higher than current SIBOR rate today. So even though it is generally accepted that home loans pegged to SIBOR instead of SOR (Swap) are more stable, do not ignore the fact that interest rates are influenced by the greater economy and market sentiments.

This means that if you have taken up a house loan with a 3 year lock-in period, you will be defenseless against an unprecedented SIBOR jump during that 3 years unless you are willing to pay a redemption penalty. In this case, you will prefer to take up a house loan with fixed interest rates, a house loan with a shorter lock-in period, or a mortgage loan pegged to the alternative SOR Swap rates. Nobody talks about LIBOR anymore these days.

Another thing that you should note is that banks and lenders operate for profits. So they can legally adjust the interest rates that they charge when circumstances demands so. You cannot expect financial institutions to operate at a loss like a charity non-profit organization. This means that lenders can demand a higher margin and adjust the spread accordingly. In this case, no matter what the SIBOR or SOR Swap is, interest rates that are charged on your home loan can be affected if your lender sees it as fair and proper.

One more note is that in recent periods, SOR rates have been consistently lower than SIBOR rates.

Putting these into perspective, you should be able to better decide on your comfort level for SIBOR rates, SOR Swap rate, lock-in periods. Do not take up a home loan package pegged to SIBOR rates simply because of a perception that is less risky. Understand how home loans work to decide on what suits you best.