I just received a notification letter from my bank recently about the change in my housing loan interest rate, which is calculated in my case as 3-mth SOR + 1%. You can refer to this MoneySmart article about the difference between SIBOR and SOR. It also shows the SIBOR vs SOR historical chart, which I have included here for the fun of it.
I follow the 3-mth SOR orange line closely simply because it directly affects my housing loan interest rate. And my monthly housing loan instalment payment happens to be my biggest expense every month. Sometimes, I compare it to the 3-mth SIBOR blue line just to see whether it would have been better to go for a SIBOR based housing loan.
Turns out the 3-mth SOR orange line has been staying below the 3-mth SIBOR blue line so far for longer periods of time than having been above it. This is from 2011 and 2017 i.e. the 6 years I have had the housing loan. The most recent adjustment this month in Jun 2017 is from 1.90685% to 1.73565%, which lowers my monthly instalment from S$3,237.60 to S$3,187.02. About S$50 less.
The next adjustment should be 3 months later and I reckon it’s more likely to go up than down. Oh well, one can hope. Look at what happened between Sep 2015 to Mar 2016. The 3-mth SOR orange line went up sharply above 1% and stayed there for a few months. I don’t like spikes in my housing loan interest rate and monthly instalment payment. Reason being we pay S$1,000 of the monthly housing loan instalment payment from our CPF Ordinary Accounts and the remaining amount in cash.
Sudden increases in the 3-mth SOR can impact my monthly cashflow negatively. Of course, I know it’s a matter of time before the 3-mth SOR trends towards a more normal rate of about 3%. The longer this takes to happen, the more ready I am for its effects as I have more time to prepare.
I got inspired after reading this post by Mr Money Mustache – Great News: There’s Another Recession Coming. It describes the recession cycle well and how you can prepare to take advantage of the next recession in layman terms for easier understanding. Of course, it’s much more difficult to do than to read. If you look at his list of fair weather preparations, we have only been meeting half of them.
I don’t like going through a recession. It’s tough to get a read on how severe it can get and even tougher to plan & execute your investing actions accordingly. You usually end up pulling the trigger too early or waiting until it becomes too late. I believe the key for salaried employees like us is to do everything we can to avoid getting retrenched during the recession.
As long as we don’t lose our jobs and stay mentally & physically health, we have the opportunity to navigate the recession successfully and build wealth. The moment either or both of us gets retrenched, I doubt that’s going to work. But who knows. Anything can happen.