SOR/SIBOR pegged loan exit strategy

I have mentioned in my previous post that those of us who have taken up a SOR or SIBOR pegged loan may find ourselves at risk of having to pay a 1.5% penalty when doing a full redemption not on the rate repricing date.

When you sell your house, it is practically impossible to time the transaction such that you can do a full redemption exactly on the rate repricing date, and this being the case, you’re likely to have to pay a 1.5% penalty on your outstanding loan amount. Now that is a hefty and probably unfair penalty as it applies even though you are not bounded by any lock-in.

The way out of this is to, well, exit the SOR/SIBOR pegged loan by doing a conversion to a no lock-in floating rate package. You can do this provided you are not within any lock-in period. Now, a no lock-in floating rate package is what makes most sense since, firstly, you want to do the full redemption anytime soon, and secondly, floating rate packages have lower rates than fixed rate packages, and they’re likely not going to change within the short period that you’re planning to do the full redemption. So there you have it, your exit strategy.

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