Bank unfair to existing home loan clients

http://www.straitstimes.com/ST%2BFor...ry_320280.html

December 31, 2008 Wednesday

Bank unfair to existing home loan clients


WHEN I signed up for a home loan from DBS Bank in May 2005, my rate was pegged to the Special Mortgage Rate.

The Special Mortgage Rate has increased from 4.25 per cent in May 2006 to the current 5.5 per cent. The increase was due to the hike in interest rates during those periods.

Since last year, although the Singapore Inter-Bank Offered Rate (Sibor) and fixed deposit rates have decreased significantly, the Special Mortgage Rate has yet to decrease. The fixed deposit rates and Sibor are now lower than when I first took the loan.

DBS is not being fair to existing customers who took the loan earlier. As my loan has not been drawn down due to the deferred payment scheme and is locked in, I am not entitled to the low interest rate currently available in the market.

When queried, the explanation was that DBS no longer uses the board rate and its new loan packages now follow the Sibor, so it will not revise the Special Mortgage Rate. DBS said my package has a cash rebate component, which warrants the higher interest rate. That I understand, as when I signed for the package with DBS, the rate was actually higher than in other packages available. However, after careful calculation, I decided to sign with DBS because the package was still more attractive. The difference of interest rate was not more than 2 per cent from the market rate which it is currently.

I must add that DBS did offer me a repriced package based on the Sibor, in which the terms and conditions are worse than in my original package. In addition, I will lose the cash rebate.

The fair practice would be for DBS to decrease the Special Mortgage Rate to a reasonable range of between 4 and 4.5 per cent. This would benefit all customers and not only those who contacted the bank.

I have sent DBS an e-mail message, asking if it plans to revise its Special Mortgage Rate upwards in future, once interest rates start to increase but I have yet to receive a reply. If it does revise the Special Mortgage Rate upwards, there is indeed a major flaw in its argument against revising the Special Mortgage Rate downwards.

It would be even worse if DBS revises the Special Mortgage Rate upwards, even before current interest rates reach the high of more than 3 per cent for fixed deposit rates.

Last but not least, I hope the Consumers Association of Singapore or the relevant authorities will comment and look at whether banks in Singapore have been fair to their customers.

Khor Eng Hao

http://www.straitstimes.com/ST%2BFor...ry_321919.html

January 5, 2009 Monday

Home loans: No interest savings despite falling market rates


I REFER to last Wednesday's letter, 'Bank unfair to existing home loan clients', and would like to share my experience with another bank.

I took a mortgage loan with OCBC Bank in May 2007 to finance the purchase of a property. Predicting that the interest rate was on a downward trend, I signed up for a floating rate package. There was no option then for a more transparent variable interest rate loan package pegged to the Singapore Inter-Bank Offered Rate, which I would certainly have taken up had it been available.

I had expected to see some interest cost savings when the rates went down. I also had the mistaken belief that banks will act in good faith to adjust the interest rates downwards for customers on a floating rate package when the market rate falls.

The interbank interest rates have seen a sustained and meaningful drop since August 2007. In April last year, I requested that the bank reduce the interest rate on my loan since it was on a floating-rate basis. I was told that the bank was still monitoring the situation and that I could enjoy a lower interest rate only if I re-financed the loan by signing up for a new package and paying the repayment penalty on the existing loan. With the prohibitive penalty costs, there would be no gains from re-financing the loan.

It has been 14 months since the market interest rates started falling significantly from the 3.08 per cent interest rate on my home loan and, instead of receiving good news from OCBC that it will be adjusting the interest rate on my loan downwards, I have been told that it has been increased to 3.78 per cent, a princely premium over the rate new mortgage loan customers are paying.

I am sure I am not the lone borrower facing such unfair bank practices. My brother had the same experience with his mortgage loan from United Overseas Bank. Is there any form of redress or help that borrowers like us can expect from the Consumers Association of Singapore or the Monetary Authority of Singapore?

Toh Hai Joo

http://www.straitstimes.com/ST%2BFor...ry_323751.html

January 9, 2009 Friday

Banks should pass on lower interest rates: Case


I REFER to the letters, 'Bank unfair to existing home loan clients' by Mr Khor Eng Hao (Dec 31), and 'Home loans: No interest savings despite falling market rates' by Mr Toh Hai Joo on Monday.

The Consumers Association of Singapore (Case) agrees with Mr Khor and Mr Toh that banks should pass on the lower interest rate to consumers, especially when interbank interest rates had fallen. We strongly urge the banks to do so.

We are also of the view that banks should be more transparent and disclose how they compute the housing loan interest rate (whether called Special Mortgage Rate or otherwise) charged for their housing loans. Case has written to the Association of Banks in Singapore and the banks directly on the matter and will follow up with the authorities concerned if required.

Meanwhile, Case will continue to monitor the situation in the market, and will review feedback received, so as to raise the issue with the banks and regulatory authorities where appropriate.

We thank Mr Khor and Mr Toh for their feedback.

Seah Seng Choon
Executive Director
Consumers Association of Singapore

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January 9, 2009 Friday

Bank's rationale behind home loan rates


I REFER to Mr Toh Hai Joo's letter on Monday, 'Home loans: No interest savings despite falling market rates'.

We thank Mr Toh for his feedback and would like to clarify that under a Variable Rate Home Loan Package, interest rates are generally tiered over the first two to three years with the interest rate for the first year being lower than the later years, and in some instances, lower than the prevailing interbank interest rates.

Hence, an interest rate increase may be due to tiering up of the interest rate as part of the two- to three-year package deal and not due to Board Rate increases. The offer of lower first-year interest rate followed by tiering up of interest rates in the next years is, in part, to assist the customer in his cashflow management and, in part, a function of how Variable Rate Packages are structured.

Board Rate adjustments, if any, are made after taking into consideration various factors such as the interest-rate environment when the loan was first taken up, the prevailing rate environment, market dynamics, as well as the costs in carrying the loan. Market interest-rate trend is one of several factors that determine any Board Rate adjustments.

We have since contacted Mr Toh to address the issues he had raised.

Gregory Chan

Head, Consumer Secured Lending

OCBC Bank