Standard bank fact sheet for home loans proposed

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http://www.businesstimes.com.sg/sub/...44417,00.html?

Published June 23, 2011

Standard bank fact sheet for home loans proposed

Consumers should be warned of higher repayments if interest rates rise: MAS

By CONRAD TAN


(SINGAPORE) Banks and other financial institutions marketing home loans to consumers will have to provide them with a fact sheet warning how their loan repayments could rise if interest rates go up, under proposals by the Monetary Authority of Singapore (MAS).

The fact sheet - to be presented in a standard format by all lenders - will also describe other essential features of the loan, including estimates of the monthly repayment amounts and whether the lender has the right to make further changes to the interest rate charged during the tenure of the loan.

'A residential property loan is a long-term financial commitment. The current low global interest rate environment will not continue indefinitely. The fact sheet is intended to help consumers understand that higher interest rates could have severe implications if they overextend themselves,' MAS said yesterday.

Representatives of mortgage lenders would be expected to provide the fact sheet as soon as they start loan discussions with a potential customer, regardless of who initiates the discussion, 'so that the consumer can make an informed decision on whether to commit to the property purchase and take up the loan', MAS said in a consultation paper published on its website.

The fact sheet would also point potential borrowers to a consumer guide on home loans produced by national financial education programme MoneySENSE and the Association of Banks in Singapore (ABS).

The proposals would apply to all MAS-regulated financial institutions that offer loans for the purchase of residential properties in Singapore, MAS said. It is seeking public feedback on the proposals until July 22.

'This is a good initiative which will further enhance transparency and consistency in providing pertinent information to customers for residential property loans,' said Helen Neo, head of consumer banking at Maybank Singapore.

'As an industry measure, it will promote customer education at a faster pace with common terminology and similar presentation of information being applied across all financial institutions,' she added.

A spokesman at DBS Group said that the bank already offers potential customers a fact sheet that highlights 'most of the information suggested in the consultation paper', adding that customers who are offered a home loan also have up to seven days to review the loan offer before committing to it.

'Having a standardised fact sheet will make it easier for customers to compare offers from different financial institutions,' the spokesman said.

Chia Siew Cheng, head of the loans division at United Overseas Bank (UOB), said that the bank already provides loan details such as 'the principal and interest repayment amount on the applicable interest rate packages, the repayment penalties, lock-in period, as well as the fees and charges' when discussing home loans with customers.

'A housing loan is a long-term commitment, and affordability is a key factor in buyers' decisions,' Ms Chia added. 'Hence, it is useful to understand the monthly loan repayments based on different interest rate scenarios. Future interest rate increases will drive up monthly instalments and could result in financial hardship.'

She added: 'We encourage customers to set aside sufficient funds to meet rising interest rates and any unforeseen circumstances. In addition, if the property is meant for investment, and rental income is used for loan servicing, they should also factor in a possible drop in rental rates.'

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http://www.straitstimes.com/PrimeNew...ry_682864.html

Jun 23, 2011

MAS wants home loan facts spelt out

It proposes two-page list so buyers can have a reality check before borrowing from bank

By Gabriel Chen, Finance Correspondent


THE Monetary Authority of Singapore (MAS) wants all home buyers to take a reality check before they take a bank loan for their property.

It thinks banks should sit their customers down and use a fact sheet to run through the facts and figures of exactly what borrowing will entail.

That means getting to grips with much more than the loan quantum, the period of repayment and what the immediate monthly payments will be.

MAS also wants customers to be aware that their financial situation could change severely should interest rates go up and monthly repayment amounts balloon.

'A residential property loan is a long-term financial commitment. The current low global interest rate environment will not continue indefinitely,' the central bank warned yesterday.

'The fact sheet is intended to help consumers understand that higher interest rates could have severe implications if they overextend themselves.'

The move comes amid a surging real estate market that has seemed to defy four rounds of cooling measures imposed since September 2009.

Some economists have also started flagging the possibility that the ultra-low borrowing rates in Singapore could soon start rising. The three-month Singapore dollar Swap Offer Rate (SOR), a popular benchmark rate used for home loans, hovers at just 0.2 per cent today, but was at more than 3 per cent just five years ago.

Interest rates have been rising in other markets like Hong Kong and Malaysia. Recently, Bank of America Merrill Lynch economist Chua Hak Bin noted demand for loans here was rising quickly, which could prompt some banks to raise rates.

A sharp rise in rates can add quickly to a borrower's monthly financial burden, given the popularity of loan packages with fluctuating rates.

The ultra-low SOR currently may mean that a borrower with a 35-year, $1 million loan could pay just 1 per cent interest in the first year - working out to a monthly instalment of just $2,823.

But every 1 percentage point increase in the SOR will add more than $500 to the instalments. If rates rose back to 2006 levels of about 4 per cent, he would end up paying more than $4,300 monthly.

Mr Justin Chiu, executive director of Hong Kong property developer Cheung Kong, also reckons that residential prices here may fall by up to 6 per cent when interest rates begin rising. This could have serious implications for buyers who cannot sell in a falling market, yet have overextended themselves with big home loans on the belief that interest rates will stay at rock-bottom levels.

In view of this, MAS is proposing that banks issue a new two-page standardised fact sheet to all prospective borrowers that draws up different scenarios, so that borrowers can clearly see the impact of an interest rate rise.

The sheet should also list all essential information for customers who want a housing loan, it added. This includes the loan amount, how long the loan is for and whether there is a lock-in period during which the borrower cannot re-finance the loan without paying a penalty.

It should also list all the fees payable, including those for loan processing, late payment and loan restructuring.

The fact sheet should be provided when the bank opens discussions with a borrower on the key features of a mortgage, and the language used should be concise and reader-friendly, MAS said.

While most banks already provide home buyers with documents explaining aspects of a mortgage, they can vary in details and complexity, it added. And banks generally do not provide information on how monthly instalments vary with different interest rate levels.

MAS is seeking feedback from the banking industry and the public on its proposal until July 22. Once it finalises the format, it will issue a regulatory notice implementing the proposal.

Bank officials contacted yesterday called the fact sheet a good initiative which will further enhance transparency and consistency. Said Ms Helen Neo, head of consumer banking of Maybank Singapore: 'As an industry measure, it will promote customer education at a faster pace with common terminology and similar presentation of information being applied across all financial institutions.'

Analysts said the fact sheet is timely given that there could be households being kept afloat by very low rates of interest that will not be sustained.

'This isn't a direct cooling measure, but certainly it works towards providing more information to the consumer on the potential risks in property purchase when interest rates rise,' said United Overseas Bank senior economist Alvin Liew.

Having the sheet should have 'almost no impact on the property market', added SLP head of research Nicholas Mak.

'In the first place, we have to take it that property buyers are buying the largest single financial investment they make in their lives, and they should be in possession of all the relevant information.'

[email protected]

Additional reporting by Ian Poh

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http://www.todayonline.com/Business/...n-fact-sheets?

Should financial institutions provide home loan fact sheets?

by Millet Enriquez

04:47 AM Jun 23, 2011


SINGAPORE - The Monetary Authority of Singapore (MAS) is seeking public feedback on a proposal to require financial institutions (FIs) to provide a fact sheet when marketing loans for residential property. as it cautioned that the "current low global interest rate environment will not continue indefinitely".

Noting that a residential property loan is "a long-term financial commitment", the MAS said yesterday that higher interest rates could have severe implications if consumers overextend themselves.

In its consultation paper, the MAS has proposed that the fact sheet contain loan tenor, loan amount, lock-in period, and whether the FI has the right to vary interest rate. It also recommended the inclusion of monthly and annual repayment amounts, fees payable and monthly instalments at different interest rate levels and past trends in the benchmark rate of the loan.

Links to the websites of MoneySENSE, Association of Banks in Singapore and CPF must also be indicated. This is for consumers to have access to online resources that can guide them in making relevant home loan decisions. The consultation is open for feedback up to 30 days.

Banks contacted by MediaCorp reiterated that they already have measures in place to ensure loan customers are properly advised.

DBS said it has a fact sheet in place which highlights most of the information suggested in the consultation paper, while OCBC said it has already embarked on using plain English for its loan documents. UOB also said it provides customers the necessary loan details for its property loan financing.

Standard Chartered bank said it has a robust mortgage advisory process where financial consultants are required to provide key information to customers on residential property loans.

[DC33_2008]

Lending rate will remain low for quite a while after what Fed meeting last nite.