Published February 9, 2007

UOB launches home loan tied to public benchmark rates

New package offers more transparency, flexibility


UNITED Overseas Bank (UOB) yesterday launched a new home loan product pegged to publicly available benchmark rates, as banks here move to make their home loans more transparent.

The UOB CostPlus Home Loan is tied to the Singdollar swap offer rates set by the Association of Banks in Singapore. The rates - now at around 3.5 per cent - reflect the average cost of funds used by banks here for commercial lending.

The loan package is designed to give homeowners 'a new level of transparency and flexibility,' said Kevin Lam, head of UOB's loans division.

Banks here have been criticised in recent months from home owners who say their practice of using multiple board rates for different home loan customers is confusing.

The usual practice by banks is to charge customers an effective rate equal to the board rate less a discount, but the board rate often varies across different products. The board rates are also subject to adjustment by the bank and are not always made public.

Just last week, Maybank said it would introduce a single board rate based on local interbank rates for all its home loans here. Other banks such as DBS - and now UOB - have chosen to offer their customers new products tied to publicly available rates instead of unifying the board rates for their existing products.

Gregory Chan, head of consumer secured lending at OCBC Bank, said the bank will soon announce details of its own home loan packages with rates pegged to publicly available benchmarked rates.

With UOB's latest product, customers can choose to peg their loan to the three-month, six-month or nine-month swap offer rate. The effective interest on the loan is one percentage point above the swap offer rate, which remains fixed for the chosen tenure.

Upon maturity of the chosen tenure, 'homeowners are free to switch to a different benchmark interest rate or opt for another home loan package,' said Mr Lam. They can also choose to split the loan in two and peg each portion to a different rate. The minimum total loan size is $400,000.

The swap offer rates for each business day are published in BT the next day on the Finance and Commodities page and are also available on BT's website.