It’s in home buyers’ interest to know … so, banks to spell out nitty-gritty on rates

You think you know the bank interest rate you are paying when you take out a home loan — but a year or so later, you discover to your shock that it has ballooned, and you should have read the fine print more closely.

Such scenarios, which were at the heart of numerous gripes from Today readers last year, should be a thing of the past, when new guidelines by the Association of Banks in Singapore (ABS) kick in next Friday.

Its members will have to follow these guidelines when promoting their home loan packages. The aim is to boost transparency over the different interest rates for such loans, which have caused confusion and some unhappiness among borrowers.

Banks will have to state upfront that the board rate offered to one customer may vary from what is offered to others on different loan packages.

They will also have to explain the financial indicators these rates are benchmarked against, such as the three-month Singapore Interbank Offered Rate or the Central Provident Fund rate.

Potential homeowners will also be told that the bank can change the board rate at any time by giving 30 days’ notice, depending on market conditions and changes in the financial indicators. The notice requirement, however, does not apply to home loans benchmarked against market indices.

Such disclosures must be included in the bank’s Letter of Offer to its customers, ABS director Ong-Ang Ai Boon told Today.

“Basically, the guidelines standardise the information that banks must provide to the consumers before any home loan is taken up, so there is less confusion in the market. We can have more transparency,” she said.

The 34-year-old association has a membership of 107 local and foreign banks. This initiative is expected to affect the eight or so major retail banks in Singapore.

Asked how the guidelines would be enforced, Mrs Ong-Ang said: “We are an association and we came together with the banks on this. We have all agreed and we will do it.”

There are two broad categories of housing loans in the market. One is the fixed rate package, with fixed and guaranteed interest rates for a certain period of time.

The second is the variable rate package, or the floating bank rate, where interest rates are subject to changes depending on market conditions. Most banks with the ABS have more than one board rate applicable to different loan packages at any one point in time.

This, however, is not always made clear to customers, as reader Seow Chee Bin wrote last October. He had been under the impression that the bank had only one prevailing floating bank rate, and was shocked to discover otherwise come repayment time.

“There is no way I can know my rate unless I call and ask about it. It is not stated in the monthly loan repayment advice,” he wrote.

Letter-writer Deepak Gurnani also pointed out: “Neither the Letter of Offer nor the Loan Agreement indicates the bank’s practice of multiple floating bank rates, nor are the effects of this explained even remotely to the home loan customer.”

The Consumers Association of Singapore’s executive director Seah Seng Choon had declared “an urgent need” for banks to review the disclosure standards on bank rates.

Mr Gurnani welcomed the new guidelines on Friday, calling them “a good step in the right direction” that would help potential homeowners make better-informed decisions.

He felt, however, that there could be further transparency were banks to have just one single board rate, instead of multiple floating rates.

The ABS has teamed up with MoneySENSE – the national financial education programme – to publish a new guide on home loans. This 14-page booklet will be available at the banks to customers before a loan is committed. It is also on the websites of the ABS and the Monetary Authority of Singapore.

Source: Weekend Today, 09 June 2007

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