Standardised fact sheet on home loans soon

Financial institutions should provide a fact sheet in a standardised format when marketing loans for residential property to consumers, the Monetary Authority of Singapore (MAS) said on Wednesday.

It has issued a consultation paper seeking feedback on what exactly the fact sheet should contain.

A residential property loan is a long-term financial commitment.

As 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. spokesman Dennis Ng said: “If someone borrowed S$500,000 by taking a 25-year loan, at the current interest rate of about 1.5 per cent, every month, the instalment is just about S$2,000.

“But if interest rates move up to four per cent, the instalment will move up to about S$2,640. So that would be S$640 more every month.

“So, that’s part of the reason why MAS wants to have this basic fact sheet where consumers are provided scenarios – whereby interest rates were at different levels (showing) how much would the home loans instalment be.

“This is so that consumers can be prepared before they really commit to buying a property, which is a very long-term financial commitment. Home loan periods can (stretch up to) 20, 30 years.”

The fact sheet will provide information essential to a customer’s decision to take up a residential private property loan.

Specifically, the MAS has proposed that the fact sheet contains the following :

— the tenor of the loan, loan amount, lock-in period, and whether the FI has the right to vary the interest rate.

— monthly and annual repayment amounts.

— monthly instalments at different interest rate levels and past trends in the benchmark rate of the loan.

— fees payable

— links to MoneySENSE, an association of Banks in Singapore and CPF websites.

Industry players have welcomed the move, saying it would help protect consumers.

Cushman & Wakefield’s vice-chairman, Donald Han, said: “This is public education – to make sure that one doesn’t rush in because the cost of funds is at a historical low, but look in tandem and in anticipation that interest rates will rise.

“At the same time, your interest commitment to pay to the bank will also go up in tandem with any interest rate hike in that sense.”

Observers said the guideline is unlikely to have any significant impact on loans growth for financial institutions since most provide them already.

DBS told MediaCorp it already 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 said it also provides customers the necessary loan details for its property loan financing.

Source : Channel NewsAsia – 22 Jun 2011

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