WHEN he bought his bachelor pad in 2003, Mr Fabian Lo, 32, an information technology manager, paid 1.5 per cent in interest a year on his mortgage.
At the time, rates were on a downtrend but not long after, Mr Lo's bank started telling him that he would be charged a higher rate.
The pace of those rate increases has quickened in the past year.
Mr Lo has recently been told that in two months, the rate will be raised by 0.5 percentage point to 4 per cent for the mortgage on his home in Vistaya View condominium in Paya Lebar.
Not everyone with a mortgage is feeling the same intensity of pain from rising rates.
Ask people around the office what interest rates they are paying and you will hear answers ranging from an amazing zero per cent - yes, there are people who are that lucky - to a stiff 5.5 per cent.
It depends on when home owners last refinanced their loan, if they did refinance it at all, which bank they are with and whether their interest rate is floating or fixed.
All banks without exception have been raising interest charges as the interbank rate - the rate at which banks lend to and borrow from each other - climbed.
From 1.75 per cent in January last year, the three-month interbank rate has risen to about 3.5 per cent.
It is not just in Singapore that rates have been quickening their upward pace. It is a worldwide phenomenon.
The worry is: Will mortgage rates rocket to the 6 to 7 per cent level, as has happened in the 1990s?
Chances are no, say some experts. 'I don't see rates going up to that level in the next one or two years.
'My opinion is that rates might increase at most by 0.5 percentage point or 1 percentage point,' says Mr Dennis Ng, a spokesman for www.housingloansg.com, a portal that provides analysis of housing loans.
In any case, if you are paying top rate now of about 5 per cent you can relieve some of your misery - even if you are stuck in a lock-in period with your bank.
Switching banks
JEAN (not her real name), is kissing her bank goodbye and embracing a new one.
From paying interest of 5.35 per cent, she will soon be shelling out about 3 per cent at her next lender, DBS Bank.
The rate will be fixed at that level for the first three years of the loan.
A quarter of the loan will be based on a floating rate, which is now pegged at zero per cent.
Jean will save $280 a month on her loan of about $250,000, which is music to her ears.
'She was very upset every time she received a letter from the bank telling her of yet another increase in rate. The new package means peace of mind for her,' says her lawyer, Ms Lie Chin Chin of Lie Kee Pong and Partnership.
Like many people still tied to a bank loan, Jean has to pay penalties.
No issue - DBS will pay on her behalf the legal fee subsidy she received from the previous bank plus penalties amounting to a total of about $3,750.
Jean will be locked in to the DBS package for three years, a standard period.
If she redeems her loan fully within seven years - a non-standard clause - from signing on the dotted line, she has to repay DBS the legal fee refund and penalties paid on her behalf by the bank.
But it does not look to be an intolerable sum as it will be pro-rated.
Mr Bryan Ong, a senior associate manager of real estate company PropNex, says DBS is the only bank willing to pay penalties on behalf of new customers - on a case-by-case basis.
The criteria for new customers:
They must be refinancing cases; The mortgage must be for a private property; and The minimum loan is $200,000. Chances are, it is customers from certain foreign banks who are likely to bail out since these banks have been raising rates faster than local ones.
The reason is that foreign banks, because of their low deposit base here, are generally more sensitive to the cost of funds.
Local banks, by contrast, have a huge deposit base and do not feel the stress as much.
Mr Ong says the DBS refinancing package charges 25 per cent of your loan at a floating rate of zero per cent currently and the rest at a fixed 4 per cent.
Effectively, that is 3 per cent interest a year, and the deal applies for three years, says Mr Ong, who also offers loan advice and analysis to clients.
Mr Ng knows of another deal that will attract many people, one with an interest rate of about 2.8 per cent but only for the next three years.
For his client, Ms Barbara Ang, 41, a quality control manager who owns a three-storey corner terrace house, the interest savings amount to $39,954 over three years.
Her previous loan was charged interest of 5 per cent.
Her penalty is covered by the new bank.
Asked for its identity, Mr Ng said: 'Her loan has just been approved. We can't reveal the bank's identity as this is a special promotion available through property agents and mortgage brokers like ourselves, but not to the bank's walk-in customers.'
Oblivious owners
THERE are basically two groups of home owners who are paying high interest on their loans.
The first group are those who signed up for their loans between five and eight years ago and have inexplicably failed to refinance them since.
Even when interest rates fell to about 1 per cent a few years back, they were paying three or four times as much.
'Banks will continue to charge high rates if you don't make a fuss. When rates were nearly 1 per cent, we had a client who was being charged more than 5 per cent,' says Mr Ng. That client eventually saw the light and sought refinancing.
But today, there are home owners who similarly remain oblivious of the benefits of refinancing.
'Some people have this wrong impression that whatever the banks charge them cannot be too far off from the market rate,' says Mr Ng.
They think there are expensive fees such as legal costs to pay, so it may not be worthwhile to refinance, but they should do their homework, he says.
For home owners who have no lock-in period to contend with, there is every reason to refinance.
For others who are still locked in and have a 1 to 1.5 per cent penalty to pay if they should want out, it is more understandable if they are not considering jumping banks.
They may not have the cash to repay the penalty since Central Providend Fund savings cannot be used for that purpose, says Ms Lie.
Also, the penalty payment cannot be funded by a new mortgage with another bank, she adds.
As mentioned earlier in the article, refinancing is an option even for some of these home owners.
An exception is when they try to get an exceptionally good deal from their own bank.
For example, that DBS deal is not available to existing customers of the bank as it was designed to snare new customers, say sources.
Differing rates
IF YOU are paying a high rate, it does not mean that all the other customers of the same bank are paying the same rate.
For whatever reason, a bank can choose to increase the rate for certain batches of customers only, says an industry source.
'For example, it may decide to spare those who have signed up for a loan recently so as not to upset them,' says the source.
Or it can increase the rate for certain batches of customers and increase it only a few months later for other batches.
A bank's 'different strokes for different folks' treatment is more evident when it comes to new customers versus existing ones.
Firstly, says Mr Ng, banks may vary the interest rate depending on the size of the new customer's loan.
A big loan equals good business, so the bank could give a rate that is between 0.25 and 0.5 percentage point lower, he says.
Secondly, new customers are charged a lower rate compared to existing ones.
Once you become an 'existing customer', you may face a steep rise in charges.
Take the case of home owners in an executive condominium project in Sengkang who were once persuaded that they were very special customers by a foreign bank. The bank offered them a 'special' floating interest rate of 1.5 per cent in May last year.
But the rate has now become 'special' for another, and wrong, reason: It has zoomed up to 4.75 per cent and notice has been served that it will reach more than 5 per cent from next month.
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