Friday, October 27, 2006
[RealEdge] TodayOnline: Bait and the untold cost
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| Bait and the untold cost What banks don't tell customers applying for home loans Single board rate, but attach discounts based on risk Friday ?October 27, 2006 Letter from Patrick Sio Letter from Henry Tan I THANK the Association of Banks in Singapore for clarifying the mystery surrounding the banks' treatment of variable rate package housing loans ("Why not a single Board Rate for loans", Oct 25). While I understand the legal implications of signing on the dotted line, I must point out the various representations made to me that led me to switch from one bank to another, more than once. Whenever I considered switching banks, I would go to the new bank to speak to its staff who would convince me that I would get a better deal by doing so. Then I would receive letters informing me of interest rate increases two months later. In its reply, the ABS said: ?#009;"(Most) banks have more than one board rate (BR)". This was never explained to me by any bank I approached. Instead, the banks said there is an interbank rate that determines the BR, making it sound as if there is some national measure. Perhaps the ABS can tell me, which banks do not have more than one BR? ?#009;"The loans had different interest rate structures, for example, interest-offset features." At the interview with the new bank before I signed up, the staff would do a comparison of various interest rates across banks. They never alerted me to the fact that there was "more than one BR", but concentrated on the "more attractive" package ?for instance, pointing out that the savings interest rate is similar to the housing loan interest rate. ?"Banks introduce different BRs to enable them to monitor a new loan portfolio that has a different profile from their existing customer base." The banks never told me that they "monitor" their customers. What specifically do they monitor, how are "risks" measured, and whose "risks" are more important in a refinancing case? Does the bank help me analyse my "risks", or does it simply go out to win a new customer and then tie my hands? ?#009;"(As the) home loans portfolio is highly sensitive to changes in interest rates, banks introduce new BRs instead of changing the single BR each time there is a promotional rate or where a new package is introduced. This practice enables banks to achieve the competitiveness of rates without varying the discounts of the same BRs." This system is ambiguous, causing borrowers to waste unnecessary money switching from one bank to another. I have had the new bank "subsidise" my early termination and legal fees so as to lure me over. While the ABS assures the public that "all BR changes go through a rigorous set of approvals", it does not say if all banks rely on the same set of assessment criteria. ?#009;"(Relevant) BRs are?always made known to the customer at the time of loan application to enable him to make an informed decision. Yes, but what happens to the board rate after that? WHY cannot banks use a single floating board rate (BR), but attach differing premiums/discounts that are dependent on credit risk? For example, Bank A can quote a customer BR + 1.5 per cent while the property is under construction and this premium will decline in line with the progress of construction. The rate of premium decline can be disclosed to the customer upfront. Currently, customers do not even know how many BRs banks maintain and how they are adjusted. What the ABS is basically telling the public is "trust us because we will not fleece you". History has taught us that such blind faith often has a disastrous ending. | |
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// posted by Shajahan @ 12:36 PM 