Wednesday, October 04, 2006
[RealEdge] TodayOnline : A loan in whose interest?
 This story was printed from TODAYonline | |
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| A loan in whose interest? Wednesday ? October 4, 2006 Seow Chee Bin ? I Say I BOUGHT an apartment in 2003. A bank offered me two home loan packages ? one based on the progressive payment scheme and the other based on a deferred payment scheme. I chose the latter, which had a variable interest rate based on the (to quote from the contract) "Bank's Floating Board Rate (FBR), prevailing from time to time". The interest rate for the first year was supposed to be 4.75 per cent below the bank's FBR, which was 6 per cent when I took up the offer. The repayment would only start when the bank disbursed the funds to the developer upon issuance of temporary occupation permit (TOP). The bank's sales staff told me I'd be offered a one-time free conversion as stated on their promotion brochures. This was to ensure that if the interest rate went down further, I would not be penalised. I was satisfied, thinking the bank had my interest ? no pun intended ? in mind. When my apartment attained TOP at the end of last year, the loan was disbursed to the developer, and I started the loan repayment. Then, this August, my home loan repayment interest rate was increased to 3.4 per cent ? and this in the effective first year of the loan repayment. By comparison, the market is offering about 3 per cent for the first year. I called the bank to check on its prevailing FBR, and was told it was currently 5.5 per cent. When I pointed out that my home loan contract stated that interest would be 4.75 per cent below the bank's prevailing FBR, I was told that mine is at 8.1 per cent! All the while, I'd had the impression that the bank had only one prevailing FBR, and I believe the majority of customers think so, too. 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. When I asked why, the customer service officer could not reply. I could not help feeling cheated at the lack of transparency in how the rate is calculated and I felt at the bank's mercy. The next morning, another officer called to offer to reduce my interest rate to 3.1 per cent. I told him my concern was that as long as there is no transparency, the bank could increase my FBR again in the next month at its own discretion. Wouldn't it be easier and fairer, I asked, if the bank had followed only one prevailing FBR and adjusted the percentage off this rate for the new home loan packages offered? I requested that he do a comparison of the interest incurred had I opted for the progressive scheme, so I could understand how much additional interest I had incurred. He promised to get back to me. That evening, another officer called to tell me it was not possible to make the comparison, and that it was the bank's standard practice to have different FBRs for individual customer packages. She made another offer, at 3.15 per cent variable rate, with a two-year lock-in period, and a one-time conversion fee of $800, which she said she would propose to her management to be reduced to $500. She was not even aware of the free one-time conversion to which I was entitled, but I must admit it was not her fault. I did not check the letter of offer thoroughly ? the free conversion was not stated in it. I had wrongly assumed the bank was obliged to act in the best interest of the customer by putting the clause in the contract if it was printed in the brochures. The bank, of course, has to act in the interest of its shareholders, not the customer, so caveat emptor. Nevertheless it was a good learning experience that cost a few thousand dollars. I am not sure if such practice is unique or common in the industry. If it is the latter, I think the Consumers Association of Singapore or the relevant authorities may want to comment on it, especially when the home loan market for resale flats is no longer offered by the Housing Board. It took me a while to understand the complicated way of the banking business and I would like to share this knowledge with my fellow consumers. It is certainly worth the effort to have a closer look at your home loan contract and give your bank a call. This is contributed by a reader. What's your view? Email us at news@newstoday. | |
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// posted by Shajahan @ 9:00 AM 