Standardised fact sheet on home loans soon

[Dennis Ng]

Standardised fact sheet on home loans soon by ChannelNewsAsia.com
Posted: 22 June 2011 2202 hrs


SINGAPORE: 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.

www.HousingLoanSG.com 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.

-CNA/wk

[Dennis Ng]

MAS is also concerned that Home Buyers are NOT considering the risk and possibility of interest rates on Housing Loan rising in the next few years...

I also sounded the warning when I was interviewed by Channel News Asia:

http://www.youtube.com/watch?v=0gnR6z6s ... re=related

[candy_chia]

It's a good move by the MAS since banks are required to show monthly instalments at different interest rates, property buyers will be more prudent in assessing their property purchase.

Currently, paying monthly Maybank loan instalment of $2,066.65 for tenor of 24 years at interest rate of 2%. If interest rate increases to 4%, our CPF will be insufficient to service monthly loan instalment of $2,541.

Although the hdb housing interest rate is low around 0.95%, we are unable to refinance as the penalty for prepayment will cost us about $9.5k.

[candy_chia]

Received my letter of offer for refinancing via courier on 16 Aug 2012.

Noticed that there is an extra document behind the letter of offer, titled, Residential Property Loans Fact Sheet, mandatory under MAS Notice 632A (stated on the document).

It outlines the detailed figures for monthly loan repayment in the event where there is is spike in SRFR (Singapore Residential Financing Rate) and stipulates areas whereby charges are imposed by financial institution (such as rejecting loan after accepting the letter of offer, making a late payment, etc)

Based on current outstanding loan of $464,790, interest rate for 1st year is 1.15%p.a. (slide from initial quote of 1.25%), therefore monthly loan repayment will be $1,847.57


Current SRFR for Maybank is 3.25%... monthly repayment is $2,259.21
If SRFR changes by (+1%)........ie. 4.25%...... monthly repayment will be $2,457.14
If SRFR changes by (+2%)........ie. 5.25%...... monthly repayment will be $2,705.47
If SRFR changes by (+3%)........ie. 6.25%...... monthly repayment will be $2,944.94
If SRFR changes by (+4%)........ie. 7.25%...... monthly repayment will be $3,194.63
If SRFR changes by (+5%)........ie. 8.25%...... monthly repayment will be $3,453.96

There is an additional $7,314.84 annual loan repayment to be incurred if interest rate spike to 4.25%.

One of the important notes behind the document, states that "Your financial institution may have the right to ask for additonal payments if your property falls in value", this is a timely reminder to be financial prudent (by limiting monthly loan payment below 35% of gross income)

[kohcy]

Hi, Candy
Thanks for the sharing, interesting to see how bank installment work.
I am using HDB loan. The interest rate is 2.60% p.a.

[candy_chia]

Hi kohcy,

Please state to HDB loan even though the bank interest rate is at ultra low now.

My last HDB bank loan instalment incurred 3.75% interest rate 2 years ago.

Didn't take up 2nd concessionary HDB loan for current flat as we need to part with half the sale proceed (1/2 of $170K), which we intend to utilise as investment fund.

http://www.hdb.gov.sg/fi10/fi10321p.nsf ... enDocument

Hi, Candy
Thanks for the sharing, interesting to see how bank installment work.
I am using HDB loan. The interest rate is 2.60% p.a.

[candy_chia]

Home loan practices under scrutiny
Oct 16, 2012 - PropertyGuru.com.sg

To keep lenders in check, the Monetary Authority of Singapore (MAS) is currently reviewing home loan lending practices of local and foreign banks, sources have revealed.

Experts feel that the move is a reminder to banks that the authorities are keeping a close eye on them. Hence, they must remain responsible in their lending practices.

Roger Tan, Chief Executive at SIAS Research, said that MAS could be looking for signs of lax lending practices.

“They will want to make sure that rules are being enforced and that proper risk management is tightly in place, especially now that the property market is hot,” said Tan, adding that the audit is in line with the central bank’s supervisory work.

Analysts were quick to add that MAS regularly audits lenders and there is no indication that a bank is being singled out for loose lending practices. The review of mortgage lending practices is likely part of general prudence measures, given the hot property market with prices and sales volumes at record levels.

While general lending guidelines are clear, MAS should focus more on banks’ internal lending policies, said one insider who wished to remain anonymous.

Before a mortgage is granted, a range of criteria are assessed. They typically include acceptability of collateral, the applicant’s income and credit worthiness, the property’s value and the loan-to-value (LTV) ratio.

However, lenders have different standards on some of these criteria. For instance, the definition of income among banks may vary, with some banks either excluding or including bonuses and commissions as part of the borrower’s take home pay.