Home loans: No interest savings despite falling market rates

Source : Straits Times - 5 Jan 2009

I REFER to last Wednesday’s letter, ‘Bank unfair to existing home loan clients’, and would like to share my experience with another bank.

I took a mortgage loan with OCBC Bank in May 2007 to finance the purchase of a property. Predicting that the interest rate was on a downward trend, I signed up for a floating rate package. There was no option then for a more transparent variable interest rate loan package pegged to the Singapore Inter-Bank Offered Rate, which I would certainly have taken up had it been available.

I had expected to see some interest cost savings when the rates went down. I also had the mistaken belief that banks will act in good faith to adjust the interest rates downwards for customers on a floating rate package when the market rate falls.

The interbank interest rates have seen a sustained and meaningful drop since August 2007. In April last year, I requested that the bank reduce the interest rate on my loan since it was on a floating-rate basis. I was told that the bank was still monitoring the situation and that I could enjoy a lower interest rate only if I re-financed the loan by signing up for a new package and paying the repayment penalty on the existing loan. With the prohibitive penalty costs, there would be no gains from re-financing the loan.

It has been 14 months since the market interest rates started falling significantly from the 3.08 per cent interest rate on my home loan and, instead of receiving good news from OCBC that it will be adjusting the interest rate on my loan downwards, I have been told that it has been increased to 3.78 per cent, a princely premium over the rate new mortgage loan customers are paying.

I am sure I am not the lone borrower facing such unfair bank practices. My brother had the same experience with his mortgage loan from United Overseas Bank. Is there any form of redress or help that borrowers like us can expect from the Consumers Association of Singapore or the Monetary Authority of Singapore?

Toh Hai Joo