HSBC equity-linked loan with cash rebates

Source : Straits Times – 2 Nov 2009

HOME buyers can now take a punt on the stock market while diving into the resurgent property market.

HSBC is launching today an equity-linked home loan package that also offers cash rebates to its customers – a first in Singapore.

It will give all new and existing HSBC Premier customers in Singapore a chance to enjoy quarterly cash rebates over a period of two years if a certain stock index that it is linked to does well.

A minimum loan size of $200,000 is needed.

The package – which applies to both new and refinancing loans – is tied to the Morgan Stanley Capital International Singapore Free Index, which currently tracks 27 stocks, including those of the three local banks, the Singapore Exchange and Singapore Press Holdings.

Under the package, which does not come with a lock-in period, customers will pay an interest rate pegged to the three-month Singapore Interbank Offered Rate (Sibor) plus 1.1 per cent throughout the loan tenure.

A cash rebate amounting to 0.25 per cent of the loan outstanding will be granted in each quarter if the index reaches or exceeds 130 per cent of a specified barrier level on each valuation date.

This specified barrier level refers to the value of the index when the market closes today.

Come valuation time, if the index closes below 130 per cent of today’s level, no rebate will be paid. Customers do not need to bear any costs should that happen.

Valuation is scheduled for the first trading day of every quarter, so the first valuation exercise would take place in April.

To illustrate, let’s assume the index closes at 320 points today.

A customer who takes up this package will pocket a rebate if, on the valuation date, the index outperforms the benchmark by at least 30 per cent, that is, it rises to – or above – 416 points.

For a $600,000 home loan with a 20-year term, the customer stands to receive total cash rebates of up to a maximum of $11,389 over the two years, HSBC said.

Financial advisers say that an interest rate equivalent to Sibor plus 1.1 per cent is not unreasonable and is quite ‘in line with the market’.

Mr Geoffrey Ying, who heads the mortgage division at financial advisory firm New Independent, noted that global equity markets are trending up because of cheap funds, brought about by central bank actions around the world.

‘This will also make the attainment of that 0.25 per cent rebate that much easier,’ he argued.

Standard Chartered Singapore’s general manager for retail banking products, Mr Dennis Khoo, said that since there is no guarantee of any return, Singapore customers might not be that keen as they are known for their practicality.

‘Stanchart will not follow suit,’ he said. ‘Our strategy is to price competitively, but differentiate ourselves through our wide range of mortgage loan products and vital services…and the advice we offer to home buyers.’

HSBC’s new home loan offer is available until Nov 30. To qualify for HSBC Premier, customers must maintain a total relationship balance of at least $200,000 with the bank.