Customers may pay lower rates in successive years in Sibor-pegged deal

HSBC is launching a radical home loan package - featuring a decreasing interest rate spread - which is making some rivals scratch their heads.

HSBC’s new Sibor- pegged home loan package with loyalty discount gives a reduction in the interest rate margin charged in the first three years - a first in the market.

Current loans pegged to Sibor (Singapore interbank offer rate) have either flat or increasing interest rate spreads.

This new Sibor-pegged loyalty package is unique because the interest rate spread reduces by 10 basis points at the end of every anniversary year, up to the third year of the loan, HSBC said yesterday.

Under the new loyalty package, the customer pays the 3-month Sibor rate plus 0.75 per cent in the first year; in the second year, he pays 3-month Sibor plus 0.65 per cent; and from the third year onwards, the rate is 3-month Sibor plus 0.55 per cent. The 3-month Sibor on July 1 was 1.25 per cent.

For a customer who pledges to stick with the bank for three years, DBS’s interbank-pegged home loan charges a flat spread of 0.8 per cent for each of the three years and then it’s 1.25 per cent thereafter.

United Overseas Bank (UOB) charges a flat spread of 0.8 per cent to two of its interbank-pegged home loan packages.

Standard Chartered Bank’s Sibor-pegged mortgage also charges a flat spread of one per cent.

Observers that BT spoke to wonder what the catch is for HSBC to slice its margins, given the increasing costs of doing business and also the uncertain economic climate.

‘They’re mad,’ said one rival banker, listing the various costs banks incur in selling a home loan including commissions to brokers and its own sales people, and legal subsidies offered to borrowers.

Said Kevin Lam, head of loans, United Overseas Bank: ‘It’s an interesting idea. UOB introduced a similar package in the past. We called it a step-down package.’

At the end of the day, a homebuyer has to consider the long-term and short- term gains versus costs, said Mr Lam.

HSBC said it is rewarding customers for staying with the bank. Asked how it will manage its reduced margins, it said it was a ‘trade secret’.

Said Wendy Lim, head of consumer banking, HSBC: ‘Our Sibor-pegged loyalty pricing is premised on feedback from a study we conducted among home loan customers. The majority of customers in the study said that they liked the concept of inverse pricing in their home loan rates as it translates to more savings for them in the long run.’

‘Customers are telling us that they want to be rewarded for their loyalty. So we are addressing the need with this innovative offer,’ added Ms Lim.

Koh Kar Siong, DBS managing director and head of consumer deposits and secured lending, said his bank listens to customer feedback too.

‘DBS was the first bank to introduce transparent interest rates pegged to Sibor or to the CPF Ordinary Account rate. This happened at a time when there was public outcry over the lack of transparency of banks’ mortgage rates,’ said Mr Koh.

UOB KayHian analyst Jonathan Koh said banks in Singapore are benefiting ‘from a steepened yield curve as they can utilise short-term funding, such as fixed deposits and savings deposits, for lending to businesses and consumers on a longer-term basis’.

He thinks HSBC’s new package will not lead to an aggressive home loan war, given the ‘overall economic climate and the fact that ‘on corporate and small and medium enterprise loans, margins are more attractive’.

Still, rival bankers are unlikely to give up their turf without a fight.

One said his bank is prepared to reduce the spread to 0.7 per cent on a case- by-case basis in order ‘to protect our customers’.

Gregory Chan, OCBC head of secured lending, said his bank regularly makes adjustments for its home loan packages.

‘As such, we will continue to offer loan packages with promotional rates that are competitive compared to the other market players,’ he said.

Source : Business Times - 9 Jul 2008

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In its new scheme, interest rate charged on top of benchmark rate drops each year

HOME loan customers typically expect to fork out a higher interest rate on the anniversary of their mortgages.

But in a novel move, HSBC has become the first bank in Singapore to turn this conventional practice on its head. It is launching a mortgage in which the interest rate charged on top of a transparent benchmark rate gets smaller each year.

This may mean some interest savings for customers, which

HSBC hopes will convince them to stay loyal to its package, rather than refinancing their loan to get a better rate in a few years’ time.

Ms Wendy Lim, HSBC’s head of consumer banking, said the bank introduced this package after conducting a study among home loan customers.

It showed that most of them ‘liked the concept of inverse pricing in their home loan rates, as it translates to more savings for them in the long run’, she said.

HSBC’s so-called ‘loyalty package’, which will be launched tomorrow, offers the three-month Singapore Interbank Offered Rate (Sibor) rate plus 0.75 per cent.

Currently, the Sibor is at 1.156 per cent - the lowest level in almost four years. So HSBC’s first-year rate will be about 1.906 per cent.

The spread on the mortgage rate drops further to the Sibor plus 0.65 per cent in the second year, and the Sibor plus 0.55 per cent from the third year onwards. The package has no lock-in period.

HSBC’s rivals currently offer Sibor-linked packages with spreads that either stay constant or rise over time.

DBS Bank’s Managed Mortgage offers a three-month Sibor plus 1.25 per cent annually for a package without a lock-in period, according to its website.

But DBS also offers a loyalty package at the Sibor plus 0.8 per cent for customers who stick to the mortgage for three years, said Mr Koh Kar Siong, DBS’ head of consumer deposits and secured lending. After three years, the rate goes back up to the Sibor plus 1.25 per cent.

Industry players say practically all banks offer promotional rates of the Sibor plus 0.7 per cent or even less for three years to their best customers. So this trumps

HSBC’s first-year rate of the Sibor plus 0.75 per cent.

Still, compared to a customer who pays the Sibor plus 0.7 per cent, a HSBC loyalty package customer may enjoy $3,859 of interest savings over five years on a 20-year, $1 million mortgage. This is based on the assumption that the Sibor does not change.

HSBC, which has one of the smallest home loan books among the seven or so major lenders in Singapore, may be looking to grab some market share by dangling cheaper rates.

But bankers say a price war is unlikely to break out as the market for new mortgage customers remains muted amid a relatively quiet property scene.

For customers contemplating a switch from another bank’s product to HSBC’s new loan, the legal costs of switching may still cancel out any savings, said one banker.

OCBC Bank’s head of secured lending, Mr Gregory Chan, noted: ‘We will continue to offer loan packages with promotional rates that are competitive compared to the other market players.

Source : Straits Times - 9 Jul 2008

In its new scheme, interest rate charged on top of benchmark rate drops each year

HOME loan customers typically expect to fork out a higher interest rate on the anniversary of their mortgages.

But in a novel move, HSBC has become the first bank in Singapore to turn this conventional practice on its head. It is launching a mortgage in which the interest rate charged on top of a transparent benchmark rate gets smaller each year.

This may mean some interest savings for customers, which

HSBC hopes will convince them to stay loyal to its package, rather than refinancing their loan to get a better rate in a few years’ time.

Ms Wendy Lim, HSBC’s head of consumer banking, said the bank introduced this package after conducting a study among home loan customers.

It showed that most of them ‘liked the concept of inverse pricing in their home loan rates, as it translates to more savings for them in the long run’, she said.

HSBC’s so-called ‘loyalty package’, which will be launched tomorrow, offers the three-month Singapore Interbank Offered Rate (Sibor) rate plus 0.75 per cent.

Currently, the Sibor is at 1.156 per cent - the lowest level in almost four years. So HSBC’s first-year rate will be about 1.906 per cent.

The spread on the mortgage rate drops further to the Sibor plus 0.65 per cent in the second year, and the Sibor plus 0.55 per cent from the third year onwards. The package has no lock-in period.

HSBC’s rivals currently offer Sibor-linked packages with spreads that either stay constant or rise over time.

DBS Bank’s Managed Mortgage offers a three-month Sibor plus 1.25 per cent annually for a package without a lock-in period, according to its website.

But DBS also offers a loyalty package at the Sibor plus 0.8 per cent for customers who stick to the mortgage for three years, said Mr Koh Kar Siong, DBS’ head of consumer deposits and secured lending. After three years, the rate goes back up to the Sibor plus 1.25 per cent.

Industry players say practically all banks offer promotional rates of the Sibor plus 0.7 per cent or even less for three years to their best customers. So this trumps

HSBC’s first-year rate of the Sibor plus 0.75 per cent.

Still, compared to a customer who pays the Sibor plus 0.7 per cent, a HSBC loyalty package customer may enjoy $3,859 of interest savings over five years on a 20-year, $1 million mortgage. This is based on the assumption that the Sibor does not change.

HSBC, which has one of the smallest home loan books among the seven or so major lenders in Singapore, may be looking to grab some market share by dangling cheaper rates.

But bankers say a price war is unlikely to break out as the market for new mortgage customers remains muted amid a relatively quiet property scene.

For customers contemplating a switch from another bank’s product to HSBC’s new loan, the legal costs of switching may still cancel out any savings, said one banker.

OCBC Bank’s head of secured lending, Mr Gregory Chan, noted: ‘We will continue to offer loan packages with promotional rates that are competitive compared to the other market players.

Source : Straits Times - 9 Jul 2008

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Mortgage applications for the week ending June 27, 2008 increased 3.6% from the previous week, the Mortgage Bankers Association reported July 2. Refis were up 4.7%, while purchase volume increased 2.8%.

The upward trend in mortgage application volume could continue if mortgage rates fall as they did last week (ending July 3), reversing a three-week rise, according to Freddie Mac’s weekly mortgage rate survey. The easing was due in part to economists’ expectations that inflation will moderate later this year.

Employers cut payrolls by 62,000 in June, the sixth straight month of nationwide job losses, about what analysts expected, the Labor Department said July 3. So far this year, the economy has lost 438,000 jobs, an average of 73,000 a month. The unemployment rate held steady at 5.5%.

The Labor Department also reported that the number of new applicants filing for jobless benefits reached 404,000 for the week ending June 28, an increase of 16,000 from the previous week. Economists had expected initial jobless claims to total 385,000.

Those working saw average hourly earnings rise to $18.01 in June, a 0.3% increase from May, in line with economists’ forecasts.

The Institute for Supply Management (ISM) reported on July 1 that its manufacturing index came in at 50.2, a surprising expansion for the first time in five months. A reading above 50 indicates growth.

The ISM’s services sector index, which provides a snapshot of the U.S. service economy, slipped to 48.2 in June from 51.7 in May. A reading below 50 signals contraction. Economists had predicted a reading of 51.0. Weighing on the index were higher oil prices that curtail consumer spending everywhere from the local coffee shop to the neighborhood mall.

Due out on July 11 is the Commerce Department’s report on the nation’s international trade balance.

Economic data compiled from government reports and news services Bloomberg.com, msnbc.com, cnbc.com, cnn.money.com, Yahoo Economic Calendar, and Indymac Bank.

In a mortgage you have to make regular monthly payments to the mortgage lender. This amount of fixed monthly payment is arrived at depending on the amount of principle, the interest rate, the term of the mortgage and the particular mortgage loan program entered into, apart from other factors. One factor is the credit worthiness of the borrower- your income, your expenses and your existing loan payments. This is the tome of entering into the mortgage deal.

Somewhere down the line, what if something happens and you are not able to make the regular monthly payments? What if you lose your job or you suddenly come up with a huge medical bill due to some reason? If you do not do anything about the payment problem, it will become extremely difficult to come out of later. You would most likely end up bankrupt; and have your home taken away from you. Fortunately, if you act smart there are ways out of it. You could borrow against your equity using a Home Equity Line of Credit, or perhaps a second mortgage is the answer.

In such situations, to avoid any regrettable rash moves it is best to seek advice from a mortgage professional, such as Paula Cochran the Loan Lady. Paula has been in the field of real estate loans and commercial property loans and mortgage loans for a very long time and has helped a lot of people with every thing related to mortgages, from mortgage applications to the latest interest rates to the latest change in the mortgage law.

Over the past several months I’ve received many questions regarding credit repair firms – ranging from the actual service these firms provide to why I remain so dead set against them.

These questions reveal how little mortgage professionals understand about credit repair. How can an industry so vocal in their advertising (just try a Google search on “credit repair”), remain so mysterious about what they actually do?

There comes a time in a person’s life when he or she looks around and heaves a satisfied sigh. Things are going well, you have a nice house, a nice family, a great job, your children are in good colleges and in some years you could look forward to retiring and relaxing and finally getting a well earned rest after years of slogging it out. Investing in property for your future is a very good idea. With the help and advice of a good loan consultant this can be achieved easily and you can look forward to a secure retirement.

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The FHA in "FHA Mortgage loans" stands for "Federal Housing Administration."The Federal Housing Administration is a government entity that insures mortgage loans that lenders fund (as long as they fall within the FHA guidelines). In other words the FHA is basically an insurance company, owned by the government, and insures lenders/banks against borrowers foreclosing on their mortgage loans.

The beginning of the FHA came about in the 1930's during the great depression. It was put in place to give the economy a shot in the arm by assisting low to moderate income families purchase homes.

Nearly seventy years later not much has changed (as far as FHA's purpose goes) and it should be of no surprise that FHA are three letters coming out of the majority of today's California home loan applicant's. In the very recent past, FHA loan limits (for the entire U.S.) topped out at $417,000 regardless of where one may have wanted to purchase a home. This made using FHA for a loan in higher priced states (like California and New York) where average home prices were much more than $417,000, nearly impossible.

The recent increase of the FHA loan limit, up to as high as $729,750, in many areas of the U.S., along with the collapse of sub-prime lending and more strict lending guidelines, has created a whole new market for FHA loans.

Sales of existing homes rose 2% in May to a seasonally adjusted annual level of 4.99 million units, the National Association of REALTORS® said June 26. It was only the second increase in the last 10 months. The inventory of unsold homes shrank 1.4% to 4.49 million units, representing a 10.8-month supply at the May sales pace, down from an 11.2-month supply in April. Meanwhile, the median price of an existing home sold in May dropped to $208,600, a decline of 6.3% from a year ago.

Sales of new homes dropped 2.5% in May to a seasonally adjusted rate of 512,000 units, the Commerce Department reported June 25. The median price of a new home slipped to $231,000, off 5.7% from a year ago.

Mortgage application volume fell 9.3% for the week ending June 20, according to the Mortgage Bankers Association's weekly application survey. Refinances were down 12.1% and purchase volume declined 7.4%.

Neither home sales nor application volume got much help from rates on 30-year mortgages, which rose to their highest level in nine months, Freddie Mac said June 26.

At the conclusion of its Federal Open Market Committee on June 25, the Fed left its benchmark Fed funds rate at 2%. That’s the rate at which banks loan short-term funds to one another.

The Commerce Department said June 26 that the nation’s first-quarter gross domestic product or GDP, which measures the value of all goods and services produced in the United States, came in at 1%, slightly better than the government’s previous 0.9% estimate. Although sub par, the growth was better than the feeble 0.6% pace marking the final quarter of 2007.

Due out July 3 is the Labor Department’s employment report for June.

Economic data compiled from government reports and news services Bloomberg.com, msnbc.com, cnbc.com, cnn.money.com, Yahoo Economic Calendar, and Indymac Bank.