HSBC Home Loan Rewards Loyalty

Source : The Business Times, March 12, 2009

Rate keeps sliding for long-haul customers in face of refinancing war

HSBC has just come up with a sexy mortgage deal in a bid to keep its customers - on the condition that borrowers park at least $100,000 at the bank.

Borrowers who stay with the bank for 10 years exactly see their first-year spread of 1.5 percentage points - that is the margin they pay on top of the three-month Sibor rate - slide and eventually disappear in the 10th year. Thereafter, the spread jacks up back to 1.2-points.

Sibor is the interbank or wholesale rate and Sibor-plus packages are popular with borrowers betting that this will remain low as governments pump money into the banking system to tackle the global recession.

A home loan war is looming with HSBC's offer hot on the heels of other initiatives. Last week, Maybank announced the lowest three-year fixed-rate deal in town.

Some bankers claim that hardly anyone sticks to a bank for 10 years, with three years the norm before fickle borrowers are tempted away.

HSBC said that those who stay will enjoy a steady year-on-year decreasing interest rate spread.

The spread for the first year starts at 1.5 points on top of the three-month Sibor. This is reduced by 0.075 of a point at the end of each anniversary year.

If customers keep their loans, their spread falls to zero in the 10th year.

The loyalty discount works only if customers deposit a minimum $100,000 of assets such as deposits or investments and insurance with HSBC.

After the 10th year, the interest rate spread goes back up to 1.2 points for the remaining tenure of the home loan.

There is no lock-in period so borrowers have full flexibility, said HSBC.

Over 10 years, HSBC customers pay an average of 1.08 per cent while it's an average of 1.425 per cent over the first three years, noted United Overseas Bank head of loans Kevin Lam.

He said that UOB has a fixed-rate three-year loan where it charges the cost of funds plus a 1.25-point spread for borrowers whose loan to value ratio is 80 per cent. For no lock-in, the spread is currently 1.75 points.

Mr Lam noted that for 'safe' borrowers, that is those whose loan to value ratio is low - say 50-60 per cent - UOB is willing to charge a lower spread.

Loan to value ratio refers to the loan quantum versus the value of the property and with property prices still sliding, banks will reward customers who borrow less.

DBS Bank too has loyalty Sibor-plus packages with the spread sliding up to three years.

Under its package, customers financing loans of 60 per cent or less of valuation can enjoy a spread which starts at 1.1 points for the first year and falls to as low as 0.8-point in the third year. Thereafter, the spread is 1.25 points.

This applies only to completed owner-occupied properties.

'When customers commit a longer period with us, the interest rate spread is also reduced,' said a DBS spokesman. 'This loyalty reward is still available to this day and available for three and 12-month (Sibor) packages for customers, including those new to our bank.'

In these recessionary times, borrowers still have some options as banks try to outwit one another to sell their loans and, to give it credit, HSBC was the first to launch loyalty loan packages, keeping rivals on their toes.

Last July, HSBC unveiled its innovative Sibor plus loyalty offer with year-on-year decreasing spread for the first three years of the loan.