HSBC Offers New Lure To Keep Home Loan Customers

Source : The Business Times, July 22, 2009

HSBC is offering customers of its declining-rate-spread home loans who sell their houses a chance to continue benefiting from lower interest rate spreads, if they take out a new loan with the bank.

The latest tweak to its variable-rate mortgage offering is aimed at persuading customers to stay with the bank, even if they sell their home and redeem their existing loan.

HSBC charges customers of its Sibor-pegged home loans the three-month Singapore interbank offered rate or Sibor, plus an extra margin or spread that declines after the first year.

When the bank launched its Sibor-pegged 'loyalty' home loan package last July, the spread was 0.75 percentage points above Sibor in the first year, 0.65 points in the second year and 0.55 points subsequently. The current spreads are 1.3 points for the first year, 1.2 points for the second year and 1.1 points subsequently.

In March this year the bank launched a new 'relationship-based' home loan package that charged a spread that started at 1.5 percentage points above Sibor in the first year, then declined by 0.075 point each year until the 10th year, when the spread fell to zero, before rising again to 1.2 points subsequently.

Since then, the spreads have been revised. They now start at 1.2 points in the first year and fall by 0.1 point each year until they reach 0.8 point, where the level stays until the ninth year. The spread then falls to zero in the 10th year, and rises to 1.3 points subsequently. Sebastian Arcuri, head of personal financial services at HSBC, said the response to both packages has been 'extremely positive', with three-quarters of the bank's home loan customers choosing one of the two, instead of fixed-rate loans.

With the latest 'portability' feature, customers who sells their home and redeem their mortgage early - say, in the third year - and takes out another Sibor-pegged home loan with HSBC for a new property will pay the same spreads as before on the redeemed loan amount, instead of starting at the top rate. If the Sibor rises significantly, however, the overall interest rate paid by a borrower may still increase from one year to the next.

Mr Arcuri said the feature will help customers save on interest. 'With loan portability, our customers can enjoy the freedom and flexibility to redeem their loan, buy a new home and still benefit from a lower interest rate spread on their home loan year on year,' he said.

To qualify for the rate-spread discounts and the portability feature, customers must keep at least $100,000 in deposits, investments or insurance with HSBC.