Lenders offer innovative and varied products, moving away from old strategy of using low interest rates
THE recent surge in HDB and private home sales has seen a pick-up in the pace of lending among banks, which have come up with new and innovative loan products to lure home-buyers.
Compared to the first quarter, the second quarter saw the number of approvals more than doubled, said Mr Gregory Chan, head of consumer secured lending at OCBC Bank.
'We continue to see double-digit growth in sales, with a 30 per cent quarter-on-quarter increase in new mortgages as of Q2 2009,' said Mr Dennis Khoo, general manager of retail banking products at Standard Chartered Singapore.Banks are introducing more variations in their loan products, not only to seize market share but also, in part, to avoid the old 'How-low-can-you go?' war of interest rates.
'The best mortgage is not necessarily the one with the lowest interest, but the one that best suits a customer's needs,' said Ms Sherry Leong, business head for home financial services at Citi Singapore.
'We consider it important to offer product innovation and differentiation along with good after-sales service that is relevant to our customers' needs.'
The Straits Times surveyed seven lenders and found many variations of the traditional fixed- or floating-rate mortgages. They include loans that allow changes in loan tenures, offer loyalty discounts, and even a few that earn interest like a savings account.
For example, United Overseas Bank's latest HomePlus loan allows customers to earn the same interest rates on their deposits - of up to 75 per cent of their outstanding loan amount - in a separate bank account.
According to UOB, customers have the option of using the interest earned to offset their loan's interest.
Promotional rates for UOB's HomePlus are now at 1.5 per cent for the first year, 2.99 per cent for the second and 4.5 per cent for the third. But depending on the deposit amount maintained in an account with the bank, an implied interest rate on the home loan can be as low as 1 per cent in the first year and up to 3 per cent in the third year, said UOB.
StanChart's MortgageOne Optimizer also comes with an offset feature where customers can use the interest earned on their deposits to reduce the interest payable on their home loans.
'It is a smart money manager that optimises the deposits and mortgage loans of home-owners...automatically optimising returns by using the lowest interest-earning deposit accounts to offset the highest interest-paying loans,' explained Mr Khoo from StanChart.
Aside from an interest-offset feature that helps customers pay down their home loans faster, Citi's Home Saver is also an index-linked home loan that offers customers one of the widest selections of index tenures in the market, ranging from one month to three years.
With that, customers have the flexibility to switch from one tenure to another when the loan hits its maturity date, enabling them to react periodically on when to fix or float their interest rates, depending on their view of market trends.
'For instance, clients can take advantage of the low one-month Sibor now and then change to a 12-month Sibor later when they feel that interest rates are likely to rise, thereby fixing the rate on their instalments for that period,' explained Citi's Ms Leong.
'Conversely, a client who has chosen a six-month Sibor initially can switch to a one-month Sibor if he believes that interest rates could ease in the coming months.'
However, traditional heavyweights in the home loans market such as DBS Bank, OCBC and Maybank say plain vanilla loans with low fixed or floating rates linked to Sibor, or SOR, continue to remain popular, especially in today's low interest rate environment.
One particular feature in DBS' fixed- rate loans is the flexibility - which is usually not available for fixed-rate packages - of allowing customers to partially pay for their loans at any time within the period.
While DBS offers customers more freedom in managing their home loan, HSBC introduced a special feature to keep their customers banking with them.
'We are the only bank to reward customers for keeping their home loan with us by giving them a loyalty discount, in the form of a year-on-year decrease in the interest rate spread charged,' said Mr Sebastian Arcuri, head of personal financial services at HSBC Singapore.
'This benefit is also 'portable', giving customers the flexibility of carrying forward their loyalty discount to a new property when they finance it with us.'
HSBC says there is also no lock-in period for its loyalty home loan packages, so customers are not tied down.
HSBC's Sibor-pegged loyalty packages also come with a year-on-year decrease in the interest rates spread charged in the first three years, unlike conventional home loans, which typically see interest rate spread rise over the loan tenure.
UOB'S HOMEPLUS:
Allows customers to earn the same interest rates on their deposits in a separate bank account.
Customers have the option of using the interest earned to offset their loan's interest.
CITIBANK'S HOME SAVER:
Offers customers one of the widest selections of index tenures in the market, ranging from one month to three years.
With that, customers have the flexibility to switch from one tenure to another when the loan hits its maturity date.
HSBC:
Rewards customers by giving them a loyalty discount in the form of a year-on-year decrease in the interest rates charged.
There is also no lock-in period for its loyalty home loan packages, so customers are not tied down.
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