Home loan facts should be spelled out: MAS
The next time you consider taking up a home loan, the banker you approach might first sit you down and present you with a fact sheet on exactly what borrowing will entail.
Beyond a discussion on the loan amount and repayment period, you could be given a detailed outline on how much you could end up paying should the interest rates on your loan go up.
The Monetary Authority of Singapore is proposing that banks issue a new two-page standardised fact sheet to all prospective borrowers to ensure they make informed decisions when taking up a home loan.
The sheet, to be provided when the bank opens discussions with a borrower on the key features of a mortgage, should include information such as loan amount, duration of the loan, whether there is a lock-in period during which the borrower cannot re-finance the loan without a penalty and all the fees payable.
"The Fact Sheet will provide information that is essential to the consumer's decision to take up a loan, including information on how loan repayments may change under different interest rate scenarios," said the central bank in its consultation paper released on Wednesday.
It noted that interest rates for loans in Singapore are typically pegged to a variable benchmark rate, the bank's internal rate or to a fixed rate for the first few years.
"As such, it is important that consumers are informed of how their loan repayments may change under different interest rate scenarios," said MAS.
Some economists have raised the possibility that the ultra-low borrowing rates in Singapore could rise, reported The Straits Times.
Interest rates have risen in other markets like Hong Kong and Malaysia. Bank of America Merrill Lynch economist Chua Hak Bin said earlier that demand for loans here was rising quickly, which could prompt some banks to raise rates.
At the same time, residential prices may fall by up to 6 percent when interest rates start to rise, executive director of Hong Kong property developer Cheung Kong Justin Chiu told the paper.
This means that buyers who have overextended themselves with big home loans may have difficulty selling in a falling market.
Bank officials told ST the fact sheet is a good initiative to further enhance transparency and consistency, while analysts called the fact sheet timely.
United Overseas Bank senior economist Alvin Liew said it provides consumers with information on the potential risks in property purchase when interest rates rise.
However, SLP head of research Nicholas Mak believes the sheet will have "almost no impact on the property market".
He said, "Property buyers are buying the largest single financial investment they make in their lives, and they should be in possession of all the relevant information."
MAS is seeking feedback from the banking industry and the public on its proposal until 22 July.
Comments can be submitted to:
Prudential Policy Department
Monetary Authority of Singapore
10 Shenton Way
MAS Building
Singapore 079117
Fax: (65) 6220 3973
Email: policy@mas.gov.sg
