Loan packages on offer

As promised, here are the details of the loan packages i have been offered:

Bank A (Refinancing, quoted on 12 Feb)

  Variable 2 yrs Lock-in 2 yrs Fixed SOR 1 yr Lock-in
Yr 1 1.68% 1.99% 3mth SOR + 0.85%
Yr 2 1.68% 1.99% 3mth SOR + 1.25%

Prepayment penalty: 1.5% (For the SOR package, 1.5% penalty is also applicable if redemption is not done on the rate review date, even after the lock-in period)

Bank B (New loan, quoted on 26 Feb)

  Variable No Lock-in SOR 1 No Lock-in
Yr 1 1.50% 3mth SOR + 0.98%
Yr 2 1.50% 3mth SOR + 0.98%
Yr 3 2.50% 3mth SOR + 0.98%
Cancellation Fee 0.75% 0.65%

Note that the cancellation fee is the penalty incurred on the loan amount that has not been disbursed (i.e. loan is cancelled before the full loan amount has been disbursed). For this particular bank, no penalty is imposed if the redemption for SOR package is not carried out on the rate review date.

Some observations:

  • No lock-in loan packages are back, with attractive rates too! When i first took up a loan in 2003, the market was so bad that practically every bank offered loans without lock-in. As time goes by, such packages evaporated, or were offered with unattractive rates. Looks like the competition is heating up again recently.
  • The cancellation fee for a new loan is much lower than the typical penalty of 1.5% banks typically impose. i have not checked if other banks offer comparable rates, but this is certainly encouraging property speculators, no?
  • Most SOR or SIBOR-pegged loans stipulate that redemption (partial or full) must be done on the rate review date, otherwise a 1.5% penalty is imposed. On top of that, it is quite standard that you have to request to perform the redemption 3 months in advance. What this means is that, if you’re trying to sell your house, you have to time the sale such that it is slightly more than 3 months before the rate review date, or risk having to pay the 1.5% penalty. Let me cite an example: say your rate review dates are 1 Jun, 1 Sep, 1 Dec and so on. To avoid paying the 1.5% penalty, you’ll have to sell your house say 2 weeks before 1 Jun, 1 Sep and so on. This no doubt makes things difficult as you never know when someone will agree to buy your house! If you happen to just miss the mark and sold your house say on 2 Jun, in order to avoid the 1.5% penalty, the loan redemption has to be done almost 6 months later and your buyer may not be willing to wait so long! Do take this into consideration if you’re thinking of taking up a SOR/SIBOR-pegged loan. Packages that do not stipulate that the redemption must coincide with the rate review date ARE AVAILABLE!
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