Elsewhere, you can bank on fortnightly loan repayments

Being an Australian expatriate living and working in Singapore for the past 10 years, I have found myself in a position where the rental on my current condo unit will be increased from $1,900 a month to $3,500.

Most of us know that paying this much in rental is nothing short of pointless and a complete waste of hard-earned money. So, like almost all of my expatriate friends, I have decided to buy rather than rent. I decided to make appointments with all of the major banks in Singapore and get an idea of what kind of loans are available and see who offers the best rates and loan package in town.

Having purchased property in Australia, I was keen to find out how competitive banks were in Singapore and to arrange a similar loan to what I have there.

About 10 years ago, a housewife in Queensland, Australia, discovered that if you were to pay your home loan repayment fortnightly and not monthly, you could reduce the life of your loan from 20 years to 12 years (based on an average loan amount). The banks in Australia had been hiding this fact from the consumer for decades. Not a single one had any provision for fortnightly payments.

For example, you owe the bank a monthly repayment of $2,000. Instead of paying $2,000 at the end of the month, you pay $1,000 each fortnight, and so reduce the amount of interest calculated on at the end of each month. Over time, this adds up to a huge saving in interest payments over the life of the loan and will bring about the end of the loan years sooner.

So, why do banks in Singapore not offer this? Simple. They would lose hundreds of millions of our hard-earned dollars in interest payments. Hence, their profits will drop.

In Australia, when the news of the benefits to consumers of this repayment method hit the media, major banks scrambled to cut off the defection of hundreds of customers to smaller banks offering this service.

Today, every major bank in Australia offers the service and even sets up simulators to show how you can cut your loan in half with fortnightly repayments.

When I asked each of the loans officers in Singapore why they did not offer this service, I received a sheepish grin and a shrug. I am sure many home owners here will be very keen to know why fortnightly repayments — offered by most banks in the world today — are not available?

When can we expect this service to become available so that we can look forward to saving possibly hundreds of thousands of dollars in interest payments to banks that post huge annual profits partially due to our home loan repayments?

Letter from Bruce Harvey

Source: Today, 07 June 2007