BANKS STEPS ON BRAKES ON LENDING

quote: "Success is a thought process"

Wachovia Corp. A big regional american bank lender has stopped Offering option adjustable-rate mortgages, which let borrowers skip part of their payment and add the balance to the principal. According to Robert Steel, the Charlotte, North Carolina based bank is "tapping the brakes" on risks.

Banks worldwide are indeed becoming more cautious, not less.

That means some people who do not qualify for refinancing with other banks may be stuck with an existing bank. Many banks in Singapore tend to charge a lower interest rate to acquire new customers and in latter years charge more to either recover their profitability.

As interest rate directions especially the SIBOR cannot be accurately predicted, it is safe to say that for some people, certainty of a fixed rate mortgage for a number of years gives them ample time to react to any crisis.


Source: Morningstar.com

As you can see from the chart of 3-month Libor (The London equivalent of Sibor) rates over the past 20 years. It can go as high as 20%.

Many banks are increasingly providing Sibor Plus packages to home owners (Sibor + margin%). While it can offer lower rate in the short term, it can be highly dangerous when a credit or liquidity crisis comes.

Now the question to ask yourself. Can you afford your installment when interest rate hits 20%?