WHEN I signed up for a home loan from DBS Bank in May 2005, my rate was pegged to the Special Mortgage Rate.

The Special Mortgage Rate has increased from 4.25 per cent in May 2006 to the current 5.5 per cent. The increase was due to the hike in interest rates during those periods.

Since last year, although the Singapore Inter-Bank Offered Rate (Sibor) and fixed deposit rates have decreased significantly, the Special Mortgage Rate has yet to decrease. The fixed deposit rates and Sibor are now lower than when I first took the loan.

DBS is not being fair to existing customers who took the loan earlier. As my loan has not been drawn down due to the deferred payment scheme and is locked in, I am not entitled to the low interest rate currently available in the market.

When queried, the explanation was that DBS no longer uses the board rate and its new loan packages now follow the Sibor, so it will not revise the Special Mortgage Rate. DBS said my package has a cash rebate component, which warrants the higher interest rate. That I understand, as when I signed for the package with DBS, the rate was actually higher than in other packages available. However, after careful calculation, I decided to sign with DBS because the package was still more attractive. The difference of interest rate was not more than 2 per cent from the market rate which it is currently.

I must add that DBS did offer me a repriced package based on the Sibor, in which the terms and conditions are worse than in my original package. In addition, I will lose the cash rebate.

The fair practice would be for DBS to decrease the Special Mortgage Rate to a reasonable range of between 4 and 4.5 per cent. This would benefit all customers and not only those who contacted the bank.

I have sent DBS an e-mail message, asking if it plans to revise its Special Mortgage Rate upwards in future, once interest rates start to increase but I have yet to receive a reply. If it does revise the Special Mortgage Rate upwards, there is indeed a major flaw in its argument against revising the Special Mortgage Rate downwards.

It would be even worse if DBS revises the Special Mortgage Rate upwards, even before current interest rates reach the high of more than 3 per cent for fixed deposit rates.

Last but not least, I hope the Consumers Association of Singapore or the relevant authorities will comment and look at whether banks in Singapore have been fair to their customers.

Khor Eng Hao

This article was first published in The Straits Times on December 31, 2008.