Fears of mortgage rate hikes prompt warnings
The China Post news staffTAIPEI, Taiwan -- In response to possible interest rate hikes hinted at by Perng Fai-Nan, governor of the Central Bank of the Republic of China, bankers are telling those with mortgages to get ready to shop for more affordable terms and, if worse comes to worse, to cut back on food and clothing expenses.
September 28, 2013, 12:05 am TWN
Before the banks actually raise rates, owners of mortgaged homes should consider switching to another mortgagee bank that offers more competitive mortgage rates, an unnamed expert was quoted as saying in the Sept. 27 edition of the Chinese-language United Evening News.
In a departure from his steadfast adherence to quantitative easing, which loosely equates to lower interest rates, Perng said Thursday at a meeting of central bank board members and supervisors that interest rates might go up after remaining low for more than two years.
However, the country's rediscount rate remained at 1.875 percent for a straight nine quarters after the meeting.
“It is the duty of the central bank to remind the community of the need to manage (interest rate) risks and that because uncertain factors will abound down the road, interest rates may not remain low forever,” Perng, who did not speculate on when rates might go up, was quoted as saying.
“Should there be any rates movements, borrowers must take into consideration their future ability to repay loans,” he added.
In the wake of Perng's comments, bankers foresee greater financial pressure on mortgagers, especially since they cannot foresee when the end of rate hikes, if they do indeed happen, will occur.
Monthly interest payments on a 20-year NT$10 million mortgage will increase by NT$500 even if the current 2.3-percent rate increases by only one-tenth of 1 percent, and much more if the interest rates hikes continue unabated, a banker interviewed by UEN warned.
Pundits are recommending other measures to offset the impact.
Home mortgagers can try to make more money or to move to smaller, more affordable homes, or, if possible, switch to adjustable rate mortgages (ARM).
An adjustable is a mortgage on which the interest rate, after an initial period, can be changed by the lender. Though in many countries ARMs allow rate changes at the lender's discretion (“discretionary ARMs”), in Taiwan the rate typically changes with one-year, fixed-rate deposits.
Other experts warn that aside from borrowers, the real estate market will be affected by steep interest rate increases.
Should mortgage rates go up, potential home-buyers may hesitate, causing speculators to dump their holdings, a realtor was quoted as saying.
An increase to four percent would mean a disaster for the real estate market, the realtor continued. Prices will go down but buyers may not increase, and foreclosures could flood the market, he said, adding that banks may be reluctant to lend money to home buyers.