Loan Repricing

Bank loans typically advertise a low interest rate (or a "teaser rate") to entice home buyers to borrow from them. These teaser rates usually last between the first 1 to 3 years of the term. After teaser rates expire, interest rates are repriced periodically (i.e., annually). You may check your loan agreement on when these repricing dates (also known as "fixing dates") are. The photo above is an example.

Now for the horror story...

Home loan borrowers would feel the brunt of the BSP's recent interest rate hikes on these repricing dates.

But what if the first repricing date occurs when the BSP has reduced its policy rates?

IDEALLY, once interest rates go down (i.e., driven by when the BSP reduces its policy rates), the rates for home loans also go down on repricing dates. However, the lending bank will ultimately decide how much to reprice the loan. If you check loan documents, they do not indicate the basis for the new pricing, unlike corporate papers (e.g., bonds/notes).

The interest rates of these corporate papers are based on the prevailing reference rate of a government security plus a spread (e.g., 10-year PDST-F + 200 basis points). However, unlike corporate securities, lending banks do not indicate where they will base the new rate (I wonder why this is the case).

To make matters worse, according to some people I've spoken to, banks RARELY lower the effective interest rate even if the BSP reduces their policy rates.

If the BSP lowers its policy rates and your bank doesn't lower your interest rate, I suggest you "refinance" the loan. This move entails opening a new loan account with another bank with a lower interest rate more reflective of current market rates.