Why not give customers the money outright?
LAST Friday, when given the HSBC press release on its new Sibor plus equity-linked mortgage, I spent at least 15 minutes trying to figure out how it worked. The result was that I was so consumed with the promise of thousands of dollars that I paid no attention to the home loan itself.
Eventually, I had to swallow my pride and talk to an HSBC executive to understand how taking a mortgage from HSBC would put money in my pocket. The idea was quite simple: a borrower could get potential cash rebates based on an equity index over a 24-month period.
The rebate is 0.25 per cent of the outstanding loan amount. This index has to hit or exceed 130 per cent of a specified barrier level on each valuation date, which occurs on the first trading day of every quarter for a borrower to hit pay dirt. At the inception date of the equity-linked home loan on Nov 2, 2009, the barrier point index is 315.50.
Hence, on the first trading day of each quarter, commencing April 2010, if the index is more than 410.15 (being 130 per cent of 315.50) in the official closing for that day, the customer will receive a cash rebate of 0.25 per cent of the loan outstanding; if the index is less than 410.15, no cash rebate will be given. HSBC said that while the customer may get nothing, no one loses any money; it’s essentially giving borrowers a lottery ticket. Continue reading
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