With the increasing diversity of bank housing loan products, there is growing need to provide consumers with appropriate information and explanation about the risks involved as a means to protect borrowers and develop sound housing loan markets. Particularly in today's low interest rate environment, where interest in housing loans with variable rates tends to be heightening, it is important that borrowers be fully informed of the risks of these rates and that their future repayment sum will increase if there should be rate hikes.
Recognizing this need, JBA through the Board of Directors Meeting held on December 21 made the following agreement concerning information provision to housing loan borrowers on variable interest rate risks.
Banks must fully explain to borrowers about risks involved in housing loans with variable interest rates, and housing loans with fixed interest rates for a restricted period, so that borrowers may understand them correctly. At least the following items must be, in principle, clarified in writing by the time of the loan contract being concluded.
1. Housing loans with variable interest rates
(1) The benchmark interest rate on which loan interest rate depends and the size of loan interest rate changes accompanying changes in the benchmark interest rate.
(2) The timing of reviewing the benchmark interest rate and time for applying an ensuing revised loan interest rate
(3) Rules concerning changing repayment amounts (in the case of reviewing repayment amounts periodically, the relationship with the review of interest rates, details of principal amount and interest, and possible increase in final repayment amount in an economy with rising interest rates)
(4) Means to inform borrowers of the change of interest rate and repayment amount as described in the above (2) and (3)
(5) Measures to prevent borrowers from mistakenly believing that the initial low interest rate environment will last for the entire period (explaining possible rise in interest rates by showing past interest rate fluctuations)
(6) Trial calculation of repayment amounts for a different interest rate than the initial one, to indicate borrower's estimated repayment amounts when the loan's initial interest rate is raised.
(7) Fees (fees chargeable at the time of the loan contract being concluded, fee for advanced repayment, fee for rescheduling, delinquency charges)
(8) Staff contact at the bank for borrowers
2. Housing loans with fixed interest rates for a restricted period
(1) Characteristics of this type of loan (interest rate and repayment amount remain unchanged through the period where the fixed interest rate is employed; borrowers cannot change to other loans with different types of interest rates during the fixed interest rate period)
(2) Procedures for selecting this type of loan (necessary documents, selectable time)
(3) Time for determining the applicable fixed interest rate
(4) Rule for interest rate changes after the fixed interest rate period terminates, rule for changing the repayment amount (possible increase in repayment amount if applicable interest rate goes up after the fixed interest rate period terminates, characteristics of variable interest loans as described in the above 1. when variable interest rate begins being applied)
(5) Procedural matters when the fixed interest rate period terminates (procedures for both when customers opt for and don't opt for the same type of partly-fixed-interest-rate-loan)
(6) Fees (in addition to the above 1. (7), fees and other necessary charges accompanying advance repayment during the fixed interest rate period, fees for opting for a fixed interest rate again when the fixed interest rate period terminates, etc.)
(7) Staff contact at the bank for borrowers