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Wednesday, July 04, 2007

Fiji Development Bank's Choice Home Loan Facility

One of the most liberal home loans packages recently introduced in Fiji is that by Fiji Development Bank's Choice Home Loans. These are some of its features :
  • 50 year mortgage;
  • interest only payments mortgage; and
  • low doc loan.

From an individual's perpective, going into such a long term loan of 50 years has its drawbacks one of which is that by the time a person retires he would still have a loan outstanding to pay.

For instance, most home property buyers in Fiji use a part of their funds with the Fiji National Provident Fund (FNPF) to help make up a deposit to buy their first residential property. For these people, they spend the first few years of their working life building up their FNPF to then be able to have enough to meet the deposit required for purchase of property.

This means that the majority of individuals would buy their first property when they are in their late twenties or early thirties.

If such a person takes a Choice Home Loan and its 50 year mortgage, they would have to make loan repayments until they are almost 80 years old when retirement age in Fiji is between 55 and 60.

On the other hand from an institutional perspective, locking funds into long term lending (such as the Choice Home Loan 50 year mortgage) while the majority of funding sources are short--term (between 1 and 3 year terms), places a huge strain on maturity matching of sources and uses of funds and the institution's asset-liability management. In short, it is not good as well for the institution that is providing it.

It would be good for the institution and the appropriate authorities look into the suitability of this particular product again. The institution may have its logic for offering such a product but as someone that has experience in the financial sector for over 17 years, I cannot really bring myself to understand it.

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