The Fully Flexible Loan (FFL) introduces a maturity-based pricing structure and increase the maximum tenor of loans offered by the Bank to 25 years and the grace period up to 8 years. The average loan maturity will determine the level of maturity premium applicable to the loan. A maturity premium that is fixed for the life of the loan will be part of the loan’s lending rate.
The applicable maturity premium is based on the loan’s average maturity. Average loan maturity means the weighted average time to repay a loan, which is calculated as the sum of weighted repayments divided by total repayments. The sum of weighted repayments is obtained by multiplying the number of years in by the principal repayments. An example is provided below.
With maturity-based pricing, loans with an average maturity less than or equal to 12.75 years will not attract a maturity premium. However, loans with an average maturity greater than 12.75 years but less than or equal to 15 years will attract a 10 bps maturity premium, while loans with an average maturity greater than 15 years will attract a 20 bps maturity premium. The average loan maturity will have a limit of 17 years. The applicable maturity premiums based on the average maturity of the loan are as follows:
Example of Average loan Maturity Calculation:
- Column A represents the number of years expressed using a semiannual repayment schedule
- Column B represents the principal repayments. Note that there is no principal repayments during the grace period up to year 2
- Column C represents sum of weighted repayments obtained by multiplying the number of years in column A by the principal repayments in column B.
The Average Maturity is obtained by dividing the sum of weighted repayments of 450 to the total principal repayments of 120.
The Average Maturity is 450 / 120 = 3.75 years
Average Maturity Cheat Sheet