Tuesday, August 06, 2013

Infographic on "A Guide To Home Loan Refinancing"

It took me a while to finally find time to upload this informative infographic.

This infographic, from iMoney, (with their permission to display) provides a complete and concise information on Refinancing Home Loan:
  • Benefits and reasons of refinancing your home loan
  • Key considerations before you make a choice
  • How to go about to refinance your home loan

As I wrote in my previous post "Reduce Your Home Loan Interest Rate", there is definitely a chance for big saving if your current housing loan was obtained earlier than 2009. Many people are still stuck with pre-2009 high interest rate housing loan. Read this for strategy to reduce your interest rate.

However, once you have decided to go ahead with refinancing, this infographic is useful. What are the outcomes you want in refinancing your home loan?
  • Lower installment amount?
  • Shorter repayment period?
  • Free up cash by increasing your loan amount as the value of the property had increased?

The infographic illustrates how you can reduce your loan installment amount and save interest expenses. There are some good advises in the section "How do you go about in refinancing your home loan?" on pitfalls to avoid and steps to be taken. You may find the original inforgraphic on refinancing home loan here.



Courtesy of: iMoney.my




More resources:

Tuesday, June 11, 2013

Compare and calculate home loan offers



If you are looking for a website that provides comparison of home loans offered by different banks, you may find these two websites useful.

iMoney.my 

This Islamic home loan comparison and sourcing web tool is simple, just
1. Enter the amount you want to borrow, and
2. Enter the tenure of the loan (year)

And you will be able to see a list of banks with essential features of the loans offered, i.e. interest rate, calculated monthly repayment, total interest (profit) paid for the entire tenure of loan and lock-in period. You can click on "Apply Now" button and fill up a simple application form through the website for someone to contact you on your selected home loan.

I like its simplicity. Many users will find that it is easy to use.

Beside home loan comparison (currently focus on Islamic loan only), iMoney has many good financial articles and comparison tools of various financial products, i.e. fixed deposits, credit card, etc.

Loanstreet.com.my

Loanstreet is a website focuses on property loan. Its property loan comparison and sourcing web tool requires users to provide a bit more details, but it also provides more information. Not only you can choose the type of property up front, you can refine the search result with type of rates, i.e. fixed rate or floating rate,  flexi or non-flexi loan, etc.

This is how its loan comparison and sourcing tool works,
1. Enter the type of property, value of property, financing margin and tenure of loan.
2. Refine the result by choosing more options, i.e. type of rates, type of repayment, Islamic or Conventional, Completed or under construction.

The outcome is that you can see a list of bank loans offered by various banks with essential features, i.e. rates, tenure, lock in period, full flexi, etc. You can select offers and click on "Apply Selected Packages" button and fill up a simple application form through the website for someone to contact you on your selected home loan.

I like this tool because it is more delicate in terms of functionality. However, a small group of users with little interest in financial terminology may find it complicated.

It also has many good guides on property loan.




Both websites above are impressive and useful.

Negotiate With Banks

One thing I realised about getting a property loan is that interest rate offered by bank is always negotiable. When you use such comparison tool, you should not feel intimidated by rates listed in the comparison list. You need to contact them to find out more and negotiate if you are interested.

The rate that the bank offers to you usually determined by a few factors:
  • Type and locations of property and/ or specific project
  • Your credit records kept by Bank Negara Malaysia's Central Credit Reference Information System. (Read more about CCRIS here.)
  • Your income level
  • Whether there is Mortgage Reducing Term Assurance, MRTA (Read more about MRTA here.)

A good credit history record, high income and a good piece of property that the bank feels comfortable with can help you to reduce your rate by 0.1% - 0.3%.

Other Sources of Home Loan

There are other financial institution that offer home loan, i.e. insurance companies, Malaysia Building Society Berhad (MBSB), KWSP (EPF), Koperasi Loan (a type of personal loan with interest rate lower than housing loan), etc.

As far as I know, home loan offered by insurance companies can be really cheap but with fixed tenure and fixed interest rate. They may not be as flexible (in term of early repayment, advance payment and withdrawal of advance payment) as we need them to be.

Lastly, there is one good article here on avoiding common home loan mistakes.


Other resources:

Thursday, January 24, 2013

Reduce your homeloan interest rate

Homeloan Rates Reduced in 2008, 2009 and 2010


In early 2009, Bank Negara Malaysia ("BNM") reduced the bank interest rate significantly (by 40%) and increased the liquidity of banking system to prepare for the anticipated economy downturn of the world.

I remember Malaysia's homeloan interest rates went down significantly though gradually in the year of 2009. (Meanwhile, prices of house went up gradually and significantly in 2009 to 2011.) It went down to as low as 3.5% - 4.0% (BLR less 2.3%) from previous height of approximately 6.0 - 7.0%. It was a very significant reduction. It cut household's homeloan interest cost, one of the largest expenses of middle class households, by 1/3.


Banks would not informed you or reduced your homeloan interest rate


However, if you had a homeloan earlier than 2009 then, there was a catch: your bank would not offer or inform you of the new reduced homeloan rate. They would continue to charge you based on your original homeloan interest rate that probably hovering between 5.0% - 7.0% (BLR plus 2%).

It surprised me to find out recently that, even until today, some of my friends and colleagues are still carrying these pre-2009 homeloans with high interest rate. What they did not know is that they can reduce the interest rate and instalments.




Method To Reduce Your Homeloan Interest

  • Check with other banks their homeloan offer. Get two banks' offers.
  • Call your bank to reduce their rate, or else you would switch your homeloan to another bank.
  • At this point, your bank would most likely agree to reduce your homeloan interest rate and in return would want to tie you down for at least 3 years.
  • You can agree and the rest is just paperwork
  • If your bank refuse to reduce your interest rate, then switch to another bank. Some banks even offer free legal fee for switching of loan. Here is an useful infographic on refinancing your housing loan.


Why didn't I write about this earlier?

I used to think such thing is just so straight forward, like "Bank Negara had reduced the interest rate, the banks had a lower homeloan interest rates... and come, let's talk to the bank officer to reduce our rates!!" And sooner or later most people would know and ask their banks to reduce their homeloan rates...and so I thought.

Apparently it is not the case. Many people do not know this even after 4 years since 2009. So I write now. Hope it helps. If you still have an old homeloan, check your interest rate and talk to your bank to reduce it. The saving can be huge.

Thursday, April 06, 2006

FPM Home Loan Planner R1.0


FPM Home Loan Planner R1.0 contains a home loan calculator and a home loan repayment planner.

Home Loan Calculator

There are four variables in calculating home loan, i.e. loan amount, interest rate, monthly instalment and loan tenure. The usual home loan calculators found in the internet calculate only the monthly instalment in which users enter loan amount, interest rate and loan tenure. Under certain circumstances, i.e. exploring alternative loan tenure by changing instalment amount, such home loan calculators are cumbersome for use.

In FPM's Home Loan Calculator, users can decide what to calculate by providing data of any three variables.





Home Loan Reapayment Planner


The repayment planner contains amortization schedule and provides flexibility of calculation for staggered release of loan (housing project under development) and early repayment of home loan.

Some banks offer lower interest at the begining of the loan. Interest rate can be changed through out the period of the home loan.



Note 1: You can enter early repayment amount and interest rate in the respective columns.

Download FPM's Home Loan Planner here.

Sunday, January 22, 2006

Repaying home loan early?


Among various types of financing, home loan is the cheapest. Why would we want to repay it early? It is cheap financing! The "saving" from the lower monthly installments could be used, for example, for business, renovations, investing, etc.

This is the logic that most people use to convince themselves not to pay down their home loan. "Well, personal loan is more expensive then home loan..." This is the argument.

In fact they are right...only if their assumption of continuous income stands. In other words, the argument is logical only if there is no risk of losing your job!

After the 1997 Asia financial crisis, the financial institution that I worked for went through several major and minor corporate restructurings. I was lucky enough to be one of the survivors. However, going through the process of restructuring was not emotionally easy. I was constantly guessing whether I was in the next list to go and constantly counting my financial commitments, i.e. home loan. No matter how cheap a home loan is, when you have no income to make your repayment you are risking the shelter of your family.

Seeing your colleagues being retrenched at their late thirty or forty was depressing.



Today, after the announcement of merger of the company I am currently working for, I could almost see the looming of business process rationalization. It is still not easy. But this round, I know my family will have roof above our heads.

It is clever to think that home loan is cheap financing for many other activities in life...too clever to realise sometime tomorrow is not totally in our control. The best risk management practice is to pay off your home loan as early as possible.

Tuesday, October 04, 2005

Repaying home loan


We bought our first home and took up a RM164,000 home loan in the midst of Asia Financial Crisis, 1998. The interest rate then was about 11.64%. Based on the original plan it would take us 20 years to finish off the loan. The total repayment amount would be RM429,359, i.e. RM164,000 principal and RM265,359 interest!!

This is how we repay our 20-year home loan in 7 years.
  • On the third year of the home loan we made a RM10,000 repayment. Should the interest rate not move in our favour and remained at 11.64%, such repayment would cause an interest savings of RM52,040, equivalent to a reduction of three years of repayment period.
  • On the seventh year, we took out our EPF/ KWSP's second account to repay the home loan. Should the interest rate not move in our favour and remained at 11.64%, such repayment would cause an interest savings of RM80,258, equivalent to a reduction of seven years of repayment period.
  • The economy indeed moved in our favour. The interest rate dropped from 11.64% to about 6.40%. With this, we saved further RM62,507 interest expenses or a reduction of three years of repayment period.
What we learned from the experience regarding our home loan is that...kill it when it is big or it will be too late for huge savings of interest cost.

Check out the actual numbers from the Excel file attached. The first, second and third sheets are our original home loan plan, the actual repayment and the comparison. The fourth sheet is the Home Loan Repayment Planner for you to model your repayment plan.



For our FPM's Home Loan Planner, a more complete home loan calculator and repayment planner compounding monthly, check out here.

Let us know what you think and how we can improve the Planner. Just leave your comments below.

Friday, September 09, 2005

Getting a Home Loan: The Process


These are the steps of getting a home loan.

1. Before anything else, get your credit reports from The Credit Bureau, Bank Negara Malaysia. Find out what the banks read about your credit records. It should take about a month for you to get your credit report from the date of your request. A good credit records is helpful in getting a cheaper for home loan.

2. Identify your property.

3. Explore more sources of financing for your home loan, i.e. banks, insurance companies, Building Society, KWSP/ EPF, etc.

4. Make a decision on the type of home loan that fits you, i.e. flexible repayment, low rate fixed term, Islamic, etc.

5. Submit application to the financier of the home loan. The financier will evaluate your eligibility and ability to repay in accordance to its own guidelines. Get your letter of offer. Negotiate a low interest rate if you have a good credit records and are buying a house at a good location built by a reputable developer.



6. Once agreed on the S&P, signed and pay down payment. Depending on situation, you may need to sign the S&P first before your can get your letter of offer from bank.

7. Sign and submit the following documents to your home loan financier.
a. letter of offer
b. S&P agreement
c. valuation reports (if required)

You will have to wait for your lawyer to complete the remaining steps until disbursement of your home loan from your financier.

i. Your home loan financier will verify the documents and instruct lawyer to prepare documents and to check title of property
ii Lawyer to obtain undertakings of various parties
iii. Get signatures from you and the bank officers on ??
iv. Submit documents to land office or high court for registration, stamp office for stamping of home loan
v. Submit registered documents/ title to financier (original) and you (copy)

8. Bank disburse home loan to the seller or developer