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