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The
Baiting Game
01/03/2005 Published in Malaysian Business - Housing & Property By National House Buyers Association of Malaysia.
Look beyond short-term
gains in choosing a housing loan.
The banking system is
flushed with RM140 billion liquidity.
This explains the increasingly
aggressive sales promotions undertaken
by financial institutions for the
housing industry. Even credit card
recruitment has taken to the shopping
malls, hypermarket concourses and
popular food stalls. Whilst we will
leave it to our economic gurus to
analyse whether these are good
indicators or not, one thing is for
sure: securing a housing loan is now a
less intimidating effort.
For many of us, the
purchase of our house or investment
property is the largest financial
commitment we will ever make. This makes
arranging the most suitable housing loan
just as important. Make sure you know
all the costs of entering into the loan
and purchasing the property. These
include conveyancing costs, application
fees, valuation and legal fees, mortgage
insurance (if necessary) and sometimes
extra life insurance premiums. Some
lenders will tell you the advantages of
whatever housing loans they are trying
to squeeze you into, but rarely will
they tell you the disadvantages.
Always look at the
total deal, not just at the carrots
dangling in front of your face. Compare
the entire housing loan cost of several
different lenders to determine which
type of is best for you. We would like
to discuss some of the lenders' offers
that may not be as attractive as they
appear.
'Honeymoon' Start
Let's begin with the
special low interest offered for the
first year. Such an offer is usually
given during a sales campaign and
usually carries a fixed calendar period
with a run-out date.
Thus, even if a house
buyer commenced his application process
immediately upon the launching of the
campaign, by the time the loan is
approved and disbursements commenced,
the period remaining to enjoy this
special low interest rate will certainly
be much less than one year. If he were
to start the application process a few
months after the start of the campaign,
it is likely that he will enjoy the
special low rate for a very short
period.
Also, due to our
unique system of progressive payments to
developers, the mean average of the
amount disbursed by banks during the
first year is minimal. Thus any savings
on interests is much less than it seems.
These have all been figured out already
by the bank's marketing experts. A more
sincere approach would be to offer the
special low interest rate to apply
during the progressive payment period
and to continue to run for one year
after the date when the loan is fully
disbursed. We believe that anything
short of that makes the offer a sales
gimmick.
It's up to us
There are other
clauses that put house buyers in
disadvantaged situations. Some lenders
include clauses in the loan agreements
that give them the absolute rights to
alter the margin of interest. Doesn't
his in effect nullify the typical
attractive sales brochure offers of 'BLR
plus X% for following years'? One cannot
make a special low interest offer in the
sales campaign and then contractually
(through the loan agreement) create a
clause to allow the offered interest
rate to be invalidated. That would make
the special offer a sales gimmick.
Pay to leave
One other clause to
look out for is the exit penalty upon
redemption of the loan. A house buyer
may wish to sell the house or fully
settle the loan for whatever reasons.
This is where the conditions for full
settlement differ from one institution
to another. Think long term. Do not be
in a disadvantaged position when the day
comes and you wish to redeem the loan.
When you take a loan,
you spend a much longer period servicing
the loan beyond the first year or even
the second and the third year. So do not
be taken in by the very attractive
offers during the honeymoon year/s of
the loan tenure. Remember, the remaining
25 years is more important. Do not go
for short-term gains only to lose out
heavily in the long run.
Do your homework
We would advise house
buyers to look beyond the first year of
so-called low interest when shopping for
housing loans. With the stiff
competition going on among the various
lenders today, one should seriously take
some trouble shop around and study each
offer and its fine print before making a
decision. There are subtle but material
difference between the various schemes
and offers among the lenders. Seek the
opinions of your banker, accountant,
financial planners and lawyer friends.
We wish to stress that
once the application process starts, it
is unlikely you will have time for any
change of mind. By the time the formal
letter of offer is received, if one does
not agree with any of the conditions
within, there is usually no more
time to reapply to another financier
without incurring late payment penalties
or interest payments.
Most of the complaints
we have received on housing loans are on
late payment interest due to banks that
are slow in approving or disbursing
loans and with communication problems.
Buyers rate banks that are responsive
high on their list.
Buying a home is a
very serious investment that should work
right on the first try. Do no be
impulsive. Patience and planning are the
key words.
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