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.
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
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
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.