Beware of Housing Loan Traps
Do You Know How Much The Banks Are Charging Your Housing Loan Interest Rate
You May Not Realize That You May Be Paying Your Mortgage Loan Interest
Which May Be Higher Than The Current BLR Rate @ 6.85%
This is a true story from one of my friend. He took a housing loan from one of the local banks from Malaysia in the year 2011 when he bought his first houses. His loan installment payments has been increasing from RM1.5K upon approval of the housing loan in 2011 to RM1.6K in 2012 eventually to RM1.7K from 2013 onwards. My friend has been consistently paying the loan at RM1.7K every month without fail to the bank even when the BLR rate increased to 6.85% in 2014. Refer below for the history in BLR rate.
He was shocked when he received a call from the lawyer one day telling him that he owed the bank RM10K and his housing loan account is in arrears for the past 6 months. He has not received any letter from the bank on any revision on the loan installment amount nor any call from the bank stating the increase in housing loan interest rates, nor any reprimand from the bank on the increase in repayments.
And now, he is in a situation where:
1) He needs to pay the bank extra RM10K without knowing the real reason for the charge,
2) Being charged with penalty for late payments even when he has been religiously paying his dues,
3) Being charged with lawyer fees every month but he did not receive a single letter from the lawyer (maybe it’s for the calling charges from the lawyers),
4) His current housing loan interest rate that he is paying now is charged at 8.5% per annum due to the arrears,5) His financial records is tainted in CTOS & CCRIS,
6) The new installment amount for the house now has increased from RM1,700 per month to RM2,600 per month.
All these serious problems but the bank did not take any action for the past 6 months, just pass the case to the lawyer to handle and then charge the friend for the lawyer fees. Moreover, when calling the bank, the mortgage loan officer in charged has resigned, it would take some time for the bank to retrieve the file and to revert on the status and the situation. You would be very fortunate if the bank reverts after a few days or even weeks. Even then, sometimes, they are not even able to explain the situation.
So is there any solution for my friend? What should he do?
AIA Fixed Interest Rate Housing Loan Solution
So how are we different from the banks? We are representing AIA in providing housing loan fixed rate interest rate. You would have a peace of mind that the installment payments for your housing loan is fixed throughout the whole loan tenure be it 10 years, 20 years and even to 30 years loan tenure. So with our AIA fixed rate home loan, you can have better sleep without worrying about the increase in installment payments like my friend even when the BLR or BR rate increase.
Since, we are talking about BLR rates, let’s see the BLR trend since year 2000:
Based on Bank Negara Malaysia (BNM) source, the Malaysian BLR rate has increased to 6.85% in July 2014. From 2 January 2015 onwards, Based Rate replaced the Base Lending Rate (BLR)/Base Financing Rate (BFR) for the pricing of new retail loans/financing applications. BLR is controlled by BNM, but now BR is mainly controlled by the individual banks. Hence, every bank has their own BR rate, and the banks have discretion to amend the Based Rate under their own conditions.
Have you ever thought to yourself that why the banks is not able to fixed the housing loan interest rate for you? This is because:
1) Firstly, the banks will give an attractive low mortgage loan interest rates package for the first few years only, thereafter the rate would be at the current bank rate or market rate (BR or BLR).
2) Then the banks would bind you in a contract with a minimum lock in period of 3-5 years.
3) Thereafter the bank would provide an opportunity to refinance the loan with the bank after the lock in period is over.
Now, do you really think that the bank would give you a lower housing loan interest rate or a higher rate for the refinancing as compared to the application interest rate? The bank contract states that the housing loan interest rates follows the current BLR or BR rates. So you should pray and hope that the BLR or BR rates go down.
Housing Loan Contract Fine Prints
You may not know or may not realize that the most crucial clause in the bank housing loan contracts is on the penalty clause. If you don’t believe, you could check back your housing loan contracts. It states that in the event of any default or late payment, the housing loan interest rate would be adjusted accordingly to the current rate (BLR or BR) +1.5% per annum. Most of everyone just take this clause lightly. But what this clause really means is that…
Let’s take an example for illustration purposes:
Loan amount: RM300,000
Loan tenure: 30 years
At the approval of the mortgage loan: 2009
Interest rate : BLR-1.8%
BLR : 5.5%
Effective interest rate : 5.5% – 1.8% = 3.75%
Monthly Installments : RM1,390
Well, to most people, this is at a very reasonable rate in year 2009.
Interest rate : BLR-1.8%
BLR : 6.85%
Effective interest rate : 6.85% – 1.8% = 5.05%
Monthly Installments : RM1,620
Within 8 years, the increase of BLR has caused an increase of 17% of the installment payments. So you should ensure that your salary increment is in line with the increase in the BLR rate so that you could afford the increase of the installment payments.
Let’s take a scenario where you went overseas and you missed one instalment payment by accident (unintentionally) in year 2015.
Year: 2015 missed 1 payment
Penalty Interest rate : BLR+1.5%
BLR : 6.85%
Effective interest rate : 6.85% + 1.5% = 8.35%
Monthly Installments : RM2,275
This is very clearly stated in the contract. So never, ever miss any instalment payments or late for even 1 day, the bank will not hesitate to charge you penalty for the 1 day late payment. However, you could always check with the bank and negotiate a reduction in the interest rates after settlement of the arrears. But I am not very sure if the banks would allow you to pay based on the original approved interest rate at the time of the signing of the mortgage loan contract.
What is the Likelihood of Increasing the Housing Loan Interest Rate
There is always a likelihood of increasing the housing loan interest rate based on the historical trend. Looking at the property industry, most of the analyst predicts the oversupply of properties which will eventually result in property bubble burst. When that happens, do you still think that the BR rate or BLR rate would remain low? reduce or increase? Well, no one can really be sure on this.
But, the issue now is that whether you can take the risk of increasing housing loan interest rate for the duration of loan tenure of 3o years.
Do you know that every increase of 1% of interest rate would prolong your tenure for another 10 more years.
The second question would be, can you afford the increase of 1% interest rate? and can you continue to pay your loan installments for another 10 years.
What Should You Do?
Check your current housing loan interest rate that you are paying.
Call us for a free review of your current housing loan contract at 012-2128008 (Rose Chin) or 017-3237506 (Andrea). We can help you consolidate your loan and save in your housing loan instalments. You can also send us a mail at email@example.com if you have any further queries.
You may want to read also: