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Fixed Rate Mortgage Loan – Is this the RIGHT time?
Recently in my sharing session, audiences may find that I’m promoting Fixed Rate Housing Loan. While some knew about it, many still unaware that in Malaysia’s housing loan market, there is a choice of Fixed Rate. The question now, is this the time to take fixed rate? Why I choose to promote this at this time? (In fact, I’ve been promoting this since end of 2014)
Before we discuss further, we should first clarify some confusions with fixed rate housing loan. (If you already know, kindly skip this paragraph) First, the interest rate is fixed through out the tenure and the maximum tenure is also 35 years or up to age of 70 years. Does this means the interest calculation works like our hire purchase loan? No, the loan is still calculated on daily basis. For any early prepayment or full settlement, client need to only pay the outstanding principal (plus any administrative cost-if any). Secondly, is the loan locked through out the loan tenure? No – You can settle the loan at any time you wish.
Whenever I talk about fixed rate, as usual, the first question is :
1. What is the interest rate?
The rate is currently around 4.99%. The respond that I will receive is : SO HIGH!. Yes, it is higher than most of the commercial bank rate out there. When I told audiences a year ago, the rate is 4.65% (promotional) and 4.85%(normal), client also told me: SO HIGH!. Some chosen to believe when I share what I’m going to discuss later in this article. Today average commercial bank rate has reached 4.7% and some of the purchaser have not even got their house key from the developer. Many will still wait and say ~So HIGH!
2. Why is the rate for Fixed Rate Housing Loan higher that variable rate?
Actually, Fixed Rate is not always higher than variable rate. When interest rate is on high side, fixed rate will be lower than average market rate. Why? Fixed Rate will always be closer to average rate over long span of time. Currently 30 years average is about 7%, therefore fixed rate is nearer to average and higher than variable rate. When variable rate were around 14% during 90’s, fixed rate is also around 7% and much lower than market rate. Fixed Rate need to take into consideration of long term rather than short term market rate. Honestly, fixed rate is actually still very low currently. This was due to stiff competition over the past few years.
3. Will Fixed Rate increase?
Yes, definitely fixed rate will increase when market interest rate increased. However, at this specific moment, if you locked it, it will not increase for your loan no matter what happens.
4. I want the lowest!
Just like when we were buying stocks in share market, I want to buy at lowest point and sell at highest point. But, how many investors really bought at lowest point? Everyone expect it to be lowest until the price rebounded and start to increase. And we know that the rate has just rebounded over the past one year.
5. Where the loan money come from? Bank’s share holders or public?
The fund definitely comes from the public. Let’s look at deposit rate; is it in the increasing trend or decreasing trend? From any marketing materials by banks, anyone of us would sense that the interest is in the increasing trend. If the cost of fund got higher, how do financial institution get their profit? Should they increase the lending rate?
6. Who control Base Rate and Base Lending Rate?
Bank Negara Malaysia (BNM)? Wrong! It’s is controlled by banks. Recently few banks had adjusted their Base Rate (BR) and Base Lending Rate (BLR). I’ve no intention to discuss this as the information can be easily obtained.
Please do not get me wrong, we are independent mortgage advisers. We do provide consultation and assist our client for mortgage loan applications to few major banks. Our intention is only to share our view with the public for everyone’s benefit.
If you would like to know more, feel free to contact us: email to ask@ethanteh.com
We also provide training/sharing/seminar session in matters regarding to Mortgage Loan.
How Anyone Can Calculate Property Loan Repayment, for FREE!
Have you wonder how can you make your own calculation for Property Loan repayment? One of the easiest way is download a free application – Karl’s Mortgage Calculator (from google play). Below I attached a simple tutorial – How to use the calculator?
Thank you for watching.
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Some Tips on Banks Approval Criteria
Many of us knew but not all the criteria of bank approval for mortgage loan. Video Linked below is a sharing session at MCT Land Sdn Bhd for their purchasers about loan application and approval criteria.
Some of the Highlights:
- What are the point to consider for property selection?
- What income could be considered?
- What are the effect of extra RM 300 income per month to the margin of finance?
- How do banks find out about our repayment habit?
- What is the challenge faced by a fresh graduates?
- How does 70% ruling affect our loan eligibility?
Feel free to contact us for further clarifications. Follow us on Facebook : www.facebook.com/EthanETTeh or email us at ask@ethanteh.com.
If you are a property agency, developer, investment group, residence associations & etc, feel free to contact us for workshop/seminars/clinics for the following topics:
- How to know my Mortgage Loan Eligibility?
- How to Leverage Banks on Property purchasing/ investment?
- How to save interest on existing mortgage loan?
- How to choose a Mortgage Loan that suits me?
- What is Mortgage Loan Protection option? MRTA/MLTA?
- How can I plan for my wealth distribution?
Video : https://youtu.be/BXJRxocrPvQ
I’m sorry, But MRTA does not necessary protects your mortagage loan!
* This post was written based on discussion from a ex-mortgage sales person from banks.
MRTA Does Not Necessary Protects Your Mortgage Loan!
Most of the Property Owners believe that their mortgage loan was protected by Mortgage Reducing Term Assurance (MRTA or MRTT for Takaful), but this is not the fact! It is a real life situation that many loan borrowers not knowing their loan is not well protected. In some of the situation, the protection expired within first few years while some with coverage less than half or a quarter of their loan amount.
WHY MRTA?
What is the reason a mortgage sales propose MRTA?
First of all, it determines a mortgage sales person incentive and key performance index (KPI). Most of the time, banks will either through collaboration with their sister company or any other insurance company to provide MRTA to their borrower. Whichever the business partner may be, it will generate some revenue for the bank. Therefore, banks will want their mortgage sales to bundle the product to their customers. In order to ensure the cross selling, many banks actually impose minimum requirement to their sales person in order to get higher incentive or to meet their KPI.
Further to that, MRTAs bundled by bank are normally financed into the mortgage loan; but, there are guideline by banks that total Loan to Value ratio of a property should not be more than 90% (property) + 5% (Legal Fees, Valuation, Stamp Duty & MRTA). To avoid complication, mortgage sales will bundle the amount allowable for financing. Hence, the consideration is amount of premium that could be financed rather than amount of protection that the client need.
Lastly, due to the current competitive environment, every bank is offering different lending rate for mortgage loan and this is one of the biggest consideration of client when choosing a loan offer. Normally, bank will allow for rate appeal if client is taking certain amount of MRTA. Without properly advising client, mortgage sales will eventually bundle in a minimum amount to ensure the lending rate provided is competitive.
Therefore, MRTAs were often being offered without proper advice to clients.
MRTA’s FACTs MISUNDERSTOOD
What are the most common misunderstood facts about MRTA?
My loan is covered with MRTA (100% loan amount and full tenure year), therefore I’m sure that my loan is very well taken care of if any unfortunate event happens to me. This is true if the plan was properly planned, the interest rate expected during purchase of MRTA is valid or higher than the actual effective lending rate. For example, a 1% increase in lending rate would have increase your instalment by 10% in some case, or the loan will be prolonged by almost 10 years. Hence, the MRTA purchased earlier may not be sufficient to cover the outstanding loan amount.
I’ve bought MRTA for 10 years, therefore for the first 10 years if anything happened to me, my loan is well taken care of. This is one of the most misunderstood fact about MRTA. By refering to the chart below, this is an example of a loan with 24 years tenure, loan amount of RM 875,000-00. Black represent outstanding loan amout, Blue represent the expected protection for the first 10 years. Red represent the actual protection for the first 10 years.
* Mortgage Reducing Term Assurance (MRTA) is one of the tool for loan protection. However, the highlight of this discussion is most of the time a borrower was not properly advised on how MRTA worked and what was provided. Hope this could help to create awareness among mortgage loan borrowers.
Feel free to contact us at: ask@ethanteh.com
Read full text here : About MRTA – Nov 2015 (PDF)
Hope this could create awareness among mortgage loan borrowers.