When you refinance your mortgage, there are two important documents you need to sign: the offer letter, and the loan agreement. Every bank offers different terms and conditions on home loan package. Most of the time, you will be too busy to read the offer letter and loan agreement. If you can’t get the time to read it, make sure you asked the following questions before you sign the documents.
Frequently Asked Questions on Home Loan
1. Can I make capital repayment anytime?
There are banks that require you to produce one month notice before you make repayment to reduce the principal portion of your mortgage. It is better to choose the bank that doesn’t require that. Just imagine that you excitedly bring your hard earn bonus to the bank, but the officer asks you to fill up a form, go home and come back one month later to pay.
2. Can I make advance payment? Does it require notice?
Advance payment is some small amount that you pay before the due date of your regular installment. It is paid in advance. Understand the minimum amount require for advance payment. The lower the better it is.
3. Is there any redraw facility? How long does it take?
Most banks offer redraw facility on capital repayment anytime. Some take longer time to process. Possibly choose the bank that can let you withdraw anytime, flexibly and immediately.
4. Daily rest interest calculation?
Daily rest interest calculation based on daily loan balance is the best choice. You will save interest charges immediately after you make advance payment or capital payment. Avoid monthly rest interest calculation, you will eventually end up paying more interest.
5. How long is the lock-in period?
Industry practice is 3-5 years. The shorter the better.
6. When do you start counting the lock-in period?
When you are borrowing loan to buy house that is still under construction, the bank will pay the developer portion of the loan. Only until your home is completed, the bank will fully release the mortgage amount. Choose the bank that start calculating the lock-in period from the first draw down of the loan. Avoid those banks that count it starting on the date the full amount is released. You will end up with longer lock-in period.
7. How much is the early settlement penalty?
You might be able to settle the loan during the lock-in period. Early settlement will occur also when you refinance mortgage during that period. Normally the penalty is 3%. Of course, look for the lower penalty.
8. How do you calculate the early settlement penalty? On the outstanding loan amount or the loan limit?
Let’s say you borrow RM100,000. After 2 years, your outstanding loan is RM50,000. If you want to settle the loan, and the bank calculate the penalty base on the loan limit, you will be paying 3% of RM100,000 instead of RM50,000. The amount is doubled!
9. Is there any set up fees or monthly account maintenance fees?
Try to get those package without service charges
10. Do you absorb the moving fees (loan agreement fees and stamp duty)?
Usually banks offer different package with lower interest rate if you pay the charges of loan agreement, house valuation fees, and stamp duty.
11. Do you provide optional payment mode: single or multi tier?
Let’s say your loan interest is first year 2.5%, thereafter 6%. You shall pay lower installment on the first year, and higher installment thereafter. If possible, opt for single tier so that you can pay higher amount on the first year. The excess will be used to reduce the principal portion, therefore shorten your tenure.
12. Do you require me to buy MRTA from your bank?
There is no rules that the borrower should fork out extra money to buy Mortgage Reducing Term Assurance ( or MATI RUMAH TETAP ADA) (MRTA) to protect the bank. If you buy the MRTA, the insurance policy will be assigned to the bank. I advice that you get your personal financial planner to work out a flexible protection plan for you instead of buying MRTA from the bank.
13. Ask for their customer service call center number.
Try calling their customer service call center. If the bank provide good service, you will definitely realize it by calling the number. Talk to the customer service representatives to have a feel. Bear in mind that you will be engaged with this bank for years. Avoid those banks that had nobody answering the phone!
Want to know how you can take advantage of refinancing, read these articles:
How to save mortgage interest by refinancing home loan
Save interest on homeloan
Mortgage: the cheapest debt
Buy House before Car
Malaysia Home Loan Resources
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i came across mortgage brokers 5 years ago through CNBC astro channel 518 every saturday n sunday. lots of tips on money matters, managing personal finances. many people do not know that in many countries lock in period by banks are illegal. on top of that you will find a very intersting clause in most home loan agreements a SUSPENCE ACCOUNT this is also illegal in many developed countries. what happens is this any additional money that is put in your loan goes into this account and it is kept there at the discreation of the bank, and it does not go against the principle. SHOCKING. ask around and you find many people are not aware of this, the lawyers say that is a standard agreement. ( this agreement benefits the bank, they are the banks appointed lawyer) they protect the banks interest more than the lenders interest.
Check out freemen.com.my, this guys have help me and my friend lots of money on our home loan. as much as RM120 K on a 250 K loan.
Regards.
Spike
Hi,
I was approached by a friend from freemen (freemen.com.my) and said that I can save a lot of my homeloan interest. Its too good to be true. Is this thing real? I will save Rm115k of in interest savings and they will charge me RM2419 as a consultation fee.
Hi KCLau, I would like to ask if it is possible to loan more than the sales and purchase agreement (for house improvement expenses) depite of the bank’s lower indicative market value?
It all depends on the market value of the property. So, talk to the valuer.