I received a query on debt settlement.
Hi, Mr Lau,
First of all, many thanks to you for giving me the free e-book.
Its’ worth reading, cause I’m aware of unit trust investment now.
As introductory, I’m female, age 33, working in a factory.
I’m in debt, honestly. I’m in debt of personal loan, housing loan, credit card loan.
However I’m also having passive income, if that’s correct to describe my monthly income from 3 acre land of kelapa sawit.
But honestly I’m not a decision maker in financing.
Would you please advise me on below problem;
Debt 1;Personal loan with bank rakyat; balance is total RM 35K. mthly is about 568(a bit for get). for another 62mths. Rates 5.75%.
If settle now need to pay RM 28K.
Debt 2; housing loan, balance is 12 years, mthly is RM 850, rates(forgot).
I’m planning on refinancing my housing loan, which is 71K (plus insurance), for 15 years (rates; 1st ~ 3 yrs: 4.9%, 4th yrs onwards : 5.01 %), mthly will be RM 565.
When I read your ebook, I’m thinking of add another 28K to that amount. So that I can settle the personal loan.
So after discuss the bank officer told me, for 28K, for 15 years, mthly repayment is RM 222.
My intention is to reduce the MRI, monthly repayment installment.
So instead of paying 1418 ;housing & personal
Pay only 787.
But problem is, if the personal loan plus interest total if included in refinancing will be RM 40K. SO I feel confused now. Which way to move on?
MY OPINION:
Undeniably, mortgage loan is the cheapest loan available nowadays. Bankers feel secured because your house will likely appreciate in value over time. I agree that it is a wise move to consolidate your personal loan and mortgage. So that the end result is paying only the mortgage of roughly RM99k. Then you will reduce your monthly installment thus providing you more surplus.
However, you mentioned that the total interest will be RM40k, which is true. Refer this file for an estimation of the mortgage amortization table.
Amortization tabel -rm99k mortgage.pdf
Please don’t be confused by the TOTAL interest you will have to pay. In fact, the money will be in “lesser value” relatively, because RM100 now is worth a lot more than RM100 15 years later. That’s the future value of money. If you discount every ringgit you pay down the road, it is not as high as RM40k you might perceive.
The right perception is to think of the money’s worth in today value. The easiest way to compare is the Internal Rate of Return (IRR). Sorry that I don’t want to confuse you with this jargon. In layman terms, just compare the effective annual rate (EAR) of return on where you put the money now. Since the personal loan interest is 5.75%, it is better to consolidate it in your mortgage refinancing which is 4.9%.
photo credit: SqueakyMarmot
In order to provide a case study, further information needed for the analysis:
1. How much is your house worth now?
the value is about RM140K.(its SEMI-D (SINGLE STOREY))
2. Can you check through your document to find the mortgage interest rate?
3.99 %(1st year) + 6.80%/ANNUM(2001) , I read thru docs, mentioned that we have ceiling of 9%,(eon bank)
MY OPINION:
You really should refinance your mortgage. You will be able to save 1.9% interest charges.
3. You mentioned about credit card debt. Can give more details?
I have hongleong master card, I did balance transfer fr hsbc visa & master, at total amount of RM3000. So I’ve committed to pay RM270/mth in order to keep the special rate which is 6.99% within 1 year. Plus I took coc which is cash online credit after that, at amount of RM2900, so I can pay the legal fee for refinancing & get the lowest rates(if non free moving cost, they offer only blr-1.4, if free,the rates is blr-1.7. So I commit for 3 years, mthly I have to pay RM104.
MY OPINION:
If you are taking the COC for the purpose of getting a better rate on your refinancing, that’ll be not wise at all. The extra 0.3% for zero moving cost (ZMC) refinancing package, based on RM99k loan is only RM297 saved on the first year. The amount you will save on interest charges will get less year after year. How long do you think you can recoup the RM2900 for the legal fees? 8-10 years? Plus all the interest you paid for COC? You should have taken the Zero Moving Cost Package which charges slightly higher interest rate of BLR-1.4.
Moreover, is there any penalty to settle your HL master card debt? If not, why not take additional RM3k via your mortgage to settle it. The interest rate of 6.99% is 2.09% higher than your new mortgage of 4.9%
4. Do you have any other assets beside the mentioned land? such as life insurance policy, or other form of investment?
I have maybank life insurance, which I pay RM112 for 16 years & it will be end in 2015, the sum is RM15K plus bonus.
I also have tabung haji. Monthly I deduct RM 220 fr my salary.
I.m sorry ,but I have another question. Since the factory which I’m working have grouping insurance fr great eastern,I’m thinking about taking the money fr maybank life insurance to invest in unit trust. If surrender now, I can get 9000. Is it worth doing that?
MY OPINION:
Please don’t surrender your policy. It is dumb to do so because you are half wet. Use your saving to invest in unit trust. Don’t use your insurance money.
Since you had paid the premium for this Maybank policy for 9 years, it is really worth to continue paying the premium. Now every sen you pay is 100% used for your policy cash value that will generate more bonus.
After you refinance, you will have a better cash flow. Manage your cash flow wisely and do budgeting and frequent monitoring. You shall continue with your tabung haji too.
Overall opinion:
1. Consolidate all your debts (credit card, mortgage, and personal loan) into only one mortgage. Your house value is RM140k and it is enough to finance all your debts.
2. After you consolidate the debt, you will have a better cash flow and surplus. Save regularly. Meanwhile, learn about how to properly invest your savings.
Do you have any advice for this particular case? Please share in the comment.
If you need help on personal finance, use our forum.
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I am a sole proprietor ship. I being this business about few years. Since my trading having a loss, I in debt of personal loan (from friend), credit card loan to pay my car, rental….etc. So at the end of the year, my trading account show “amount owing to director RM30″. I was afraid one day, TAX department will asking me where did the money come from ? because my trading account show loss, secondly I didn’t have any other income.
Would you please advise me how I gonna to manage my personal tax ?
@Mary,
I think you don’t have to worry about tax issue at this moment. If I were you, I will be worrying about how to put the business back on track to have positive cash flow, then to settle the outstanding debts.
I think tax department won’t be querying you at this moment. If they do, you just need to show proof of borrowing the money (credit card statement, friend’s statement etc)
Hi Lau
I always wanted to have a mortgage software of my own.But I do not have much knowledge of computers.I saw your mortgage analysis software. How do I own one? Please advise?
The one I have is developed by bankers for their agents and mortgage officer.
I think you can get a decent mortgage calculator on the Internet. Just Google for it.
This case study is fantastic… easy to follow and most of all, it’s practical.
Hope to see more of these KCLau…
Hi Lau,
After refinancing my home loan, I have an excess of RM70K. With this money, I have 2 questions:
1) Should I settle all my other debts (personal loan, credit card, etc)? My income is sufficient to cover all monthly repayments.
2) Save/Invest the money and being charged the monthly interest? My opinion, just by saving using my monthly salary, it will take me a while to reach this figure.
Appreciate your feedback.
Hi Lai,
Normally, the consumer debt such as personal loan and credit card incur higher interest rate.
Settling those debt ensure your return almost immediately.
1. You should settle the debt (except mortgage and car loan) with the excess of RM70k. However, I know that you won’t feel secured when your cash are all used up to pay debt. You can consider to pay partial of the debt.
2. In the long run, you will be able to save more if you settle your high-interest debt first. Investment return is not guaranteed. But debt interest charges reduced are for sure.
Take care!
“In the long run, you will be able to save more if you settle your high-interest debt first. ……Investment return is not guaranteed. But debt interest charges reduced are for sure!!!!”
Thanks… this caught me the most while reading all the other details, has been a passive follower of your site..
Welcome!
agree with bujang there. thanks kclau.
I just begin to learn about personal finance this year, and it so hard. I am 26, working, has a stable job, but having problem with my PTPTN loan. The monthly charges is so high. Currently the charges is around RM 60 plus, unless I pay it a lot, the monthly charges will also be reducing. What can you recommend me how to pay this loan?
kclau, actually, i have a situation needing your advise…
i bought my apartment in 2007 (RM119k), locked in for 5 years to 2011. current value is rm130k. initial plan was to rent it out once we buy a proper house. term loan is 30 years. and the bank is not revising the monthly installment payment. i can only ask the bank to reduce interest rate i.e. from BLR-0.28% to maybe BLR-1.5% or 2% maybe, next year, march-july 2010.
would it be wise to refinance now (penalty fee is rm3k) to get the better interest rate from other bank? would the bank be willing to bear the penalty fee?
should i wait for next year and ask for lower interest rate, then, rethink until reach lock in period in 2011? probably refinance then, but might miss the rate now, though later the apt price also can be higher?
i am thinking of renting it out and keeping for at least 10 years, and not selling so soon. at the same time i would like to get lump sum cash if i refinance…but refinancing now, doesnt give me the cash, though i felt liek i am paying too much of bank interest.
I’d like to answer this this based on personal experience.
Banks will NEVER waive the penalty unless you have a really good connection.
Banks will NEVER revise the interest rate in your advantage unless..again..you have a really good connection.
So, wait until 2011 unless you can bear the 3k penalty. Anyway, if the savings are way above 3k, I would do it now.
As for renting, unless the rent is really good (much more than you pay for the monthly payment), it is a waste of money.
Hi, thanks for sharing. Based on few calls with OCBC customer services, they say, interest rate can be reduced if I meet 3 conditions, which i should meet next year. i must say I am sceptical considering i was advised to call the center again, rather than having it black and white. On top of that, I am extremely unhappy with the services. thus, the dilemma.
But probably, I will go with your advise. Thanks again.
To Lynn.
Try to communicate with the call center for the possibility of negotiating the whole thing now. Be brave.
Some banks like RHB is willing to offer its existing customer refinancing before the lock-up period ends. They rather lose a bit than losing a customer altogether.
CIMB is offering the most flexible housing loan in term of period of payment.
OCBC group (headquartered in S’pore) is badly affected by the Lehman Bros’ closure. They could be in for negotiation with existing customers now.
As for rental, unless you can assign a good agent to maintain it, you’ll always be on the losing end. The only good customers seems to be the expatriates, coz paid by their employer. They only look for in the prime areas i.e. KLCC, fully furnished. If you do it on your own, maintenance fee, cukai pintu, repair etc will eat up more than the rental. So, forget it.
To Lynn,
Don’t give up ! after few times rejected by OCBC, finally my home loan interest had been reduced to current rate. They allowed the loan restructuring (with no legal fee
) when only your existing loan reach the 4th year… ! So, all the best to u
kc lau,
Good to hear so many good advice from you.
I need some expert advise like you.
We knew that the current world and asia economy have ease a lot compared to last year, im still looking at opportunity. With the tumble of US economy caused by sub-prime led recession, the US economy are still not back to track and are being pull back by the high unemployment rate (10%) which led the de-value of US currency. Many investors had hedge with gold which made the gold price soar. Im currently looking on the Unit Trust that invest in US equity markets and forex of US currency. Do you think is a good way for medium term investment (5 years).
Hi Mr. Lau,
I have recently fully settled my housing loan. The current market value of my house is RM500k. Is it advisable for me to refinance my house so I would have new fund for my investment in property? What are pros & cons? I know that I will need to make monthly payment for the new loan and my property investment could not be sold easily in short term. Thanks for your advice.
Mr. Ueno,
You will have more cash in hand to do investment if you refinance your house. As long as you can make better return than the interest rate charged by banks, why not?
To Mr Ueno,
If you hate the discipline of paying the loan, i would suggest you something else.
Overdraft!
Use your house ‘geran’ as a collateral (security) for the overdraft. I know that not many banks do it but the last time that I checked the websites, OCBC and CIMB do. I have personally checked with CIMB and they put the interest at BLR-1.65% on the used portion only.
FYI, I don’t work in banking industry.
Take note that per BNM regulation, overdraft over 250K will be charged another fee. You may ask for something lower.
Good thing is, you may pay as and when you like, and how much you like.
You may use the money for whatever that you like!
Hi Mr. Lau,
I’m having a huge debt in credit card. total i had 4 cards and total of all of this 4 I htuang 37k. every month i pay on time with minimum and now i have family and i’m not affort for the repayment now. I try for personal loan 1 time off to settle off this issue but the approve amount is only 21k instead of my total 37k.
with the monthly repayment of the personal loan is 735/month for 3yrs. but with this condition I still cant settle all the debt in credit card.
Need your advice on this how to solve this problem.
thanks
Hi Mr. Lau,
Currently I’m having a huge debts in credit cards. I’m having 4 cards and total up the debts is 37k. I every month paid the min. never late but it still not able to reduce it much. I’m out of my hand to keep paying this which I’m not effortable any more. I just only try to apply for personal loan thinking to settle it in 1 time and just repayment to 1 bank in 3yrs times. but unfortunetely the amount that the bank approve for me is only 21k instead of 37k.
What I can do now ? by using this 21k I still need to pay for balance outstanding in credit debt how ? what I can do now ?
Hope to get you reply on this soon…
thanks
To Jack.
DO NOT go to personal loan to settle credit card balance!
The interest rate is either the same or HIGHER than your credit card. Credit cards are mostly charged at 1.5% per month. Though there are personal loans that are advertised as 1% per month, these are simplified FLAT RATE! The real interest is way much higher!
GO for BALANCE TRANSFER!
Most banks now offer 0.5% per month. If you want a slightly better peace of mind, go to Bank Islam. They don’t penalize you for late payment, of course with t & c.
If you can do a quick payment within 9 months, standard chartered (4.99% pa) or citibank (3.99% pa).
There are banks that charge 0% per month but you have to pay a flat fee. Affin (either 2, 4 or 5% depending on tenure) and OCBC (6.88% first month, 0% for 11 month).
After you did the balance transfer, you either need to stop all your credit card (terminate!) or go to the lowest interest. Affin (9.99% pa) is the best. Bank Islam wont charge for late payment. All other banks are too standard. You don’t have to be Islam to go to Bank Islam.
The thing is, 37K is a lot. You need to do something, bro!
And paying about 2k just for the minimum also hurts.
Hi Mr. KCLau,
I’m looking for your advice on refinancing and consolidating all my mortgage loans(2) and a personal loan.
1) House#01 – Bought on 2001, loan amount – RM47000, loan term – 25 years, interest rate (in my MIL house). Repayment – RM430.
2) House#02 – Bought on 2005, loan amount – RM87500, loan term – 25 years, interest rate and repayment :-
Fixed 2.5% – RM393 (1 year)
BLR+0.3% – RM581 (till full settlement) BLR rate is 6%. Reduced interest. (575)
3) Mortgage Reducing Term Loan – RM32000 year 2007, loan term 25 years. Repayment – RM 200.
Is it possible to consolidate them? Please advise me on the refinancing and what i supposed to do in order to get extra cash in hand. Is it ok to settle the MRTL first or use it to invest in unit trusts. We are planning to save some in unit trust for our retirement plan.
Please advice.
To Mahalakshmi,
Why 2 houses in the first place? Do you rent 1 and stay in 1?
Yes, you may consolidate them. But you never mention the lock-in period, should check in your document/agreement. House 1 should be okay I suppose, house 2 should be free this year the latest.
Tell the bank officer that you want to consolidate your loans, some banks even help you with other loans as well (credit cd etc even Courts Mammoth installment).
They could tailor a loan for you.
Since you have MRTA as well, once you consolidate your loans, make sure you get back the remains!
To ronmahsih,
Thanks a lot for your advice. The first house is for my mother in law since they were staying in rental house. But that one is in Perak and another one is in Jb (currently staying). I could not find any lock in period in my document (maybe I overlooked it). Both different banks. Is it possible to consolidate? Sorry for asking you again because I’m not that familiar with banking terms. Can I get the balance MRTA as you mentioned (the remains).
Okay, another thing that I don’t know is whether I should pay the extra cash to settle any outstanding loan amount or just use it for investing… Which one is the best?
Again, thanks a lot for guiding me..
To Maha,
Lock-in period is the period that if you fully-paid the loan (through refinancing or selling off of property), you will need to pay a penalty. The period varies from bank to bank and there are banks that do not impose lock-in as well. Typically it is 3 to 5 years and the penalty can be as high as 5% of the loan.
Based on your info, it seems that you’ll be free of lock-in by this year (for 2nd house).
Yes, you can consolidate. It will still be made into 2 separate loans but since they’re being done together, banks will treat you differently. They will even stretch their procedures with terms like these.
I did it 2 years ago with Affin. Take note that Affin (most banks included) never mention of loans beyond the age of 60 but since my 2 houses combined sum up to about 400k, they’re willing to give me until 65 since I am already in my 40s. It is good to stretch the year to make the payment lower. I don’t know of other banks but do ask around.
Yes, please make sure that you ask for the return of the MRTA! Your MRTA covers the whole duration of loan. If you use just a portion of it, you MUST get your money back.
Now, what to do with the money.
1st, pay off the highest interest. To most people, this is credit card. For your info, I carry zero credit balance though my consumption rarely go below 1k every month. If you have installment direct from shops (Courts Mammoth etc), pay that first! These are the highest interest!
Next, if you still have excess, invest it somewhere. Learn about investment and risks.
You should be fine.
Thanks for sharing your valuable experience.
To ronmahsih;
Thanks a lot for giving me ideas on how to use the excess money. Actually I don’t have any credit cards and installments for purchases. I only buy things when I really need them and strictly in cash term. My husband does not like buying things in credit term. Thank you again for your advice. I really appreciate it.
Not forgetting Mr. KCLau for giving a chance to everyone to contribute and share their experience and advice.
Thank you.