I was attending training at Lion Team Advisors on the topic of loan mortgage outsourcing the last Thursday. There is a young beautiful trainer from OCBC bank flew all the way from Kuala Lumpur to give us mortgage training at LTA head quarter. There are some points I got during the training that worth sharing here. There are some ways to actually settle our home loans earlier than the original tenure. I am sure that you are practicing some of them. However, I am going to share with you more in depth here. Basically there are three ways to settle your loan earlier:
1. Refinancing
I covered refinancing in my earlier post. Now is actually a good time to refinance because this is what happened in the recent years:
You will find that the loan packages offered nowadays are better than ever. With the lower interest rate offered for new customer, it might be worth it still if you refinance your existing home loan by paying the early settlement penalty. But before you do so, please seek professional advice to calculate how much you can actually save. If you won’t feel bad bothering me, I always welcome your email asking for help or analysis.
2. Lump sum payments using EPF funds
EPF allows you to withdraw your money from Account II to reduce your housing loan. If you don’t care about reducing your retirement fund receivable from EPF in the future, it might be a wise move to withdraw it to settle some debt.
3. Paying extra
Extra payment means you pay more than the required installment. From the training, I got to know that there are actually two kinds of extra payment acceptable if you are servicing home loan at OCBC bank.
Advance Payment (AP)
Let’s assume your installment is RM1000 per month. If you have extra money, maybe from your mid year bonus or other savings, you pay RM1500 on that particular month. The extra RM500 will be treated as advance payment. It will be used to reduce the principle outstanding loan amount. You will immediately save the interest charged due to the daily rest interest calculation. Let’s say you did this 3 times consecutively so you actually made an extra payment of RM1500 in total. On the next payment due date, you suddenly run out of money because of some emergency. OCBC bank will deduct RM1000 from your extra payment and treat it as your regular installment. So your record is clean. Nothing will be submitted to CCRIS or CTOS. But if you need to withdraw that RM1500 extra for emergency use, that is not allowable.
So I conclude the feature of advance payment as:
- automatically offset due installment if it is not paid on time
- no withdraw facility
- for extra payment of less than RM1000, it will be automatically treated as advance payment
Oh … then what happens if you pay extra more than RM1000. In this case, let’s say you pay RM3000 that month, the extra RM2000 will be treated as Capital Repayment instead. This lead us to the next form of extra payment: Capital Repayment.
Bear in mind that you can actually opt for advance payment instead for the extra RM2000.
Capital Repayment (CR)
As explained above, when extra payment is more than RM1000, it will be treated by default as capital repayment unless you opt for the advance payment option. CR is similar to AP, they both reduce the principle part of your outstanding loan. But the features is opposite:
- when you are unable to pay installment in the future, CR won’t be used to offset the installment, unlike the AP
- in case of emergency, you have the flexibility to withdraw the CR. The process is simple, just call OCBC’s customer service center and they will prepare the check or bank in to your account in OCBC. Processing fees is RM10 per withdrawal.
- extra payment must be more than RM1000 to be treated as capital repayment.
Mortgage is still the cheapest loan I know up to date. It is the cheapest in the sense of lowest interest charges to the borrower. What do you think?
newopps July 15, 2007 at 9:24 pm
i’m practising method 2 & 3, but for the method 1, i was bonded for the first 5 yrs of my financing period…i agreed that the package for financing nowadays is really much more atrractive then what i can get 3 yrs ago…
kclau July 16, 2007 at 8:51 am
I just refinanced mine last year. This year my home loan rate will BLR + 0%, which is pretty high. It still save me money if I refinance now and pay the penalty of early settlement. It even increases my cash flow.
Ken July 18, 2007 at 2:22 am
Very good post here. KC, i can see you use some very pretty photo post, what software did you use? I’m looking for an easy screen save and auto touch up software.
By the way, the google page ranking will be update very soon. Your blog is really getting better and better everyday, it’s should rank higher:)
kclau July 18, 2007 at 10:13 am
Ken, I’ve been learning a lot from you at hoobin.com
The softwares I use:
1. Faststone capture v.5.3 (for version above 5.3, it had turned into a shareware cost about US$20. So make sure you use v5.3 which is a freeware) I use this software to capture on screen images
2. Polaroize at rails2u.com – which made your photo tilted a bit and looks like a real photo. It is a free online ware.
Have fun!
Ken July 19, 2007 at 12:47 am
this is what i”m looking for, faststone. I check it out, thanks.
Ken July 19, 2007 at 12:57 am
This is what i”m looking for. I check it out, thanks KC.
ros January 5, 2009 at 12:05 am
dear kc, i am very impressed with your website. i would like to get your opinion on reducing of housing loan using the EPF fund. is it advisable since we have paid mrta for the loan tenure. don’t you think that it would effect savings for our beneficiary in case of earlier death?
KCLau January 5, 2009 at 9:27 am
@Ros,
Thanks! Actually, it depends on your personal value & purpose, whether you should withdraw EPF fund to reduce home loan.
In your elaboration, it doesn’t really affect the assets that will be inherited by your beneficiaries. It is because the MRTA still pays the compensation according to the insurance schedule (which is reducing over time). MRTA compensation is not tied to the outstanding home loan at that time. For instance, a person who only owe the bank RM60k, while the MRTA claimable upon death at that time is RM100k, the excess of RM40k will be given to the client’s beneficiaries according to his/her Will.
It is advisable to use EPF money to reduce home loan when the home loan interest rate is higher than the dividend rate of EPF. At present, homeloan rate is about 4.5-7%, depends on your package and loan amount. Normally, home loan rate will be slightly higher than EPF dividend.
Personally, I would use EPF money to reduce home loan. It lets me have more “control” over the money I withdraw from EPF. (note: I don’t have an EPF account, my wife does).
Ivan January 5, 2009 at 11:14 am
KC, do you know why OCBC offers both Advance Payment (AP) and Capital Repayment (CR), since almost all the benefits (i.e.,except withdrawal) of CR are also offered by AP, and it’s more flexible with AP ? What’s the use of having CR then ?
KCLau January 6, 2009 at 1:00 pm
I think it is just feature wise that they want to give more control and options for customers.
Personally, I prefer those linked account where your home loan is linked to a current account. It allows me to withdraw and transfer anytime.
I don’t need more options. I just need flexibility.
Ivan January 5, 2009 at 11:24 am
One more question: is there a maximum amount one can pay as AP and/or CR either per year or the entire tenure ?
Ivan January 6, 2009 at 3:06 pm
KC,
Do you know if there is any maximum limit one can pay as AP and/or CR either per year or the entire tenure ?
timothy February 15, 2009 at 12:08 am
hey kc… impressive site.. need your advice. am earning less than rm 4000 a month and seeking a home loan which offer the best interest rate inclusive of MRTA and legal fees. What are the lawyer charges from the banks and do i have to have my own lawyer? appreciate the help…
KCLau February 16, 2009 at 9:27 am
Hi Timothy,
Personally, I would choose the zero moving cost package, where the bank will absorb all legal fees. That saves a lot of trouble and require lower upfront fees.
Normally, bank will charge slightly higher interest rate.
There are some simple strategies you can apply to get a better package:
1. Apply home loan from at least 3 banks – my personal favourite : HSBC, Public Bank, OCBC
2. If all offer about the same, choose the oversea bank (better service and more efficient process)
Look at this forum thread to see the latest competitive package:
http://forum.kclau.com/home-loan-or-mortgage-f17/what-s-the-home-loan-package-available-now-t54.html
Laprug February 21, 2009 at 11:28 am
Hey KC….. need a professional advise. This is my situation: I want to purchase a completed Condo, freehold property in KL rm 190K and do not know where to start as to getting housing loan. Am 39 years old. Earning rm 3500. Hoping to take either 15 or 20 years loan. I might have extra $$$ in future, so can pay extra into my loan payment. Really appreciate the help…
KCLau February 23, 2009 at 9:50 am
HI Laprug,
You should meet at least 3 bankers from different bank before making up your mind.
Learn about their bank’s offers.
Here is a post to guide you:
http://kclau.com/wealth-management/question-you-should-ask-before-you-sign-the-home-loan-offer-letter/
You can also check relevant info on this page under “Mortgage” category
hilal May 26, 2009 at 11:31 pm
Hi,
Need an advice. Let say I’m refinancing my house loan with another bank. Will I get back some MRTA premium that I’ve paid for my current loan. I’ve been servicing my loan for 4 years plus.
KCLau May 28, 2009 at 9:55 am
@ Hilal,
Some banks will automatically cancel the MRTA policy assignment and let you nominate or use it for the other bank.
Some let you surrender the policy and get back the surrender value (of course not much).
rob May 27, 2009 at 7:55 am
Hello, I am glad you brought up this topic. From what I gather, we have to careful when dealing with the banks. We have to specifically write down what we want them (the banks) to do with the lump sum monies that we deposit. Most banks will put it under AP, which is useless in terms of mortgage reduction.
We should look toward capital repayment.. some call it prepayments? The terminology is confusing. Perhaps KCLau can enlighten us here. Thanks.
KCLau May 28, 2009 at 9:54 am
@ Rob,
As you said, different banks has different terminology.
Talk to the banker to be certain.
And thanks for bringing this up.
JC May 27, 2009 at 11:03 am
There is another variation to Option 2 but it is only useful if your loan is a flexi type with linked account and daily rest calculation. Best time to use this strategy is when the loan interest is higher than EPF dividend
The strategy is do a housing loan monthly instalment withdrawal from EPF Account 2 and instructs EPF to deposit the monthly withdrawal into the linked account.
It helps to reduce the loan outstanding amount and interest, as well as shorten the loan tenure. Best of all you can “keep” your EPF money for your future investment in the linked account. Linked account allows you to withdraw anytime but it will defeat the original purpose if you do it before the loan is completely settled.
Some may argue that the money should be used to invest in investment vehicle that generates higher return than the loan interest. I agree with that argument provided that the return is guaranteed. Let me know if you can find any investment that gurantee the return.
Just my 2 cents idea. Thanks.
KCLau May 28, 2009 at 9:52 am
@ JC,
Thanks for your insights.
Only if a person knows what he/she is doing with the money that can generate better return than settling debt, it will be a good form of leverage.
Hairudeen October 13, 2009 at 9:24 am
Hi KC
1st I have one personal loan with bank rakyat amount 100,000. This money i still hold in my bank account. i get this money in August 2008. intrest rate is 5.9–Islamic. monthly payment RM 1060 for 15 years.
2nd i have one house loan. Loan amount is 153000. Payment start on Sep 2007, RM 1271 amonth for 15 years.
The question is
With some xtra money that i have and with RM 100000 from pERSONAL LOAN, can i do full settelement on my housing loan? So that i only keep pay personal loan RM 1060 a month for 15 year. Is this good idea?
Please help me..
Thanks
KCLau October 19, 2009 at 1:38 pm
Hi,
I don’t really understand why did you take up the Personal loan since you don’t really need it for anything at the first place?
TAN MEE CHIAN October 24, 2009 at 3:12 pm
DEAR SIRS
CAN I CHECK WITH U REGARDS MY HUSBAND HAD UNDER AKPK PROGRAM NOW THE PROBLEM IS HE FACING A CASH FLOW AND WHAT THE BEST SUGGEST BESIDE BANKRUPTCY
KCLau October 26, 2009 at 12:00 pm
I believe AKPK can help you on this issue.
Jude January 18, 2010 at 10:45 am
All the comments here were back in early 2009. What are the trend of housing loan now?I had read the blog link you posted either..and it is also in 2008. Need your opinion on the current home loan package. Thanks.
rob January 18, 2010 at 11:09 am
The housing loans are all standardised now at BLR-1.8%, with No ZEC.
Totally unattractive, unlike the period before 1st.dec 2009.
Only 2 or 3 banks offer ZEC. but they come with higher interest.
Jude January 18, 2010 at 11:27 am
HUH…should ‘ve make the loan last year then. Thanks Rob. Mind if you can give good links on housing loan, preferably some latest blog on their loan experience?Thanks again.
Jude January 19, 2010 at 10:29 am
mine mentioning those banks? thanks..
Jude January 19, 2010 at 2:45 pm
anyone know how much is the BLR set by Bank Negara for 2010?Thanks.
Jude January 20, 2010 at 9:15 am
what is MT and HBT stand for?
rob January 20, 2010 at 11:05 am
try this.
real estate.com.my.net
the forum on property financing.- informative.
Jason January 20, 2010 at 6:28 pm
Hi… I am currently under AKPK program and I am comfortable with the propose monthly repayment. The issues is that it’s too long to clear it as it it set for 10 years repayment with that rate and I wanted to get lower rate so that I can clear it in less time as I can’t get any loan while I am still with AKPK. I wanted to own a house in 5 yrs time. I am wondering if I can do any re-financing with any bank or institution? Current AKPK rate is about 10% but I understand that there is quite a number with repayment with less than 6%. I read one with MBSB currently which they are giving only for Goverment sector and I also didn’t ask if those under AKPK is applicable or not. Pls advice.. TQ!
Don February 18, 2010 at 8:14 pm
Hello there brother…can a financial institution uses my efp money to cover up my housing loan interest rather than reducing the principal amount obtained? thanks
KCLau February 18, 2010 at 11:57 pm
Now EPF allows withdrawal to pay housing loan installment
norul August 30, 2010 at 1:01 pm
hi,
I have a personal loan with bank rakyat RM160, 000 for 240 months. RM 1367 monthly payment. I bought few lands with this money . I want to move my business to this new place.I am planning to settle down my loan in 7years.I just want to know if I pay this payment in lump sum is there any benefit or rebate that the bank will give to me? If have, do you know how much the rebate if I settle the loan earlier? Or do you have any advice in settling the loan payment earlier with lower interest rate?
Sayeed August 30, 2010 at 3:08 pm
There are few additional information that is important.
1. KWSP withdrawal are up to 3 house for lump sum withdrawal and the 3rd house withdrawal is no longer lump sum, it will be withdrawal to pay monthly instalments only allowed. So if we are using KWSP to reduce our housing loan from the first 2 houses, it helps to reduce immediately the loan amount, but for the 3rd house, KWSP only allows monthly installment. So plan out wisely if we own more properties.
2. When banks announce Zero Moving Cost, make sure they are not putting it back into our repayment, than it is not zero moving cost.
3. When talking about loans it is not about the repayment in $$ value but look at the % interest rates. If we want to know whether we should settle full amount or partial, look into the % interest paid against the % ROI, make decision base on that.
Thank you.
joe August 30, 2010 at 7:07 pm
Your topic here is on settling debts and reducing loan amounts. I have a question on home loan refinancing. Property investors are just doing the opposite…
How does increase leverage ( borrow more and more money from the banks) makes the property investor richer? Isn’t the investor moving into greater debt and tightening the noose round his/ her neck?
Rajagopal November 20, 2010 at 12:21 am
Hi all,
Just wanted to check with peoeple here – I’m doing an early settlement of my homeloan (5 years now, original tenure is 20 years) but would like to cross-check a few points:
1. Are there any legal fees required for early settlement of the homeloan? There is no lock in period, so I’m not subjected to any early settlement penalty. Are there any other charges that you know of for early settlement?
2. My homeloan came with a mandatory MRTA for 20 years, would there be any rebates on this since I’m ‘cancelling’ the MRTA?
3. After settling the homeloan, what are the legal documents (other than original S&P) which will proof that I am the legal owner of the property with no caveats/claims from the bank?
4. What are the documents required in the event that I want to sell/bequeath/refinance this property? Just the original S&P? My home is a medium cost appartment (strata title, not yet issued by the developer).
I’m contacting the bank to initiate this, but I wanted an independent source of info on this. Can’t trust the bank totally
Thanks in advanced!
AskChong November 20, 2010 at 11:16 pm
@Rajagopal
1. Read your Letter Offer, if not sure, you can scan and forward me.
2. Normally yes. There will be a surrender value. Again, check the policy, if not sure, you can scan and forward me.
3. Depends the legal status of the property, you may feel free to check with your loan lawyer.
4. Original SPA and the Deed of Assignment (since no title issue yet). Best to keep all bills related to the property.
TANG HT July 6, 2011 at 3:32 pm
How to make a decision whether to pay extra on housing loan or use it for investment ? e.g. my monthly housing loan is RM 1000 and I have xtra RM 1000 after saving and all the expenses. I should use it for housing instalment or investment e.g. unit trust?
KCLau July 6, 2011 at 5:37 pm
If you are confident to make more return compare to the rate you pay for mortgage, go ahead and invest.
Scott December 14, 2011 at 7:14 pm
Hi KC,
Is your third point(paying extra) on ” How to settle your loan earlier” still applicable now??
Rajes December 23, 2011 at 3:13 am
Hi KC,
Currently im having housing loan with Citibank with BLR(-1.0). My remaining loan amount is 141k. Recently i approached OCBC bank for their housing refinancing scheme and the offer is BLR(-2.05). I started my existing housing loan with Citibank in january 2007 and the lockin period is 5 years. I planning to do refinancing with OCBC by january. Will i get any discount on loan amount( RM 141K) with citibank if i do refinancing with OCBC?
TANG HT January 11, 2012 at 2:23 am
Currently I have housing loan monthly instalment RM 1022 but I pay RM 500 extra ( which is RM 1500/ month) started May 2010 . I plan to buy another unit for rental. Can I know how is the bank decide how much of loan they can approved.
Did bank take into account my insurance monthly instalment or other investment before they consider my loan ?
Chima February 29, 2012 at 5:52 pm
Hi KC,
Perhaps you could share your advice with me on the scenario below:
1) My frend intend to buy a house @ rm150k but unfortunately his salary are not suffiecient enough to get bank approval.
2) so he decided to joint name with his wife but unfortunately she is blacklisted by ccris. this has been solved but to wait until 6 months to get her name cleared.
3) so he intended to use other name by borrowing his frend name for loan approval BUT in S&P agreement he wanted to used 1 name only. he promise to refinnace that house after 6 months to clear the 2nd name and bring back his wife name into the bank loans.
4) my question is that
a) can he do this approach.
b) can this guaranteed to settle on 6 months period.
c) what is the impact to the person that lend his name as a second name on the bank loan.
d) any others risk
thank you for sharing with me.
3)
KCLau March 7, 2012 at 9:36 am
Hi Chima
regarding your quesitons:
a) that is possible depending on banks. Some banks do allow borrower who are not a purchaser to joint-loan.
b) refinancing is possible after six months but you will need to pay early settlement penalty which incur high cost in such a short time.
c) if the purchaser don’t pay the mortgage on time, the bank expect the joint-borrower to have the same liability.
d) I wouldn’t suggest people to do that since the 2nd person has no interest in that deal except to lend a helping hand.
Yarmouk May 28, 2012 at 2:53 pm
Hi KC,
I pay deposit for a house and immediately sign the S&P. Is there is any risk or liability if i need to cancell the purchase if i fail to get the loan.
What if the developer has started sending 1st billing, and i decided to cancell after that?
thanks in advance
KCLau June 8, 2012 at 7:13 am
The condition is stated in your S&P. It is better to ask your lawyer about this issue.
Hui August 23, 2012 at 12:45 pm
Hi KC
I have a Rm50k+ housing loan left at 3% interest rate. Is it advisable to use savings from Fixed Deposit to reduce/settle the housing loan? The current Fixed Deposit rate offered by banks are also 3%. I plan to use the savings from monthly housing loan replayment amount to clear off credit card debt. Please advice, thank you.
Shahrul February 4, 2013 at 3:40 pm
Hi KC,
Is it better to use extra funds for AP or CR?
Or there is no difference?
KCLau February 4, 2013 at 5:17 pm
That depends on how you want to manage your cash flow. To reduce your principal payment effectively, use CR. I would say most of the time you would want to use CR.
Shahrul February 4, 2013 at 5:40 pm
Thanks for your reply KC, but in terms of the % of interest that I am able to save, is it the same?
Or I need to refer to my loan agreement?
KCLau February 4, 2013 at 6:27 pm
that depends on each bank’s policy. Better confirm with your bank.
REMH February 5, 2013 at 11:50 pm
Hi KC,
I’m in the process applying for house loan when the bank called saying i can only qualify 70% instead of 90% as this is deemed as 3rd house. The 1st house is under me, the 2nd house was supposed to be under my husband’s when we refinance for 100k 3 years ago. Apparantly The bank capture this under joint account and we were foolish not to check properly as were informed i am only guarantor.
Question: can we request The bank to amend loan document just like that or need to reapply for single name, would that incur any significant cost? Since we were misinformed, can we ask for waiver for any cost to be incurred? Or, should we take personal loan, pay the housing loan and only serve the personal loan ? How long will this process take? Which one is faster process and would incurr less cost? How long? Any suggestion which bank offer best rate on personal loan? Please advise.. Tqvm
Alex February 27, 2013 at 11:28 am
Hi KC,
I am currently serving housing loan 200K with OCBC. I have loans monthly installment 1. 390 for another 18 months, left 7k to settle 2. 454 for another 3.5 years, left 14k to settle. My cash flow is really tight and I would like to use my EPF to pay off (RM 30k) my housing loan and treat it as Capital Repayment and use this money to clear all my debts.
Is this workable ? or any other ways ?
Thanks,
Alex
Alvin April 7, 2013 at 3:11 pm
Hi there,
I am thinking of making advance payment to my housing loan. I asked the bank, they said need to write in letter. May i know how am i going to write the letter? Thanks
KCLau April 25, 2013 at 10:12 am
@Alvin, it should be a very simple formal letter address to the bank. Or you can simply ask the banker for a template.
Jeslin Lim April 25, 2013 at 12:18 pm
Hi, May i know where can i find the agency in Johor for loans consolidation in lower rate to pay my debt to several banks, instead of file for bankruptcy.
Mary May 9, 2013 at 7:08 am
I am currently taking a RM18000 personal loan now. Is it wise to take another personal loan with the same amount but with lower interest rate to settle the first loan?
KCLau May 9, 2013 at 3:54 pm
Personal loan is unlike the money you owe on credit card, which early settlement might not necessary save you a lot of interest charges.