Can you afford a house now?
Assuming you can afford a house, how much can you afford to pay? These are important questions that many people do not research. This oversight can lead many people to bad debt and even bankruptcy.
Your monthly expenditures will be more than just the housing loan. There will also be insurance, electricity, water, telephone bills, contributions to maintenance fund, medical bills, groceries, unexpected household/auto repairs, lunch money and many other obligations.
They must all be accounted for in your budget spreadsheet. For many of us the purchase of a house or property is the largest financial commitment we will ever make. This makes arranging the most suitable housing loan just as important.
Make sure you know the costs of entering into the loan for the purchase of the property. They include conveyancing, application fees, valuation and legal fees, mortgage insurance (if necessary) and sometimes, extra life insurance premiums.
Some lenders will tell you the advantages of whatever housing loans they are trying to squeeze you into, but rarely will they tell you the disadvantages.
According to an article in a business magazine, the banking system is flush with RM180bil liquidity. This explains the increasingly aggressive sales promotions undertaken by financial institutions for the housing industry.
Always look at the total deal, not some dangling carrots in front of you. Compare the entire housing loan cost of different lenders to determine which is best for you.
I would like to discuss some of the lenders' offers that may not be as attractive as they appear. I will start with the special low interest offered for the first year. Such an offer is usually given during a sale campaign and it usually carries a fixed calendar period with a run-out date. Thus, even if a house buyer commenced his application process immediately upon the launch of the campaign, by the time the loan is approved and disbursement commences, the period remaining to enjoy this special low interest rate will certainly be less than one year.
If he were to start the application process a few months after the campaign, it is likely that he will enjoy the special low rate for only a very short period.
Due to our unique system of progressive payments to the developers, the mean average of the amount disbursed by the banks during the “first year low interest offer,” is really lower than the loan amount. Thus, any saving on interests is really much less than it seems. And these have all been figured out already by those marketing experts in the banks.
A more sincere approach would be to offer the special low interest rate to apply during the progressive payment period and to continue to run for one year after the date when the loan is fully disbursed. Only then can such offers bear some element of sincerity. I believe that anything short of that makes the offer a sales marketing gimmick.
There are other clauses that put house buyers in a disadvantaged situation. Some lenders include clauses in the loan agreements that give them the absolute rights to alter both the Base Lending Rates and/or the margin of interests.
Doesn't this in effect nullify their typical attractive offer of “BLR plus X% for following years?”
One cannot make a special low interest offer in the sales campaign and then contractually (through the loan agreement) creates a clause to allow that special offer interest rate to be invalidated. Make sure you know all the costs of early discharge of the loan.
One other clause to look out for is the redemption of the loan. A house buyer may wish to sell the house and wished to fully-settle the loan.
This is where the conditions for full-settlement differ from one financial institution to another. Think long term.
When one takes a loan, one spends a much longer period servicing the loan beyond the first year or even the second and the third year. So do not be taken in by the very attractive offers during the honeymoon year/s of the tenure of your loan. Remember, the remaining of the 25 years is more important. Do not go for short-term gains only to lose out heavily on the long remaining years.
I would advise house buyers to look beyond the first year of so-called low interest when shopping for housing loans. With the stiff competition among the various lenders today, one should seriously shop around and scrutinise each and every offer before commencing the application process. Talk to your bankers, lawyer friends or seek advice from the National House Buyers Association.
One really has to scrutinise the fine print before making a decision as to which financial institution to go to for a loan. It is about time to standardisde the terms and conditions in the loan agreement so that there will be orderliness in the banking industry.
No more “embedded” clauses within the voluminous stakes of papers one has to initial giving the impression that one has truly read and understood them. It is obviously impossible to read and understand those 40 over pages of legal language that comes with appendixes.
Chang Kim Loong is the honorary secretary-general of The National House Buyers Association, a non-profit, non-governmental, non-political organisation manned by volunteers. For more information, check www.hba.org.my or e-mail email@example.com
By The Star