Are you buying the property as an investment? Or it is meant to be for occupation?
If you’re an investor with a short term horizon, look out for home-loan packages that allow you to pay interest only for the first five years. You can also opt for a step up loan (where the interest rates is lower at the beginning but increases gradually) or choose a loan with a short or no lock-in period. “ A shorter lock-in period matters to those who bought properties for investment only.
Some features may appeal to those who are owner-occupiers. For example, a step up-loan would be suitable would be suitable for newlyweds or those who have just started working. The instalment payment for the first few years are low, and it will be increased gradually. This wouldn’t be so taxing on their finances in the early years, plus they get to own their property earlier.
The whole objective of refinancing is to save money from lower interest rates. Be cautions against focusing solely on interest rates, though “ Sometimes, the cheapest rate come with lots of terms and conditions, like a long lock-in period. Also, if you don’t pay for at least consecutive months, the good rates will no longer apply. Look out for hidden charges and read the fine print carefully. Usually those who need a home loan of below RM300,000 would usually opt for the best interest rates, as opposed to flexi loans. This is because they don’t have additional savings to dump into the loan. They want to enjoy savings upfront.
Fixed rate, floating rate or hybrid?
When interest rates skyrocketed to double digits during 1997/98 Asian financial crisis, many house buyers who opted for BLR-pegged home loans struggled greatly in repaying their loans. A fixed rate home loan suits customers who are less tolerant of interest-rate fluctuation. They allow customers to lock in and prepare a fixed amount for the whole tenure. It helps them to plan their finances better.
Some people cannot live without certainty and they prefer to be disciplined with their money. They know that if they have access to money, they may not be able to control themselves. Some of our clients tell us that they don’t like debts. They want to know they’ve paid a certain amount of money every month, which moves them closer to their goal.
However, these loan takes will not benefit from any dips in the BLR. Fixed rates loans are less popular these days with an increasing number of people preferring floating rates instead.
Then there are hybrid loan, where the package will include a combination of fixed and floating rates. In hybrid loan, the interest rate is fixed for a certain number of years; Thereafter , it will be based on the BLR. For instances, from year one to year three, the interest rates may be fixed at 4.40%, Thereafter, the interest rate will be at BLR – 1.90% . Its popularity depends on customers’ perception of the economic conditions in the future. This is also known as hedging.
Do you need more information about home loan products?