WANTED: A Loan Consultant Who UNderstands What I Need!

Since this is the forum for Property Investors or those aspiring to be one, I'd like us to share what our requirements are for loans and mortgages. When one is taking out a loan to buy a property, especially if it's for investments, one should opt for those flexible package, with a good interest rate plan.

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Interests Rate Plan:

Usually, one would be short on cash in the early years of the acquisition, and through the years, one would have increased one's salary, have more cash, collected more rent and hence, have more savings, one can pay up the loan in a large part or full. So, one should go for the lowest interests rates in the early years e.g. 3 to 5 years and subsequent years rates can be higher because it is likely one would not need to be paying much or any interests in the later years.

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Redraw Facility:

It is also very likely that, being a Property Investor, one would become itchy again when one sees good real estate on sale. So, the loan package must allow for as much cash available as possible when one needs it. Preferably, the redraw should be within a short notice in case one sees a good deal and need to snap it up immediately.

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Lock-In Period:

Most loan packages have at least a 3 year lock-in and usually it's 5 years. So, if you are buying for speculation, try to negotiate the lowest lock-in period if possible. However, in my opinion, 5 years is a good time for prime properties because it allows 3 years for construction (if it's a new launch) and a further 2 years for further appreciation and rental collection. 5 years is also the holding time if you want to be exempted from paying property gain tax. So, one should not be too bothered about Lock-in period unless one only has the aim to make a quick gain. Instead, one should look at a good redraw facility from an earlier loan package and use that for the quick gain transaction.

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The Wrong Package:

One should not get stuck with a long term fixed-term loan no matter how good the interest rate is. One such loan is the OCBC fixed-term loan. Sorry for picking on OCBC because I am not sure how the other banks do it. It works like this...using a RM400,000 loan as an example:-

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The monthly repayment based on today's BLR is about RM1800 and the lock-in period is 5 years. So, if you have the money and want to "zero-rize" the interests, you can't dump in RM400,000 because you will break the lock-in terms and will have to pay huge penalties...in this case 3% of the loan amount which is RM12,000!! Nor can you dump in RM399,999.99 because the term loan requires the RM1800 monthly repayment (or the fluctuation according to the current BLR to be paid monthly without fail). So, while you are OK for this month, the moment you pay RM1800 into your loan the following month you will be penalized.

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So, the only way to "zero-rize" your interests under this package is to pay 5 years worth of "Advanced Repayment" (5 years being the lock in period), i.e.

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5years x 12 months x RM1800 = RM108,000.00

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The balance is paid as "Capital Repayments" i.e. RM400,000 - RM108,000 = RM292,000 is "Capital Repayment". The crap is, when you want to redraw, you are only allowed to redraw RM108,000. You can't redraw the Capital Repayment. So in effect, the bank loans you RM108,000 for your property which is worth more than RM440,000!!! Clever Bank.

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To make it worse, you have to give the bank 1 month notice before you are allowed to re-draw. Funny enough, I told the Loan Consultant exactly what I wanted and he offered me this crap. Being the nice guy I am, I signed on it without reading the details.