Thursday, October 17, 2013

My Home Loan Application Mistake - Ignore Lock-in Period

I just want to share with you guys on 1 mistake that made in my home loan application. The mistake is "I did NOT really negotiate the lock-in period" condition when I accepted the loan offer.

Note: Lock-in period is the period where you cannot settle your loan. If you do, then you will need to pay the penalty fee. 

The reason I didn't do that is because I didn't plan to sell the house in short term and I bought it for own staying. So I put "No Effort" at all to negotiate this lock-in period. Whatever the bank offered me, I just accepted it.

But in personal finance, you always plan on the worst case and in this case, I failed to do that. :) Thing changes especially it is > 2 years, okay I learn that now.

There are few things that you can negotiate and different bank may offer you different condition for this lock-in period. Let's see what you can negotiate here:

(1) Lock-in Period 

In Malaysia, the lock-in period is usually between 3 to 5 years. Try to negotiate for 3 years. My recent loan is just 3 years. So I was lucky, I didn't bother but got the minimum lock-in period. :)

(2) First Draw Down vs Full Draw Down

If your lock-in period start date is based on the full draw down, you should always negotiate it for first draw down instead. For example if your lock-in period is 3 years:

First draw down - 2013
Full draw down - 2015

If based on first draw down, your lock-in period ends in 2016 but if it is based on your full draw down, it ends in 2018. You basically waste your 2 years!!! Fortunately, my case is based on first draw down. I believe most banks do?

(3) Penalty on Outstanding vs Original Loan

Penalty % is usually standard, I think is 3%. The most critical thing is whether the penalty is based on outstanding or original loan. This is the part I was unlucky. :( Too bad, my loan is based on original total loan! :(

It is important that you better negotiate for penalty based on the outstanding loan especially you are cash rich. In example below, you can save $12K!

Loan Amount - $800K
Outstanding Loan - $400K

Penalty on original loan - $800K X 3% = $24K
Penalty on outstanding loan - $400K X 3% = $12K

[Update]: My lock-in period's penalty fee is 2% not 3%. Not sure why I remember wrongly. At least this is something lucky for me! :) 


So, which one has the highest priority? I don't know, I think all 3 are equally important. You can just negotiate all these 3 together to get the minimum penalty as possible! Good luck and don't repeat my mistake! :)

P/S: Do you know car loan is always 1.9X of housing loan? Check this out here!!!


kampunginvestor said...

Brother, no need so detail ma.. Scary lar you.. Ppl want to make your money also hard.. ha ha...

Anyway now u can't flip so easy d cause of the new RPGT.. at least must hold for more than 5 years only hua ma.. :)

ChampDog said...

In fact, I'm not a very detail guy but just trying to be sometimes. lol!

I found buyer already for my house but not firmed yet until sign S&P and all the money gets transfer. For RGPT, I plan to take waiver - which is only once in a life time. :)

ChampDog said...

Btw, heard that is is possible to waive this lock-in period too if you borrow more than certain amount (e.g. > RM500K).

Also, if your buyer plan to use the same bank, you can waive this lock-in period penalty too but you need to make some arrangement with the banker.

kampunginvestor said...

Hope you get to sell your house soon! Then we can party? :)

In business, everything can be discussed and confirm. Semua boleh bincang.. :)

ChampDog said...

Should be 90% confirmed ON. :)

kampunginvestor said...

Ok now the important point here.. ARe we gonna party? :)

ChampDog said...

I'm still waiting for one hope to be party one, a job offer! :)

kampunginvestor said...

are you gonna invite me for the party? :)

ChampDog said...

How? You in KL wor. :)

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