The secret of getting the best loan for yourself is you must understand your own mortgage need very well before you sign on the bank letter offer! Or you will just spend extra money to the bank!
MUST KNOW!
How to choose the best loan that saves you thousands of money? Or fit your mortgage planning the most?
BEST! BEST! BEST! You want to have best loan in town and save you money or even give you money for emergency cash use, business set up, working capital financing, renovation fee, education fund for your children or even yourself, debts and bills settlement. Offers from banks always there but it is just whether you catch the right one for yourself!
Mortgage needs is different from one individual to another. You will have to plan yours one correctly! And, this will be closely related to your own cash flow statement, financial planning, the usage of property mortgaged and others subjective factors such as risk profile, conveniences. Please get your paper and your pen ready for notes taking…
1) YOUR OWN CASH FLOW STATEMENT (current and future)
Net cash flow = cash in flow – cash out flow
Net cash flow: Idle saving in your savings/current account at the end of the month
Cash in flow: Salary receive, bonuses, rental income, interest income and annuity
Cash out flow: monthly fixed/ variable expenses
Pls refer the table below:
CASH FLOW STATEMENT
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For The Month Ending xx/xx/20XX
INFLOWS : -
GROSS SALARY
BONUSES
EPF : EMPLOYER'S PORTION
DIVIDEND INCOME
RENTAL INCOME
INTEREST INCOME
ANNUITY
OTHER INCOME
TOTAL INFLOWS
OUTFLOWS:-
FIXED OUTFLOWS
LIFE INSURANCE PREMIUMS
MORTGAGE PAYMENTS
CAR LOAN PAYMENTS
SUB TOTAL
VARIABLE OUTFLOWS:-
INCOME TAX
FOOD/ GROCERIES
PARENTS ALLOWANCE
UTILITIES
CHILDREN EDUCATION
TRAVEL & HOLIDAYS
GIFTS
CREDIT CARDS
OTHERS
SUB TOTAL
TOTAL OUTFLOWS
NET CASH FLOWS (SURPLUS/DEFICITS) RMXXXXXXX
If your net cash flow is countable, do not ever let the money stay in the savings and/ or current accounts. It is only gives you less than 2% per annum and some even no interest! Better consolidate them in ONE account i.e. Flexi Loan Account. And this will help you to save the differences due to principle reduction.
Case study 1:
Name of borrower: Ms Carmen
Original Loan Amount Taken: RM200, 000
Outstanding Loan Up to date: RM100, 000
Carmen’s net cash flow: RM50, 000
Before consolidation,
Loan interest paid= RM100, 000 * interest charged
After consolidation,
Loan interest paid= (RM100, 000-RM50, 000) * interest charged
TOTAL INTEREST SAVE= RM50, 000 * interest charged
VICE VERSA, if your net cash flow is not countable, you are advised to take a very conventional mortgage loan then pay installment according. Whereby, if you were to wrongly take Flexi Mortgage Loan, you will end up lost money in paying the Flexi Loan Account maintenance fee in which you can save it! If Account maintenance fee RM10 per month, you can save RM10*360months= RM3600!! One brand new laptop is yours! Why pay more!
IMPORTANT NOTE:
Always compare the interest rate to be received versus interest rate to be paid for cash placement in order to maximize the saving and/ or gain! Makes money works for you ……
You may want to browse the latest bank rate (include fixed deposit rate, savings/ current rate, mortgage rate) offered from financial institutions online before any cash placement decision made.
2) YOUR OWN FINANCIAL PLANNING
You! Do you have any financial planning in mind for now and later? You plan to buy a car later, then hire purchase installment will eat up your net cash flow; You plan to invest in property later, then mortgage installment will eat up your net cash flow; You want to allocate your money in other investment tools such as unit trust, shares, insurance? If you were to do so, please have it everything in mind before you obtain the mortgage loan. Or it will definitely limit you to plan others. Do you smart financial planning in line with mortgage planning! You can!
Execution without plan will fail ……
3) USAGE OF PROPERTY MORTGAGED
This property mortgaged is for own occupied? Or as an investment? If it were for investment, then when is it going to be disposed off or sold-off? How many years from now? Or, you want to rent out this property later? Ask yourself ……
Different answer will lead you to different mortgage loan package.
For own occupied case, since you are going to pay the installment for long term basis or more than 5 years, then you must choose the loan package that can really fit your own cash flow planning – flexi or conventional, then followed by the lowest rate amongst all. Lock in period and penalty cost if loan transfer or termination will not be your most concern in this case. Just pick the one with lowest interest and comfortable one to pay by then!
If investment for rent, above solution is applied cause the mortgage payment is still long term!
If investment for sale, then you will concern more on how much profit I can gain from disposed off after minus expenses involved.
Net property gain = Selling price – interest cost – penalty cost if applicable- expenses to dispose or before dispose such as advertisement cost, agent fee, renovation cost
Hence, to increase the net property gain, you must choose the loan package with lowest interest during the period before dispose, so you must estimate when you are going to dispose it! If 3 years from now, then compare only interest for 3 years but not 30 years and choose the lowest one amongst all! Too, not forget to choose better without lock in period and zero penalty cost! Others become less important ……
4) YOUR OWN RISK PROFILE
Lets do your own assessment in identify your own risk profile. Very simple! Just ask yourself, if you were to given an opportunity to invest RM100, 000, how many Ringgit you can tolerate to lost without affect your emotion? RM5, 000? RM50, 000? RM0?
If your tolerance to lost is less than RM50, 000 then you are categorized under risk averse. You are conservative! You prefer something guarantee! You hate uncertainty! In that case, in choosing a suitable loan package, better go for those fixed rate package instead of BLR (Based Lending Rate) plus spread package due to BLR fluctuation from time to time.
Average BLR for past 30 years from 2009 is 10.25%
5) OTHERS FACTORS TO BE CONSIDERED:
You willingness in withdraw EPF (Employee Provident Fund) Account 2 for property acquisition and mortgage loan reduction. Some might insist to keep the EPF for your old age spending just in case their children might not be there to support you due to any reason. Or you just do not want to become burden to anyone when you are getting old. Again, this is depends on each individual risk profile!
(Kindly refer EPF withdrawal procedures and details at www.kwsp.gov.my)
Your prefer financial institutions? Service level? Your existing accounts placement? Ease to make payment? Ease for personal approach?
The above factors might over-take CASH FLOW PLANNING, FINANCIAL PLANNING, USAGE OF PROPERTY MORTGAGED as mentioned earlier!
Pick the right one for yourself and SAVE A LOT MORE INTEREST!!!
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