I believe in reading all documents signed. Notably, the one that has only less than ten pages to read. So, today I want to share my understanding of the Bank’s letter offer with you.
Bank Letter Offer is the document that you sign right after your bank loan is approved.
After approval, the banker will share some of the approval details with you through WhatsApp or text. But that detail is not the only detail you should concern; there’s more to this than meets the eye.
That’s because the original contract between you and the Bank is written in the Bank Letter Offer.
For the following days, your banker will set an appointment with you and bring the Letter of Offer to you, to read, explain, and perhaps sign the Offer.
You can insert your right to bring the Letter Offer home or ask for a copy from them to read and understand the terms and conditions before accepting the Offer.
People told me, ” I don’t have the time.”
Think about this. To this guy, reading the Letter Offer is less important than anything else. Therefore he doesn’t have time for it.
Because, if you know, how important this is. For sure, you will find time for it.
I can tell you this. You’ll not regret reading the Bank Letter Offer because it will do you more good than harm.
Today, I’m going to share 3 Important Things To Check Before Signing Bank Letter Offer.
1. Basic Details
Make sure to check all the essential details like name, ic number, property address, property purchase price, title number, and correspondence address.
Bank does make mistakes. So, it’s essential to make sure all the basic details are correct.
After the letter offer is signed, if there is a mistake, the Bank will come out with a supplementary letter offer, and most of the time, you need to sign it. It will add to the extra steps, delaying the process, and wasting so much time.
So, get it right the first time.
2. Approved Loan Amount
It’s essential to understand your approved loan amount. Because of the total loan amount, you’ll know how much goes to financing the property, the insurance (MRTA), legal fees, and valuation fees.
And most importantly, you will know how much deposit in cash you need to pay the seller for buying a house.
I have an example of the approved loan amount here.
Facility Amount :
RM539,411.00 (Inclusive of Group Mortgage Reducing Term Assurance or Group Mortgage Level Term Assurance (“GMTA”) of RM16,263.00, Legal Fee of RM11,348.00, and Valuation Fee of RM1800).
Given the above details, you know that your total loan approved is RM539,411. That including GMLTA/GMRTA of RM16,263, Loan Legal Fee of RM11,348, and Valuation Fee of RM1800.
So, how much is the financing amount for your property?
You have to do your calculation.
a. Calculate all the other costs.
MRTA ( Insurance ) : RM16,263.00
Legal Fees : RM11,348.00
Valuation Fees : RM1800.00
Total : RM29,411.00
b. To calculate the property financing amount, follow this formula.
Total Loan Amount: RM539,411.00
Less: Total other costs: RM29,411.00
Balance : RM510,000.00
So, RM510,000 is the property financing amount.
c. Now, what’s the loan margin?
Find the property market value or purchase price in the Bank’s letter offer. Most of the time, it will be stated.
In this case, it is RM570,000.
The margin of finance is RM510,000/RM570,000 x 100 = 89.47%.
If you’re expecting a 90% margin, which should be RM570,000 x 90% = RM513,000.
But, you’re getting approval financing of RM510,000. That’s a shortfall of RM3000.
If this is something you can’t fork out, you should talk to the banker and ask for an appeal.
Other things that you should be concerned too.
a. Mortgage Insurance ( MRTA or MLTA)
It will be best to ask yourself, is this something that you want? MRTA or MLTA is not compulsory, so you don’t need to sweat about it if you have a tight budget. You can also reduce the amount to fit your needs.
But, for most banks, they offer a better interest rate when you take their mortgage insurance.
b. Legal Fees Financing
The Bank will appoint a lawyer to attend for the signing of the Bank Loan Agreement – A contract between you and the Bank. So, there is a cost for the preparation of the bank loan agreement. Frequently, it will state Legal Fee financing in the Bank Letter Offer.
You have the option of paying the fee yourself or finance it in your loan. Most people will opt to finance it in the loan so that you don’t have to worry about the fee.
But, I think most people don’t know the Legal Fee financing amount is not sufficient sometimes, and the borrower must top up the amount with Bank lawyer.
If you’re lucky, you can get a discount from the lawyer, but if not, you have to pay. This usually happens because there is unclear communication between the banker and the borrower.
Typically, the Bank will only limit the Legal fee financing up to 2% of the approved loan amount. And if it exceeds, you can’t finance more. You have to top up with your own money. Most of the time, the banker doesn’t convey this message to the borrower.
If you have an actual Legal Fee amount of RM20,000 and the Bank is only allowed to finance RM15,000. That’s mean you have to top up RM5000 your own. And you only found out about this when the Bank’s lawyer informs you.
How to avoid this?
You can start by asking the banker for a loan quotation and making the comparison. Or you can request a loan quotation from us here.
3. Home Loan Package
When it comes to choosing the best home loan packages, it’s all about matching the most suitable package for your needs.
The first step in choosing the most suitable home loan product is by deciding your preferences; Are you on Team Conventional (Conventional Home Loan) or Team Islamic (Islamic Home Loan)?
Choose one.
Regardless, you are Team Conventional or Team Islamic; both teams have Term Loan, Semi-Flexi, and Full- Flexi home loan. Let’s take a look closer; the difference between these three home loans.
Term Loan
A basic term loan follows a fixed repayment schedule, with a monthly installment that remains the same throughout the full repayment period of the loan.
This type of home loan has traditionally been the norm in Malaysia, providing a clear repayment schedule to customers and a reliable understanding of interest payments for the Bank.
Most of the time, this type of home loan doesn’t provide flexibility to pay more and withdraw back the excess payment.
Semi-Flexi
The Semi-Flexi home loan represents the basic term loan evolution, with an option that allows borrowers to make advance payments on their loan amount without sticking to a rigid and unchanging loan schedule.
A Semi-Flexi home loan allows you to pay off larger sums of your outstanding loan amount – in advance.
With a Semi-Flexi home loan, borrowers can also withdraw additional sums paid over and above the defined payment schedule.
FULL-FLEXI
The Full-Flexi home loan in Malaysia offers customers versatility, over and above the Semi-Flexi home loan products.
It allows borrowers to make additional payments or withdraw excess sums from their current home loan, WITHOUT the need to give notices to a Bank.
The Full-Flexi home loan is tied to the individual’s current account at the Bank. The borrower can deposit or withdraw any additional amount, as long as they make their agreed minimum loan payments.
It is essential to decide your preference home loan products before applying for the Bank’s approval. And NOT after the loan approval.
You can read in the Bank Letter Offer the feature, flexibility, fees charged, and other important information about the home loan product you choose. And don’t forget to use it to your advantage.
HOME LOAN INTEREST RATES
After covering the home loan product, it is time to look at the Bank’s Interest Rates.
The Bank offers home loan interest rates based on a few factors like borrower profile, loan amount, property location, and property project ( under construction property).
Currently, the most popular interest rate is floating rate.
It means that the interest tends to have fluctuates over the repayment period.
For example,
BR + 0.55% p.a
BR stands for Base Rate. So, if the Bank BR is 2.50%, the interest rate charged will be as follows.
2.50% (BR) + 0.55% = 3.05%
The Base Rate usually will fluctuate, and it follows the Overnight Policy Rate (OPR). Every Bank is allowed to announce its own Base Rate.
OPR will be monitor by Malaysia Central Bank, and every 3-4 months, the Central Bank committee will decide to increase or decrease the OPR rate based on our country’s economic performance.
Once you have the right interest rates and home loan products, make sure you have the maximum repayment period.
When you get the maximum repayment period, you have the lowest installment, which means it would less burden your monthly commitment compare to having a shorter repayment period.
Always go for LONG.
CONCLUSION
The key to choose the best home loan is to find the lowest interest rates without compromising the other factors like approval loan amount, home loan products, the stability of the Bank, and other significant factors to you.
We hope this article – 3 Important Things To Check Before Signing Bank Letter Offer will provide you with valuable insight before signing your Bank Letter Offer.
Now, if you have any questions about the home loan, don’t forget to reach us at 012-6946746.
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