A few weeks ago my parents signed up for a housing loan with a bank located somewhere in Penang. Paid 10% of house, around borrowing RM140k from the bank and planned to pay off the balance in cash to the seller.

From what I heard the agreed loan period was 20 years (under me and my father's name), and the two of us fully signed the contract at the bank.

Now a week after that the bank representative phoned us telling that there was a mistake and we were supposed to sign a 25-year loan contract with them!

After finding out this means there is a total RM43k+ difference in monthly payments to the bank, I decided to hold off signing this new contract.

Is there such a mistake or is the bank ripping us off? Is the bank bounded by law by the signing of the 1st contract? Any opinions?

blackspot2,

If you can get a 25 years loan, why do you want to get a 20 years loan??

A) With 20 years loan, you can pay off the loan in 20 years or less.

B) With 25 years loan, you can pay of the loan in 25 years or less.

But, with 25 years loan, your mandatory monthly payment is LOWER. This gives you MORE flexibility in paying back the loan. Especially, when you buy a house, you need extra money to renovate and furnish the house.

In summary, with longer tenure loan, you still can pay off the loan EARLIER. But, your monthly commitment is SMALLER. So, this gives you FLEXIBILITY in payment.

Dreamer

Hi dreamer, thanks for replying. I need to clarify that we actually want the 20 year loan rather than 25 year one. The house is already renovated and partly furnished.

The problem is the 2nd set of contracts which the bank wants us to sign.

1st set of contract says we need to pay RM X per month for 240 months. This is the one we already signed.

2nd set of contract says we need to pay RM X per month for 300 months. This is the problematic one, not signed.

For both contracts the monthly payment is the SAME amount. The only difference is the extra 5 years which leads to paying the bank an extra RM43k+.

are u sure???? is either you joking us or the bank joked you

Normally the first agreement will be cancel and only the latest agreement will take effect. The extra month to complete the transaction is the extra interest charge for your loan as you take longer tenure to complete them.

In actual life no body would want to drag a home loan for 25 years, usually it only take up half of the time to settle the loan. You will only be charge interest for whatever amount of loan that is used up, if you can settle the loan earlier the balance of the loan amount will not be charge if i m not mistaken.

since its the same amount for both contracts, something is wrong somewhere. you can use the loan calcalator which is available in the bank's website to calculate your monthly payment to see which is the correct amount to pay.

So is it always better to apply longer term loan for house even though we afford to pay sooner?

For own stay there are few Scenarios:

1) If you plan to pay the installment and invest the rest, then get a longer term.. (reduce monthly commitment, better cash flow and better loan profile for the next loan)

2) If you plan to pay the installment and save the remaining into the bank account or under the pillow, then better pay off ASAP..

3) If you are approaching retirement age and have lesser risk appetite, then pay off ASAP

my 2 cents

because you could always opt for an early settlement if you have the extra cash and that it does not incur a penalty from the lock in period.

i think ts wanted to know if he could force the bank to eat the 43k and treat it as a gift to him....

i think the bank is misprinted the price for monthly payment for 20 years tenure instead of 25 years..

maybe the bank want to land you the X value for 25 years so it will be RM Y each month for you to pay...

the calculation maybe correct, but for the 1st agreement the bank misprinted for 20 years..

if you insist to stick for the 20 years tenure..maybe your monthly payment will be increased becaused i think the monthly payment is based on BLR/BFR and not fixed (unless you choosed the fixed loan house)

ya!

That is why the bank is telling him that the loan agreement that he signed is meant for 25 yrs instead of 20 yrs.
Else the monthly repayment amount would be higher.

@TS,
You can try an argue with the bank as you've already signed. It's their mistake and they should take up the responsibility. Don't give in.

yeah agree wif u .. it's their mistakes not TS. but it's also possible that the bank retract the loan offer if TS don't want to sign right?

Well, what is the rate quoted to you originally ?

AND , Is there and increase or decrease in rate on the amended Letter of Offer ?

If the rate is the same, meaning by using a financial calculator , google for one .

You can get monthly repayment amount for 240 months and 300 months . Should be the same as per your letter of offer for 300 months.

If there is no change in the rate of interest , I suggest you take Dreamer' s advice.

There is no penalty imposed if you wish to pay back more each month. You are advised to do as you would save lots of interests.

By taking a 300 months loan, you still have the option to pay back the instalment amount for 240 months.

End result is still about the same. You need 240 months to pay back. If you pay even more, maybe you need 120 months to pay off. Most banks compute on reducing balance method. It is good if you double check with them on this.


But you get the benefits of being treated as a good pay master in Bank Negara computer system ( CCRIS ), and there is a margin of safety you can play with .

It works for those with financial self disciplines.

Happy Planning.

This post has been edited by SKY 1809: Dec 10 2009, 05:24 PM

then if like this what is the benefit of taking 20yr loan?

Hi everyone, thanks for the helpful replies. I did some calculation on this page and the monthly payment roughly tallies up with the details of the second contract. I should be signing it soon. Thanks once again.

If anyone's interested in details, the deal we got was a RM142,000 loan for 25 years. EPR is BFR (5.55%) minus 1.6% for first 5 years, and then BFR minus 2.0% for the remaining period. Monthly installments should be on average RM729. Is this a good or bad deal?

You may want to try a 2 tier calculator

http://www.interest.com/content/calculators/aprCalcARM.asp


More calculators to explore :-

http://www.interest.com/content/calculators/

This post has been edited by SKY 1809: Dec 11 2009, 08:02 AM

maybe i didn't update myself with the current interest rate!
how come the interest rate you pay for the first 5 yrs is higher than the remaining period????

1-5yrs (BLR-1.6%)
6-25 YRS ( BLR-2% )

R u sure u got it rite?
furthermore how u get the amt of extra 43k interest for aditional 5yrs??????
5.55% - 2% = 3.55% per annum x 5 yrs = 17.75 p.a x 140k loan = 24-25k max