Need to check with some of the experts on property/banking.

When you do an early termination such as refinancing, I'm aware that there is termination penalty of some % of your loan amount. But what is Accrued Interest that I still need to pay? Interest on what?

I received a CC of the redemption letter sent to my new bank and the amount is included my current balance, contigency amount RM500 (which i think is just buffer and refundable), some processing fee RM50, early termination penalty of RM7k++ and an early termination Accrued Interest for about RM2k++. I called the bank and they said the Accrued Interest is standard practise.

Thank you.

Yes, some bank will charge you extra 2 months of interest beside the penalty % when you refinance or early settlement. So i believe this apply to your case too. Please check with your Letter Offer as it will clearly (but hard to notice) stated in there.

what is accrued interest?

Its the amount of interest incurred on the principal amount over the given time.

It's just another term for "Interest" for your loan.

but then every instalment we are paying, a portion is used to pay the interest and the rest is used to offset principal loan amount.....

where is this accrued interest come from?

The answer at post 2#

the interest portion in your installment is also accrued interest, which is paid by your installment.

i'll give you an example;

When you approach the bank with the intention to settle your HL account, you will settle the outstanding in the loan account right?

So what happens if your the billing is on the 1st of the month, and you approach the bank on the 10th day of the month?

The bank will charged the interest of 10 days, adding it into your outstanding balance, which gives you the new outstanding figures.

That 10 days of interest is "accrued interest"

Technically, accrued interest has the same calculation formula as the loan interest. If its a daily rest loan, then its a daily rest calculation.

ignore the big words, its actually the same thing as interest on your installment.

drop me a call if you need an explanation on the terms. kinda hard to put in words actually.

hope the above helps

thanks merce/onny. i understand now what it means. the bank did say something that it is 3 months of interest.

but the thing is, why is there such industry practise? i mean that 3 months is "future" interest where the loan has been refinanced. they will get full settlement payment from the new bank. why still charge interest on money they no longer loan out? it seems to me it is like another term for extra penalty fee on top of the existing penalty fee for early settlement.

This post has been edited by exshige: Feb 23 2010, 09:52 PM

It's already written clearly in the Letter Offer. Maybe the statement is small but for sure it's in there. Well, this is a normal practice for all mortgage loan. Just that banker seldom mention or show the calculation clearly to the clients. Normally banker just show you the rate, tenure, amount and lock in then ask you to sign and close the deal ASAP.

Anyway, all the best to you and your dream house. Happy CNY

I called the bank again and spoken to someone else. She told me this is future interest and is applicable to any loan settlement be it Housing or Personal loan. I'm not sure whether I get her right about the Future Interest thing, she said something about the redemption amount is principal only and i'm still liable to pay for interest. The girl said something that the amount is not final and will be refunded if excess.

after thinking about it and reread the redemption statement letter that i received, 3 important points..

1. Redemption amount total from actual balance, 3 months accured interest, processing fee

2. One of the clause states.. The borrower are to continue paying the monthly instalment until full redemption.

3. But at the last section of the letter it states.. Please note that the above redemption sum is given on the assumption that there will be no further transaction on the account..

From the last point, does that mean that the redemption sum is assuming i will not be paying instalment from the date of the letter to the date the letter stated to ask for the redemption payment (Which is exactly 3 months from the date of the letter). So the sum has included that 3 months interest to cover that.

But then for the second point, I still need to serve my loan till the day full redemption. I still paying the instalment till this month. So they already receive the interest that i paid every month till now..

so this accured interest which they charged to cover that 3 months is overpaid and will be refunded to me after everything is done?

This post has been edited by exshige: Feb 24 2010, 03:19 PM

thanks merce for explanation....

let say...my loan is RM100k full flexi home loan. I always keep RM100k in the account to offset the interest.

If I sell my house, do you expect to have any accrue interest for this case?

-Lets just put aside the redemption amount here. Its more understandable when u know the standard practice of the whole thing. Regardless of the 3 different dates, you are still require to service the installment until the completion of account closing. Its not about the interest, but the CCRIS report. All banks are require to send in the activity report to BNM for CCRIS reference data base for all accounts, and customers. Which is why u shouldn't skip the installment even though if you are closing the account soon. CCRIS wouldn't know if u r closing the account, all they do is just received the details from the banks and update on monthly basis.

Yes, do expect a refund from the bank if the account is overpaid.



-yes, the redemption amount is calculated base on the schedule installment, excluding all other factors such as capital prepayment, LPI(Late payment interest), fire insurance premium etc. They will need to recalculate a new amount if there's any unexpected adjustment on the outstanding before the account is closed.

hope the above helps.

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Added on February 27, 2010, 9:11 pm-Accrued interest is calculated based on the outstanding of the account. Technically, it would be 0 accrued interest in the scenario, but i'm not very sure how they do it under full-flexi loan structure. it is best you check with ur bank officer.

This post has been edited by merce: Feb 28 2010, 02:57 AM

merce, so does that mean this 3 months of interest is just overpaid to faciliate the whole process of account closure and will be refunded assuming I pay installment till the very last day?

thanks.

yes

thanks merce.....