Property investment has been hailed as the best wealth-generating asset class since the previous generation. This is reflected in the perception of real estate as a unique wealth preserver and a hedge against inflation. Therefore, maximizing capital yield and wealth through properties depends on how well you manage the mortgage loan.
Mortgage loan mismanagement, will cause borrowers to bear higher purchase costs from property investment, negating the benefits of property investment. Generally, our mortgage loan is subject to a package interest rate offer by lenders. The interest rate is made up of two components - the BLR and the Spread (Margin). The formula is as following:
While the loan’s spread or margin is usually fixed by the lender, (e.g. the Bank) at +1% or -2%, the BLR is a changing variable, and is usually overlooked or not fully understood by most borrowers. In Malaysia, the BLR takes into account the institutions’ cost of funds and other administrative costs related to the loan and is an adjustable figure.
Adjustment to the BLR is made almost simultaneously among all banks nationwide, usually during the time in correlation to the adjustments of the Overnight Policy Rate (OPR), determined by Bank Negara Malaysia during its Monetary Policy Meeting. From the record, it shows that the highest BLR Malaysia ever had was 12.27% in year 1998 and the lowest BLR is 5.55% in year 2009. The current BLR is at 6.6%.
Fluctuation of BLR affects our loan repayment but most don’t realize its actual effect. For those whose mortgage loans are taken up at a lower BLR compared to the current BLR at 6.6% and have yet adjusted their monthly repayment amount accordingly, their loan tenure can be extended up to the same repayment amount. The prolonged loan tenure will then increase the cost of owning the property at the end of the day.
Protecting Against Fluctuation
In 2010, most experts foresee an uptrend for BLR that will lead to higher rates of Non-Performing Loans (NPL). With more defaults potentially leading to an increased number of bankruptcies, BNM’s steps ensured household debt do not go out of hand with its new loan rules effective from January 1, 2012. Their prescription included clarifying the implications to borrowers on their loan payments when base lending rates change, requiring banks to make assessments of a borrower’s ability to afford loans based on a prudent debt service ratio as inputs to their credit decisions and restricting the third housing loan margin by not exceeding 70% of the purchase price.
Realizing this situation, AceScube has devised an accurate and legally assured form of assistance to loan borrowers. The uniqueness lies in their proprietary Slash Interest Methodology (SIM) which not only guarantees 99% accuracy in interest saving but pertinently, slashes loan tenures by half. With slight adjustments made to the monthly repayments, borrowers stand to save thousands a year on interest alone.
Mr Tan purchased a condominium for investment in 2009 with a mortgage loan offer as below:
Loan Amount: RM 258,000
Interest rate: BLR-2.2%
(Current BLR was 5.55%)
Loan Tenure: 30 years
Monthly Repayment: RM 1,138.00
For the past few years, Mr. Tan made prompt payment every month according to the amount stated in the Letter of Offer. However, he felt uncomfortable with the remaining outstanding balance from the bank statement received at the start of 2011. He couldn’t figure out why he had the same outstanding balance for the past six months despite prompt monthly repayments.
With the BLR Management System, a professional mortgage loan consultancy service, he found that the major reason for the non-reducing outstanding balance was due to increase in BLR. As of March 2011, the BLR was 6.3%, adjusted 3 times from 2009. With AceScube’s analysis and verification, his loan tenure had been extended by 77 months with an added amount of RM 87,626 in loan interest.
In fact, if BLR to-date is 6.6%, what is the actual loss for Mr. Tan? What is the actual tenure to settle the mortgage loan? With the following 30 years, what is the prediction of BLR with the highest record at 12.27%?
With the BLR Management System, Mr. Tan’s loan tenure is no longer affected by the fluctuation of BLR. In the meantime, he could slash the loan’s total interest and tenure by 50% without affecting his liquidity. By way of the Slash Interest Methodology (SIM), the total loan interest and tenure can be slashed with accurate monthly repayment amounts and dates. By following the ledger generated from SIM, Mr. Tan’s first repayment amount is RM 1,390.75 with an adjustment of extra or less between RM 1 to RM 15 for the rest of the months. With the savings of 211 months, Mr. Tan is collecting nett rental yield with no interest served for the mortgage.
With the continued monitoring and update of the SIM ledger subject to BLR, Mr. Tan’s property buying cost has a guaranteed 50% savings rate and a higher rental return.
*All charts and information illustrated is only for reference.
This article is contributed by AceScube, which provides training in loan calculation, banking and finance knowledge and other business and communications know-how for entrepreneurs. For more information on starting a business with them, you may drop them an email at firstname.lastname@example.org to find out more about BLR Management.