[moneywise]

If you have a term loan with the bank ----------you must read this ?

Recently I met an old friend Thomas and got him to talk about his borrowing with the bank. He was shocked and practically fell out of his chair when I told him that he had lost ( or put it another way, given away to his bank ) more than thirty thousand dollars over a period of 5 years simply by not reviewing his housing (term ) loan account. During the last 5 years, after the penalty for full redemption period was over, when interest rate was trending downward, he could have gone back to his bank to ask for a loan review and interest rate reduction. Or he could have taken his loan to another bank for better interest rate. Instead he did not do that. He said he was too busy.

At the point of time when I was talking to Thomas, I discovered that his bank was charging him near 4% for his home loan of $500,000 outstanding. When I told him that the present prevailing market interest rate for home loan is about 1.5%, which I could easily arrange for him from banks that I know are offering -------you could see anger painted all over him. It must be painful to see $30,000 plus blowing away just like that. After he had got over his anger, I offered to help him negotiate with his bank to reduce the interest rate to be in line with market offering. But Thomas was so bitter with his existing banker that he insisted that I help him seek refinancing elsewhere. Upon his persistent insistence, I finally got another bank to take over his loan.

My friend Thomas is not the only one out there who has failed to review his loan periodically and paid a heavy price for complacency. When interest rate is trending downward, like in the last few years, I have come across a number who have lost money in this way just by not being mindful in keeping track of their borrowing records. I know of a few who kept mum after discovering their losses for fear of losing face. In my business that aims to promote networking and adding values, I have always made it a point to ask people that I chance to meet and befriend about their borrowings and the interest rates they are paying to the bank. In my round of asking, I do find that not many out there do keep track of their loan accounts seriously and understand fully some of the terms and implications. And quite often I get answers like these ----- " ---I cannot remember what interest rate I am paying leh-- I don't know as my wife is taking care of all that---I am so busy and I hardly have time to look at that -----How to check leh, I have misplaced my letter of offer----my banker will take care of all that."


As I have said, if you want to save and protect your money, you must review your loan periodically. Keep the loan letter of offer within sight. At a time when interest is going downward, like now, you need not have to wait for the penalty period (for full redemption of loan ) to be over to ask for the lowering of interest rate. If the interest rate you are paying is way above market, give it a try, go back to your banker and appeal for a rate reduction. If your banker say no, you can go elsewhere to seek refinancing. Even now, there are banks in town that will pay for your penalty ( for full redemption of loan) to take over your loan. Recently a friend of mine who has a $600,000 loan and serving his 3rd year fixed interest rate at 3.5% was only too happy to pay his banker off the 0.5%penalty ( for full redemption) and move his loan to another bank that charged him about 1.5% per annum.


Have you ever wonder why banks like to price their lending in this varying manner ----low- low-hi- higher.? There must be good reasons. You will note that the attractive interest rates are always dished out on the first and second year ( and sometime for 3rd also ). Thereafter, usually after the penalty period for full loan redemption, the rate goes up. If you are not alert, you will not notice the" interest rate off-side trap."Football enthusiast will know what i mean. See some pricing examples below:---

a) 1st year 1.6% fixed; 2nd year 1.8% fixed ; 3rd year and thereafter 1% over bank board rate ( or some funny term , like above RnR known only to the bank ).


b) 1st year 0.8% over 3 mth sibor, 2nd year 1% over 3mth sibor; 3rd year and thereafter 1.5% over 3mth sibor.


c) 1st year 0.8% over SOR, 2nd year 1% over SOR, 3rd year and thereafter 1.5% over bank cost of fund (based on bank's own computation and formula)


Penalty of 1% to 1.5% for full redemption within one or two years is normally the usual added feature. Forget about the "claw back "sum cause that is no big deal.




So if you are complacent and do not review your loan account, over time, you can be charged an interest rate that is above the market. So in order to safe guard your money and ensure that you are not over paying; I would recommend that you adopt the following measures.


1. Review your loan account periodically.Check at each point of time the interest rate you are paying and check the market to see what other banks are offering for same type of mortgage loan. You must remember when the window is open (after penalty for full redemption is lifted ) for renegotiation, and request for reduction of interest rate. Be proactive and see your banker to bargain for the best deal. If your banker is giving new customers a better rate, ask him for same and don't take no for an answer. I know of a bank who is fond of dishing out the cheapest rate in town periodically to attract new clients only. It will tell you that this is a promotional rate and is for new clients only. Trust me, if you protest loud enough, it will give it to you.
2. When offered a renewed package with revised and reduced interest rate by your banker, do not be too eager to sign the dotted line. Check the market and see if another bank is offering a better interest rate and terms too. Another bank who is hungry and wants to build up market share could be out there to give the cheapest rate and best terms in town. As a smart investor friend of mind aptly put it," Is my pocket first brother. The day of blind loyalty to the bank is long over. Whichever bank that gives me the cheapest interest rate will get my business".
3. In monitoring your own loan account, do not be frustrated by the many jargons that can cloud your understanding. Do not believe that your friendly banker is always giving you the best and cheapest interest rate in town. Lending banks will always be adjusting their interest rates for property loan according to their appetite for loan and marketing strategy. There are 12 lending banks out there and at any point in time, one or two will dive and use the lowest promotional rates to win market share. That is where you dive in also--------- if you want to save money.


Take care and have a blessed day.


Moses Tan Chee Meng
Mobile: 96359288......MMMMMM.
Email: Mosestan4@yahoo.co.uk
25 Hythe Road,
Singapore 557506.
Singapore Company Reg No. 53101290




PS; If you are having problem checking and sourcing bank for the cheapest rates and best terms, don't bother. Just dial M for Moses.
By the way, kindly pass this email to people who are close to you.............well, just to make sure they are not wasting away their money in this way.

[thomcoes]

That was quite interesting share dear. I haven't term loan right now but for my further education I am willing to take loan as I am from middle class family and I need money for further studies. I think this story grab my attention and made me think about loan.
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debt

[frennyscott]

Various banks and housing finance companies have their own set of offerings as far as the best possible housing loan interest rates concerned also there are a variety of housing loans so if anyone is going to buy a new home or refinancing an existing housing loan, here the advices are the best to follow for all.

[lexin934gkh]

If you take a long term view of property, you will be alright

[easily552ir]

this was great list for everyone. thanks for sharing them to all of us here.

[maikechedan]

The next property down cycle is due by 2015.

Buyers beware!!

[louisgeorge]

ahan Nice Post ...but i don't need it

[tchris13]

Nice post. Very interesting.