Sunday, October 13, 2013

What is MLTA?

Last week received a call, this man, let's call him Mr. M, asking question about MLTA.

Mr. M just signed a letter offer from a bank for over RM600k and keen to buy mortgage insurance. He said he received some quotation and done his research online over the insurer's website.

Mr. M question to me is, "Why I can't find a product name MLTA?"

To answer Mr. M.....I said: "MLTA is not a product but a concept coined by insurance agency to sell life insurance."

"MRTA (Mortgage Reducing Term Assurance) is also a form of life insurance", I told Mr. M, "but sold by bank to borrower to protect the bank's interest first."

Both MRTA and MLTA has its pros and cons. I believe MLTA is gaining more market shares because it gives consumer more flexibility. People likes to be in control...

Retirement Savings Comes From Character And Discipline, Not Luck.

If you have not discuss on Retirement Planning with spouse, friend or business partner, soon you will have....
How is your retirement saving plan going?

I guess most people have common problems, like...
We need to earn more....We need more time to save.... We need better return on investment etc....
 So, what is yours reason?

Let's forget about return on investment first. With low balance, however high is your ROI also close to meaningless.

To have a huge retirement saving pot, you should target to increase your saving amount rather than your ROI. It happens only and only if you actually put money away, in a disciplined and serious manner, for years. Then let the compounding effect works on it.

Friday, October 4, 2013

He is planning to sue a Commercial Bank (for force sale his house)....

Mutton-seller A Muthukrishnan is planning to sue a commercial bank for supposedly high-handed selling of his house to a moneylender.
He also claimed that the moneylender had hired thugs to attack him last year when he refused to transfer ownership of the house to the moneylender as he had failed to settle a RM50,000 personal loan that he took in 2006, causing him to lose a thumb.
Muthukishnan bought a unit of double-storey terrace house in Selayang Baru, Batu Caves in 1997 with a housing loan secured from the bank where he paid a monthly installment of RM1,000.
However, he started defaulting on the monthly repayment and the bank sold the property to moneylender.
“In 2008, I was shocked when the bank informed me that a third party has requested for the property redemption sum and later bought the house,” he said, adding that he had approached the bank on the matter and was advised to lodge a police report.
Muthukrishnan also claimed that despite the police report, there was no action.
“I have also made at least 40 complaints to Bank Negara, the police, Tribunal for Consumer Claims, Bar Council, Malaysia Licensed Money Lenders Association and several ministries in hope they are able to help me to resolve this matter,” he said.
When asked if the bank had offered assistance, Muthukrishnan claimed that the bank had offered money on several occasions but declined to reveal the amount.
“With the bank offering me money, it is an indication that something is wrong,” he said, adding that he wanted the house instead which was valued at about RM700,000.
When contacted, a representative of Standard Chartered Bank said that the bank was in communications with Muthukrishan to help him resolve his concerns.
“Standard Chartered cannot comment on any information relating to our customers. As you may know, we are required by both international and local laws and regulations to maintain strict confidentiality about customer information.
“As an international bank, we adhere to these requirements in all our markets for all our customers.
“What we can tell you is that we have been in communications with Mr Muthukrishan to help him resolve his concerns,” said the representative. 

Thursday, October 3, 2013

Bank Negara New Rule - Capping "cash out" on Refinancing

In Q3 of 2013, Bank Negara Malaysia (BNM) issued new guidelines to banks regarding refinancing of mortgages. Prior to this, anyone could refinance their homes with repayment tenures up to 35 years. Under the new guidelines, any cash out amount from mortgage refinancing would be capped at 10 years tenure. 

Many people are now asking, how can you avoid it?

This guideline is part of Bank Negara’s efforts to reduce unnecessary household debt, and also cools any speculative activity in the property sector that is fuelled by lax home loan refinancing.

Effect of the guidelines

Before this, you could refinance your house up to 90% of its market value. The cash out amount can be used for any purpose. This includes investing in other properties, and is a common practice among serial property investors. Maximum loan tenure follows those of housing loans, which is 35 years.

Assuming the house is worth RM400,000, outstanding housing loan balance is RM150,000, interest rate is at 4.6% and Margin of Finance is at 90% of market value.

Example refinancing calculation under the old rules:

Amount to cover outstanding balance = RM150,000
Cash Out Amount = RM210,000
Total Refinance Amount = RM360,000
Tenure = Max 35 years
Total Monthly Installment = RM1,726

Example calculation under the new rules:

Amount to cover outstanding balance = RM150,000
Tenure = Max 35 years
Monthly Installment = RM719

Cash Out Amount = RM210,000
Tenure = Max 10 years
Monthly Installment = RM2,187

Total Refinance Amount = RM360,000

Total Monthly Installment
= RM719 + RM2,187
= RM2,906

That is a difference of RM1,180 per month! MANY people will NOT be qualified due to DSR exceed entitlement*.

Is there any way around it?

Likely no.

* DSR = Debt Service Ratio. Most people maximum entitlement is between 60% to 80%. Once installment amount increases, DSR increase accordingly.