Fixed Rate Home Loans from Insurance Firms
We weren’t advertising any particular company or any of that sort of thing, but we and some friends have been doing a bit of survey on home loans recently.
When people talk of home loans, first thing that comes to mind are the banks. Especially when 5 or 6 of those big banks set up counters at property launches with all their complicated packages.
Recently, some of our friends have taken up home loans from insurance companies, offering fixed rate loans, guaranteed for the tenure of the loan up to 30 years. As far as we know, at the moment, only two companies are offering this - AIA and ING. AIA is offering a fixed rate of 6.15%p.a.
The main draw that attracts people to is summarized in their website:
Analysis of the lending rate over the past twenty three (23) years can only give us a historical guide of the interest rate cycle. Based on figures provided by Bank Negara (for the period between 1980 to 2003), the average Base Lending Rate (BLR) for commercial banks is 8.38% a year with an average lending rate of 9.80% This means that for a loan taken for the past twenty three (23) years, the average interest rates were charged at 9.78% whereby lending rates have peaked as high as 12% and as low as the current BLR of 6%.
There’s a graph from Bank Negara that shows the BLR and LR over the same period.
(graph taken from AIA website. Hope they don’t mind)
To be fair to the banks, most of them also have a fixed rate home loan scheme, usually under the Islamic banking system, which is open to all Malaysians regardless of whether they are Muslims or not. Also, as one of our friends put it, banks always offer incentives for refinancing (especially for the first 5 or 10 years) like zero moving cost, BLR-XX, to stay competitive. Maybe its a good idea to enjoy these benefits now, and go for fixed rates when (or if) the BLR shoots sky high in a couple of years.
But there is also a lockdown period to think of.
But anyway, fixed rate loans by insurance companies offer more options to housebuyers, and keeps everybody competitive.
There is a consensus amongst most economist / bankers that the Govt. has learned the lesson of the Financial Crisis that the IMF / World Bank model of high interest rates will not work any more. That said, how high will the BLR be? Some say in the long run about 7.5%. Of course, there can be no certainty.
Based on current BLR (6.75%), some banks are giving up to BLR - 1.3% throughout the tenure which is about 5.4%. That is still better than the fixed Insurance of about 6.15%. That means that the Buyer is better off taking a flexible rate until the BLR hits 7.45%. Also, I was told that although most Banks will accept a reassignment of an exixting Insurance Polict in lieu of MRTA, the Insurance Co. will want to cross sell their products. So, there is an additional hidden cost to the buyer.
But of course, there is nothing like a sure thing, i.e. fixed rate which gives peace of mind. Admin, perhaps some ppl can give their feedback for a more comprehensive write-up?
Comment by preacher — December 13, 2006 @ 7:44 pm
sure, any feedback is welcome. Especially from buyers who have done the research and know about the products on offer…
Comment by Administrator — December 14, 2006 @ 9:30 am
if u have a plan of refinancing, take the loan from bank, that offer BLR minus package, which is still lower than the insurance Co. as for insurance Co, the first few year we have to pay higher installment compared to if i take lower interest pakage from bank
Comment by TEC — December 15, 2006 @ 5:14 pm
Apparently AIA is advertising no early settlement penalty. That is a major plus point for taking Insurance loan.
Comment by Froggie — December 16, 2006 @ 12:15 am
Also there is no lock in period, that is when you sell off the property… of course if you refinance… kenalah!
Comment by yk — December 21, 2006 @ 2:44 pm
Is there anyone in malaysia out there offering interest payment mortgage loan only like the US and UK market?
Comment by kaiser — January 16, 2007 @ 5:24 am
i found this website @ Fiscal Wise is great whereby they have the most complete loans available by all banks in malaysia. Perhaps they are the right person for us to seek independent information..
Comment by OBH — March 8, 2007 @ 9:33 am
oppss.. the url is www.fiscal-wise.com.my
Comment by OBH — March 8, 2007 @ 9:33 am