Finally, the second Penang bridge will take off. The Malaysian Prime Minister DAtuk Seri Abdullah Ahmad Badawi is launching it on Nov 12.

And when it is completed, together with the existing Penang bridge, will escort my house (my house is flanked by both bridges one on each side), and hopefully this will set the house price sky-roketting.

To get the full details, read on the article from Malaysia news agency, Bernama, below.

SECOND BRIDGE TO SPUR ECONOMIC GROWTH, SAYS KOH

PENANG, Nov 9 (Bernama) — The construction of the second Penang
bridge, costing RM2.7 billion, will generate the state’s economic growth
and overcome traffic congestion on the present bridge, Chief Minister Tan
Sri Dr Koh Tsu Koon said.

He said the 24 kilometre long bridge, to link Batu Kawan at South
Seberang Perai and Batu Maung on the island, would not only help spur
economic growth in Penang but also Perak and Kedah.

“This project is important not only to Penang but also the northern
corridor area,” he told reporters after the opening of a new building for
Multitest Electronic Systems (Penang) Sdn Bhd here today.

He said implementation of the project would provide income for
companies involved in the construction industry, like suppliers of building
materials, equipment, contractors and workers involved.

The presence of foreign engineers and expert involved in the project,
expected to take four years to complete, willl also have an impact on the
state’s economy, he added.

Prime Minister Datuk Seri Abdullah Ahmad Badawi is scheduled to
officiate the ground-breaking ceremony for the bridge project this Sunday.
Koh said the construction of the proposed second bridge was welcomed by
the people in the state as it would help improve traffic and transportation
system in Penang.

According to statistics, about 100,000 vehicles use the Penang bridge
on normal days and 140,000 vehicles on weekends.

Koh said traffic congestion in the state would also be overcome with
the construction of the monorail project and the Penang Outer Ring Road
(PORR) project. - BERNAMA

In Malaysia today, you can opt to finance your dream home using various methods. Among the methods mentioned were to take a loan from the various banks in Malaysia (both local and foreign banks). I’ll like to take the opportunity today to talk about flexible home loans.

The other day, I was talking to a few fellow bankers to learn about the hype around the new Flexible Home Loans. Apparently most banks in town was putting it on their brochures ranging from MortgagePlus (Hong Leong Bank) to HomeSmart from HSBC (Hong Kong & Shanghai Bank). Have you ever wondered what motivated banks to provide Flexible Home Loans?

Well, apparently back in the old days, when there’s nothing around but conventional home loans, there were quite a number of loan payers who actually had  spare cash lying around. Instead of using the spare cash to make prepayments to their home loan, they pretty much preferred to park their cash in fixed deposit earning measly interest rates.

So here’s the dilemma, on one side they are stuck with conventional home loans charging exorbitant interest rates (5-12%)* and on the other hand they have spare cash parked in Fixed Deposits/ Savings Accounts, earning measly interest rates (1-4%)*. You must be wondering, why don’t they just parked their spare cash in their housing loan account because “A dollar saved, is a dollar earned”

Well, as illogical as it may seem, these groups of people have the mentality that it is much better to have emergency cash in hand than to used up all their savings to offset their conventional home loan quantum. These groups of people feel safer knowing that emergency cash is easily available on rainy days. As such, they do not mind paying the extra interest for their conventional home loans. As the popular saying goes ” A bird in hand is better than two in the bush”.

With the plight of these people in mind, and of course the endless competition among banks to entice more customers, banks started rolling out flexible home loans. (Of course foreign banks took the lead first)

Flexible home loans promises the flexibility for you to deposit and withdraw, any amount, any time and as often as you may need. For example, you may bank in $10,000 into your loan account today and will still be able to withdraw it out the next day without incurring any charges.

Of course, you will still need to pay up your monthly mortgage payments and any additional balance in your loan account thereafter goes towards offsetting your loan quantum and as such your interest payable for that day.

Take this case study for example,

Home Loan Quantum = $100,000 and the Interest rate is 12%** per annum and for this case take customer A who has $20,000 sitting in his fixed deposit.

Case A: Conventional Home Loan 

Under conventional home loan with daily rest interest calculation, Customer A would have to pay a daily interest of

Daily Interest = Remaining Loan Quantum x (Interest rate/365 days) = $100,000 x(12%/365) = $32.88

Total interest accrued at month end = $986

Case B: Flexible Home Loan Concept

Daily Interest = (Remaining Loan Quantum - Amount in Account) x (Interest rate/365 days) =

                    = ($100,000 - $20,000) x(12%/365) = $26.30

Interest accrued at month end = $804

Total Interest Savings = $182

Interest earned if Customer placed $20,000 in Fixed deposit at 4% = $65.75

See the difference. Well that’s the flexibility of Flexible home loans. Basically, you can park all your extra cash into your home loan account and “earn” whatever interest rate that the bank is charging you for your home loan. Furthermore, you still enjoy the flexibility to withdraw your extra cash on rainy days. Now that’s what I call flexbility.

However, do note though that the interest rates for Flexible Home Loans, tend to be slightly higher than conventional home loans. Another thing to note is that not all banks offer the same level of flexibility in their “Flexible Home Loan”. Always shop around for the plan that suits your lifestyle the most.

Disclaimer :

Calculations were made using simple formulaes and may not be accurate. Kindly visit your friendly bankers to obtain a clearer illustration about flexible home loans, as different banks offer different packages and features.

* Interest rate range is based on the interest rate charges for the last 10 years in Malaysia. Interest rate varies with varying BLR.

** 12% per annum interest rate is chosen for ease of illustration. For the current interest rates for Home loans, kindly visit individual bank websites.

Here’s comes the next challenge. How do you go about financing your dream home?

Of course, the first thing that comes to our mind, would be banks.

Malaysia is very fortunate, in the sense that we have numerous banks (both local and foreign banks) who are more than willing to lend new home buyers a hand in realizing their dream house.

Furthermore these banks are competing with each other by offering its customers attractive interest rates, attractive features and all in all, a very attractive home loan package to lure you to sign up with them.

(and of course sell your poor soul to them for the next 30yrs or so :))

There are numerous loan packages that are offered by banks in Malaysia today. Most of which can be divided into 3 categories namely conventional home loans, semi-flexible home loans and flexible home loans. I’ll touch on conventional home loan packages today in my blog.

Before I go into describing the different packages, let me list down a few abbreaviations I will use as we go along

BLR  - Base Lending Rate - Interest rate as indicated by Bank Negara (Malaysia Central Bank) OPR rate. The current Base Lending rate as of Nov 1 stands at 6.75% per annum

OPR - Overnight Policy Rate

Conventional Home Loans

As the name suggests, these loans are really “conventional”. Basically you will pay a fix mortgage payment for the whole duration of your loan until the full principal amount has been paid up. For example, if you sign up for a RM300k loan for 30 years at 5.75% (BLR-1%), you will pay around RM 1,600 per month for the next 30 years.

Note though, “mortgage payment” here varies with the varying BLR rate. If BLR was to increase overnight by 1%, then the banks would happily sent you a new letter stating the new mortgage amount payable.

In Malaysia, and in many other countries of course, interest on the home loan is based on daily rest calculations. Daily rest calculation means the interest is calculated daily on the amount outstanding. Hence the more you pay the more you’ll save on your interest.

Through our months of scouring the market for the various types of loans from different banks, we discovered that usually conventional home mortgages or loans, tends to offer one of the best interest around. Some banks are even wiling to offer a starting rate of BLR-1.1% for conventional loans which is abt 5.65% per annum.

However, as the name suggests, these loan packages lack in flexibility. Don’t get me wrong, you can still make lump sum payments but these lump sum payments have to be subjected to the bank’s terms and conditions. Some of which are the need to give the bank a written notice in advance, restrictions on the prepayment amount allowable and also charges for prepayment withdrawals (ie withdrawing the extra paymetns which you have made)

Note though that some bank do offer the flexibility in mortgage payment by allowing you to make monthly, twice weekly, fortnightly or weekly payments for conventional home loans. This in turn helps to reduce on the interest chargeable as the more often you pay your mortgage, the lesser the interest chargeable will be.

Conventional home loans has it pros and cons. It is suitable for people who prefers the stability of paying their home loan in a fixed and timely manner every month.  

But then again what if, you are the fast rising young workforce whose salary doubles and triples every 5 years or if you have more than one income stream….then…. the flexible home loans may suit you better.

Look out for my next blog on Flexible Home Loan