BLR Management: A Must Know Subject In Property Investment Almost every Malaysian is wondering if there would be a hike in properties prices during the second half of 2012. The new Bank Negara Malaysia (BNM) guidelines and global economic uncertainty have put a pause on many property investment plans, but this has not stopped property prices from increasing due to higher building material and labour costs. The growing population in urban areas is also another major contributing factor in maintaining the current market price. Prices of properties will always go up, it is only a matter if the price will go up slowly or by leaps and bounds. If property prices were to go up steadily, this would go a long way towards our achieving Vision 2020. Every housing loan borrower must take the initiative to exercise their responsibility by managing their financing risk. Knowing your housing loan terms and conditions in detail is the key to mastering the interest on your loan. You must also know what is the Base Lending Rate (BLR) as it affects the amount of interest charged. The interest rate is the percentage charged, or paid, for the use of the bank’s money. Where do banks get the money to provide loans? Banks use the deposits made by people who keep their savings or checking accounts with the former. As such, banks want to charge as much interest as possible on loans, and pay as little as possible on deposits, so they can be more profitable. At the same time, banks are competing with each other for those same deposits and loans. This competition is what keeps interest rates within a similar range. BNM is responsible for setting the interest rates via the Overnight Policy Rate (OPR). The BLR is usually adjusted in correlation to the adjustments of the OPR, which is determined by the BNM. Low interest rates stimulate the demand for real estate, drive up stock prices and boost spending power due to low deposit interest. However, a low interest rate can also cause inflation. (If there is too much liquidity, then demand outstrips supply and prices rise. The BLR fluctuates according to the economic cycle.) As far as BNM is concerned, the majority of loan borrowers are not aware of the effect of the BLR on their loan contract. And many are not prepared financially when the BLR goes up. From 2005 until April 2012, there were 14,327 bankrupts under the housing loan category, the third highest on record after car loans and personal loans. In fact, banks will assess a borrower’s repayment capability before approving their loans. So why is the housing loan bankruptcy rate still ranked among the top three? Kevin Cheong, founder cum managing director of AceScube (M) Sdn Bhd, said, “In my 16 years of experience in the BLR Management business, I have observed that Malaysians continue to be ignorant of the terms and conditions of their housing loan as stipulated in their Letter of Offer.” Information is now readily available at our fingertips. Because of this, we face a new problem, i.e. information overload. There is an avalanche of information that young or new investors have access to. BLR Management is not what most people commonly perceive it to be, i.e. an interest saving scheme that is commonly discussed in blogs or online forums. In fact, there is limited information on BLR Management. “Interest savings is actually the side effect of BLR Management,” Cheong claimed. He added that, “BLR Management is about exercising the borrower’s housing loans responsibly and keeping track of the accurate repayment amount according to the BLR.” By understanding the Malaysian banking mortgage practice, advice on accurate repayment due date and repayment amount will be able to assist the borrower achieve their targeted savings by avoiding a prolonged loan tenure due to incorrect repayment subject to changes in the BLR, or achieve 30% to 50% savings on the interest and tenure subject to the borrowers repayment capability. With a BLR Management service, loan borrowers will be able to monitor their payable interest and the principle amount on their housing loan. With the lowest BLR ever recorded at 5.55% p.a. and the highest BLR on record at 12% p.a. over 20 years, borrowers are bearing an unpredictable debt servicing cost or total payable interest of their loan. Our current BLR is at 6.6% p.a., so for those whose balance tenure is more than 10 years, there seems to be no way out from paying a higher debt servicing cost. If the payable interest is higher than the monthly repayment amount and the borrowers cannot afford to pay more, it could be a never ending loan. The above illustration shows that the BLR increases by 2.5% within 5 years. Even with a lower outstanding balance, when the BLR increases to 8.6%, the payable interest is higher than the monthly repayment amount. After 12 months, when the BLR is at 9.1%, the outstanding balance is getting higher even if one pays promptly. This may lead to the property being foreclosed by the end financier because many borrowers may not be aware of their situation. When they request to settle the differential sum due to the incorrect payment, they may fail to settle within the timeframe given. The above scenario could be avoided if you were monitoring your monthly payable interest and principle to the loan, and make accurate repayment with the Slash Interest Methodology (a SIM-patterned methodology by AceScube). You could settle your housing loan with a reduction in tenure between 30% and 50% and interest with just one step; by implementing your own repayment schedule according to the current BLR and targeted tenure. 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 [email protected] to find out more about BLR Management.
Posted on: Fri, 02 Aug 2013 14:12:52 +0000
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