Shopping for a home loan

After a week of shopping for a home loan, I now realized that the fixed rate 6% I had used in my earlier calculation to compare the fiscal benefits between reducing the amount loan vs investing that sum instead, is on the high side! Which is good news for people looking for a home loan like us. BLR is low at 5.55% and most banks offer BLR minus packages, some for as low as minus 2.2% (3.35%). After surveying about 6 banks the old-fashioned way (either inquiring in person or by phone), I decided to go online and found a very useful website which is http://www.fiscal-wise.com.my They have 450 packages from 26 banks! I hope these are updated. Of course, we’ll need to call to confirm the details, but these are good starting points.

At first, before doing this survey, we were close to applying for a fixed rate loan with a bank. But now, with these competitive ‘minuses’ being offered, I have to evaluate again. Let’s say the lowest fixed rate we could get is 5.7% and the likely floating package we can get is BLR-1.8% (with a cap of 10.5%). Which is likely to be better for a tenure of 15 years say, given the history of BLR as below? (source):

Year BLR Readjust
2009 6.50%
2008 6.75% 6.50%
2007 6.75%
2006 6.00%
2005 6.00%
2004 6.00%
2003 6.50%
2002 6.50%
2001 6.75%
2000 6.75%
1999 8.00%
1998 10.50% 12.27%
1997 9.25%
1996 8.50%
1995 6.60%
1994 8.25%
1993 9.50%
1992 9.00%
1991 7.50%
1990 7.00%
1989 7.00%

For the floating package to have the equivalent rate to 5.7%, the BLR needs to be at 7.5%. This means that anytime BLR is lower than 7.5%, the floating package is doing better and vice versa. Over the 15 years tenure, BLR has to be less than 7.5% more time than above.

BLR is currently very low at 5.55% but some people predict it’ll go up again in 2010 and 2011 when the economy is doing better. Besides the economic crisis in 1997-1998, the BLR seems to hover mainly between 6% to 7% for the last 10 years. Based on this, I’d say there is higher probability that BLR will be lower than 7.5% longer time than it is above.

However, given that economic crisis may happen in 10 year cycles, so it’s possible that a crisis may happen again during the loan tenure (hopefully not). If BLR shot up (hopefully not), there’s still the cap of 10.5% for the floating package. If this happens, then I’ll probably wish we had taken the fixed package! In conclusion, it’s not a risk-free decision, but given the current situation and data available, I’ll recommend to MHH that we take the one of the floating packages.

But what are the other things to consider? ZEC (zero entry cost) or non-ZEC? What if the rates are better for higher loan amount? What about MRTA? To be continued…