Getting the most out of housing loans

“Never accept a first offer, and always ask for better terms. Negotiate or be eaten alive! If you receive a better deal from lender A, always go back to lender B and see if they can match it … Mortgages are designed to be haggled over, and not to do so is the equivalent of burning money in the street.”

Why mortgages are for haggling

After working with banks all these years, I have learned one important thing about them.

Banks are most approachable and helpful when they want you to borrow from them, not when they want you to pay them back. In other words, they lend you the most when you need them the least.

So my advice when talking to banks about housing loans is: Always negotiate down to the last dollar.

Don’t feel bad. They do exactly the same to debtors. After all, their business is all about money.

And don’t forget that once the interest rates pick up, they won’t hesitate to raise your repayments, and as frequently as they like. But when interest rates drop, they are not obliged to pass on the savings to you.


Opportunities are only for the prepared

Any bank revision on the interest rate of your existing loan takes effect one month after announcement. However, refinancing or repricing takes time for processing. After approval, it needs another three months to be effective. So be prepared to pay higher interests for some time before the adjustment.

To enjoy lower interest rates and to maintain a good return from your investment property, you have to continue monitoring the latest interest rates and new housing loan packages available in the market.

Whether you are successful in your negotiations with the bank depends on how badly it wants your business. The mortgage department has to submit their sales numbers regularly. Your mortgage manager also has to meet his/her sales quota for new financing and refinancing every month.

So strike while the iron is hot when the banks want business from you — especially during the time when the home mortgage market is exceptionally quiet; or when the banks have too much cash from deposits; or when the banks are competing fiercely to eat into each other’s market share.


Choosing between refinancing or repricing

Refinancing involves finding another bank to take over your existing housing loan. Repricing is only switching between housing loan packages within your current mortgage bank.

Refinancing is more complicated because of the ‘claw back’ of legal subsidy, cash rebate, etc. and the restriction of lock-in period in your existing loan. You have to run a cost-and-benefit analysis to calculate the real savings in your repayment after refinancing.

Personally, I have done refinancing thrice for my properties. I wouldn’t consider refinancing unless:

1. Negotiations with the current bank to adjust to a reasonable interest rate fail;

2. Switching to another bank promises much higher savings for at least the coming two years; and

3. I don’t have to pay any penalty to my current bank, or the new bank is paying the penalty and also subsidizing the legal fee of my new loan.

On the other hand, repricing the loan within your current bank is much simpler.

You can show them the attractive interest rates offered by their competitors and ask them to match it as much as they can.

If repricing is approved by your bank, you only need to pay a small repricing fee that should be much lower compared with your subsequent savings in a year. And besides, that fee is also negotiable!

But remember, in the case of repricing, your bank is only doing it for goodwill to keep your business. If they don’t get back to you, take the initiative to follow-up with the respective mortgage officer. You will have a higher bargaining power if the loan amount is big or you have a number of properties mortgaged with the same bank.


A word of caution

Mortgages are a tool for property investors to take leverage in order to achieve maximum profit. You may call it a good debt. But it is still a debt you need to repay.

Some investors may choose to obtain a new loan through refinancing after the value of their properties increases. Sometimes they can borrow the difference of their new and old loans in cash and reinvest it for more profits.

Take note that increased borrowing always increases risk. And don’t forget that loans are a double-edged sword that can easily turn against you once the market direction changes.


Sign up for the Understanding Property Financing and TDSR Framework education seminar on September 21. Learn how to negotiate with banks and get the most out of your housing loan. With 25 days to the seminar, more than half of the seats have already been filled. Hurry up before the registration closes soon!