News & Articles Is it essential to pay attention to the lock-in period of home loans?
Is it essential to pay attention to the lock-in period of home loans?
25 Apr 2018
Most people take a home loan when purchasing a house. The first thing that they will look for when shopping for a home loan is how low the interest rates are.
This should not be their only concern. Potential home buyers should also pay attention to the lock-in period of their home loans.
Lock-in period refers to the length of time which you will incur a penalty should you decide to pay off your loan in full.
Lock-in period could be anywhere from two to five years, and the penalty could be from 2% to 3% of the total loan.
Example: Wong has an RM400,000 housing loan with a lock-in period of five years.
If she pays off her loan in full any time within that five-year period, she will be charged a 3% penalty for the total amount that of her loan.
Her penalty = 3% X RM400,000 =RM12,000
How will it affect you?
There are several reasons why the lock-in period will affect you. Firstly, if you are in urgent need of money and want to sell off your property. Secondly, if you decide to refinance your home for a better interest rate offered elsewhere.
If these two circumstances happen within the lock-in period, you will incur an exit penalty.
How should you choose a home loan?
It’s always better to choose a shorter lock-in period for flexibility. However, it’s not a good deal if the lock-in period is short and the interest rate is high, especially if the duration of the home loan is long.
There are banks that offer home loan packages without the lock-in period. You can check relevant websites to understand the advantages and disadvantages of various banks packages and compare them.
This should not be their only concern. Potential home buyers should also pay attention to the lock-in period of their home loans.
Lock-in period refers to the length of time which you will incur a penalty should you decide to pay off your loan in full.
Lock-in period could be anywhere from two to five years, and the penalty could be from 2% to 3% of the total loan.
Example: Wong has an RM400,000 housing loan with a lock-in period of five years.
If she pays off her loan in full any time within that five-year period, she will be charged a 3% penalty for the total amount that of her loan.
Her penalty = 3% X RM400,000 =RM12,000
How will it affect you?
There are several reasons why the lock-in period will affect you. Firstly, if you are in urgent need of money and want to sell off your property. Secondly, if you decide to refinance your home for a better interest rate offered elsewhere.
If these two circumstances happen within the lock-in period, you will incur an exit penalty.
How should you choose a home loan?
It’s always better to choose a shorter lock-in period for flexibility. However, it’s not a good deal if the lock-in period is short and the interest rate is high, especially if the duration of the home loan is long.
There are banks that offer home loan packages without the lock-in period. You can check relevant websites to understand the advantages and disadvantages of various banks packages and compare them.
Source: The Star
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