2018-04-25

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?



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.



Source: The Star

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