BLR Increased by 0.3%

I shared with you in previous post here that BLR (Base Lending Rate) is expected to be increased right? Well, it already has actually..from 6.3% to 6.6%, an increase of 0.3% that is..

Have you ever wonder why banks increase the BLR and BFR (Base Financing Rates)? I did..and as usual my other half explained it to me..let me share with you what I figured out..

To start with, rise in BLR and BFR is in response to increase in Overnight Policy Rate (OPR) by Bank Negara Malaysia (BNM). Increase in OPR is normally on 25 basis points, and this time it increase from 2.75 to 3.00 on last 5 May 2011.

Why BNM increase the OPR? BNM cannot simply raise the OPR just like that, without taking into consideration few factors. Among other reasons is ue to forecast of better economy growth despite Tsunami in Japan and continued economic slowdown in US and Europe.

So, what is the consequence of increase in OPR? Obviously, the increase in OPR contributes to increase in inflation rate. Inflation is already expected to increase further due to higher food prices & fuel cost. You guys are aware right that sugar price increased just recently, not to mention the fuel price increased few times already for this year alone..According to most analysts, there might be another round of OPR increase expected in the second half of the year.


As a result, banks start to increase the BLR & BFR a week after. The increase is 0.05% higher than the OPR which would be positive to the Banks earnings.

How does the increase in BLR have any impact on us? How much? Let’s do some calculation..:D

Sample on the impact

Let me take the same example as before..say your housing loan is RM 400,000..

1. Current Interest rate : BLR – 2.3 = 6.3 – 2.3 = 4.0%

2. New Interest rate : BLR – 2.3 = 6.6 – 2.3 = 4.3%

From the table above, you can see an increase around RM 70 per month which would result in RM 840 per year & RM 25,200 for 30 years.

Perhaps we can say that the impact would be minimal?



IPO vs Savings

Hi folks, have you ever ask yourself, is there anything else that you could do instead of letting all your money grow in your saving accounts?

Do you know that you could gain more from your savings instead of leaving them all in your account?

One of the options that you may want to consider is investing the money in Bursa Malaysia. In general, investing in Bursa can be categorized as below:

1. Buying IPO ( Initial Public Offering )
1. IPO refers to new company that is to be listed in Bursa Malaysia
2. Buying IPO is proven to be a safer way to invest as compared to buying shares direct from the Board
3. Application is simple. You may apply either through ATM/Online Banking/Send application form to Securities Commission
4. After that, it will go through balloting process, and you will be informed if your application is successful. If it is not, no worries, you will get your money back. Believe me, we experience that before..
   
2. Buying stocks directly from Board

          There are 2 ways you could buy stocks directly from the Board:

1. Online stocks     –  Buying stocks online either via M2U, CIMBClicks etc means you got to enjoy lower brokerage fees but it may be a bit hassle to those who are mobile since it requires internet connection for buy/sell activities.
2. Remiser               –  Buying stocks through remiser means you got to pay higher brokerage fees but then it provides mobility since the communication medium is via phone

Let’s now do some investment study. Say you have 100K in saving account; you could actually let half of the money remain as the savings while another half invest into IPO.

Now, lets calculate

• 50% of RM100,000 = RM 50,000 – remain in the saving

o   Average interest for saving in Malaysian Bank should be around 5%-7%

o   In a year, we can have the interest of RM 50,000 x 6% (just take the average)

=RM 3,000

•  50% of RM100,000 = RM 50,000 – apply for IPO . Let us take one of previous IPO example so you could see the results clearly, PCHEM in year 2010.

o   PCHEM IPO prices was fixed at RM5.04 per unit

o   With RM 50,000, you can apply for approximately 9,920 units. Note that the application closing date was Nov-2010

o   Let say after going through balloting period, you have successfully obtained  5,000 units

o   PCHEM was then listed at RM5.71 on 26-Nov-10

o   It hit the peak of RM7.61 on 7-Apr-11

o   Now, its current price is RM 7.00 on 13-May-11

o   You see, you are gaining around RM 1.97 per unit with the current stock price

o   Simple calculation shows the gain are RM 1.97 x 5000 units

= RM 9,850

So, in just 6 months, you could gain easily RM 9,850 compare to RM 3,000 in 1 year from  your saving account.

Please bear in mind ya..not all stocks provide us this kind of return. Therefore, you need to pick the ‘good’ stocks based on their sectors, prices offered & company fundamental.

Am sharing with you below summary of IPO listed year 2011 that you want to consider from now on :D

*Last price quotes on 13 May 2011.
** Source Bursamalaysia & TheStaronline

Case Example of Home Loan Refinancing

Hi folks..sorry for taking quite some time to continue my previous entry..well things came out that I got to postpone my intention to continue writing.

So lets go straight to the point..last time I promised to share with you case example of each reasons for refinancing right? Here we go..

 

Lets make a reference on the following:

     Your current housing loan is fixed at RM 400,000

             Loan tenure of 30 years
            Your current loan interest rate is BLR + 0.5 = 6.3 + 0.5 = 6.8%
            Your refinance interest rate is BLR – 2.3 = 6.3 – 2.3 = 4%

Case example 1: Maintain monthly payment will result in reduce of loan tenure

 

With the lower interest rate, you can actually reduce loan tenure from 30 years to only 18 years by maintaining the same monthly payment to the bank.  Let’s see the calculation I made below: 

Now what does it mean? It means,  saving of 12 years loan tenure by maintaining the same monthly payment easily can save RM 2,600 x 12 months x 12 years = RM 374,400!

 

Case example 2: Maintain loan tenure will result in lower monthly payment

With the lower interest rate, you can actually reduce your monthly payment from RM 2,600 to RM 1,900 by having the same period on loan tenure. Let’s see the calculation I made below:

Now, what does it mean? It means that..you are saving RM700 monthly, and that my friend also means that you can afford to purchase another medium cost apartment for rental purposes which turn to be an additional income for you!

 

Case example 3: Maintain monthly payment & loan tenure will result in excess cash

With the lower interest rate, you can have up to RM146, 000 excess in cash by refinancing with the same monthly payment & loan tenure. Let’s see the calculation I made below:

Now, do I need to elaborate in details on the usage of the money? ;).

So folks, in any scenario, refinancing is the best option that we have. What are you waiting for?

3 Main Reasons for Home Loan Refinancing

Previously, I wondered why people do refinancing of their home. Doesn’t it mean they are actually delaying the tenure of your debt? Or in other words you are raising your owing money from the bankers? Yup, was that short minded and totally discourage to proceed with refinancing with this belief, but that change after my other half explain to me what that means..

I understand that...

Refinancing of your current housing loans means you are taking advantage on the current lower finance charges compared to the one you are having.

Looking back at the history, over the last 5 years, average loan interest was BLR + 0.5%. Currently, most of the Malaysian Bank is offering as low as BLR/BFR – 2.3%. Current BLR stood at 6.3% and mind you it is predicted to be revised upwards very soon. I guess before it does happen, grab the opportunity of the current low interest rates for the following reasons:

1.       To maintain monthly payment  that will results in reduced of loan tenure

2.       To maintain loan tenure that will result in lower monthly payment

3.       To maintain monthly payment and loan tenure that will result in excess cash

Still don’t see how the above is at your preferences? I’ll share with you case example  of each so you could see the differences before and after the refinancing..

First Entry

With the name of God, most Gracious and Most Merciful. Thank you for giving me the inspiration to write especially on this financial matters, which I have never dream of before. Been putting serious thoughts on what would be the best topic for me to write that would be beneficial for all of you. After a few considerations, and with the support of my other half, I have decided to write on financial stuff in relation to loan, mortgage and property. All will be based on self experience and analysis, thus there’s no right or wrong answers here. I will try as best as I could to use as lay man term as possible for ease of your understanding. I know it is really not easy to understand those sophisticated financial terms used if you go through financial institution websites.. 

Please feel free to put down your comments, and correct me if there’s any misleading information or data. I will take them as positive feedback, and together we could learn to improve our self. For a start I will share with you why we should do housing loan refinancing. Wait for my next entry!