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.
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.