Are you Risk Taker ?

In my previous article on “understanding the risks”, I would continue to share with you on categories of Risk Behavior:-

Basically, there are 3 categories of people:-

1) Risk Taking

à People perceive the risk as “opportunity” instead of threat, in other words, they    are more optimist / positive outlook for uncertainty.

2) Risk Averting

à People perceive the risk as “threat”, they are tend to be pessimistic in different degree to risky situations.

3) Risk Indifferent

à People NOT influence by the “threat” or “opportunity” presented by a risky situation.

How about you? Which categories are you classify yourself? Myself, I am more towards a risk taking group as I am still in younger age group and have the tendency to take risk. Risk taking is considered an important criterion for those involve in business

Get "Out - Of - DEBT" Fast

 From my previous article, I mentioned would share on what is the alternate ways on how to get out of debt faster. There are few options:-

1) Consolidate your debt you owe

2) Re-structure your existing investment-link product (if you have)

3) Review Investment Portfolio

1) If you are owing to credit cards debt, mortgage debt, personal loan, it is wisely to consolidate the debts into mortgage loan as it is the cheapest loan.

Credit card Interest 18%p.a

Personal Loan Interest 6%-7%p.a

Mortgage Loan Interest 3.3% - 5%p.a

You are able some interest and easy to monitor your debts when it is consolidated.

2) You can withdraw some cash from your investment-link product to settle your debts as it is only important to clear our debt fast before you make/start other investment.

For instance, how much the return you will get from investment-link? 5%? 6%? (uncertainty), but your interest charge on your debt (say 7% on your personal loan) is certain.  

3) If you have your investment portfolio : Stocks, Property, Unit Trust, Gold, Foreign currency, etc…You need to review time by time. If the loss is more than the return it can bring to you, you should seek for your financial planner advice and make necessary implementation or risk management.

Understand the " Risks "

Every people define the “risk” differently. And not surprisingly, even professionals impute the meanings in accordance to their trade. For example, Investors look at risk as chance of loss or gain in an investment….

Risk – “uncertainty about financial loss from an exposure”.

Loss – “unpleasant outcome of risk”.

We can classify the “Risks” into few types:-

• Fundamental risk

è    risk affects the whole economy (hyperinflation)

• Particular risk

è    risk affect only individuals (robbery, fires)

• Speculative risk

è    potential gain / loss in investment

• Dynamic risk

è    risk resulting from economy changes and may cause financial loss to people (rapid changes of technology)

• Static risk

è    losses occur even no changes in the economy (floods, dishonesty)

• Pure risk

è    either a loss or no loss, the dollar value involve if a loss occurs & the probability of loss occurring (insurance)

Hence, if we would like to handle the risk, we should understand the nature of risk which nevertheless has an element of uncertainty and unpleasant potential outcome. 

The Importance Of Personal Financial Planner

According to the Business Time, dated 31st Oct 2009, the total credit card holders reaching 11million (Primary credit card holder is 9.8million and supplementary card holder is 1.3million). In average, every people are carrying about 4 credit cards.

Obviously, the main factor induced to credit card debt creation appeared on the banker itself. People can easily apply and get the credit card even though their gross income is not fall within the minimum requirement. Government should monitor and make sure the merchant bank has follow according to the rules that the minimum requirement impose for those applicants should strictly follow instead of impose the RM50 and RM 25 service tax on cardholders.

From Year 2005 until May 2009, almost 3,637 bankruptcies were recorded and most of the bankruptcy caused by credit card debt. In average, there is 120 people bankruptcy fall in age group below 25 years old (10% of total bankruptcy). Over 50% fall in age group below 44 years old.

Hence, it is advisable to consult with their personal financial planner to avoid getting into more debt and toward the road of bankruptcy. (More sharing on how to get out-of-debt faster in my next articles.)

Would A Banker Make Mistake On Your Loan ??

A lot of people when they financing with bank, their trust toward bank can be said is 100%. Why I say so? They normally will pay according to bank statement received and even no counter check on the loan balance amount and the interest charged are correct.

Sometimes they even tell you “The bank won’t make a mistake”.

Unfortunately, the system could have done wrong on your loan statement if you are not cross-checking and unrealized, you will definitely bear a big loss as the housing loan which consider as long-term debt, the extra charge on interest if compound daily or monthly basis, at the end of the day, you would suffer an “Extra Loss”.

For instance, if there is extra charge of $150 per month by wrong interest computation (say monthly basis compounding and extra interest charge 1.5%p.a), after 2 years you loss about $ 3656.79.

Please refer to few bank loan statements with “Mistake” done at below:-

You can notice the mistake has been done by the bank include the without reducing on outstanding balance (has been circled) and extra charged on the loan interest (see 1st and 2nd Table). What can you do if this happen on you??

Why I am not so encouraging Invest through Investment-Link

On my previous article, I have raise on the misleading done by either insurance agent or unit trust agent. Here, I will elaborate more on disadvantages of Investment-link.

• Low Interest return
• Low surrender value
• Extending premium tenure

=>Comparison of return from Investment-Link & Fixed Deposit

Do you realize? The actual return you would obtain from investment-link products are very low, for instance the previous insurance comparison table, it request $6,000 yearly for 5 years, total premium for 5 years would be $30,000 and in return interest for Y1 is $550, Y2 is $ 1,450, Y3 is $1,000, Y4 is $1,000, Y5 is $1,000, Y6-Y10 is $1,000 yearly and onwards…The total interest return on Y35 is ONLY 43,500.

When $43,500 - $30,000 = $ 15,000 (Interest return) after 35 years.

But if you put in Fixed Deposit with 2%p.a, Total Interest Income after 35 years is

$ 27,689.56. You can have EXTRA Income of $12,689.56. So, how would you feel now?

=>Lock-in period & Surrender value

If you have a surrender value on half way for any emergency used, I am sure you would suffer a low surrender value and below your expectation.

One of my friends took an investment-link package and the agent told he only paid premium for 10 years and he may stop paying and waiting until Y30 to withdraw more than 5 times of total paid premium. However, in Y10 he has been informed he needs to continue paying the premium another 10 years more…eventually he surrender it on Y10 and only get back in amount $9,800 out of total premium paid $ 16,920. He has to absorb in total 42% result from surrender. Let say if he is put the money ($1,692 yearly for 10 years) into an investment vehicle with 4.2%p.a interest, after 10 years he could gain Interest income of $ 21,364.90.

Therefore, most of the people might mislead by the agent without taking a proper calculation and comparison and most of the time the agent would more emphasize on “coverage” you can obtain when they their product return can’t beat higher return investment products.

You Might MISLEAD By Your Insurance Agent / Unit Trust Agent….

Nowadays, quite a numbers are invest their saving with Investment Link Products and
even Unit Trust with the agent.


Most often, the agent will persuade their clients especially Investment Link by compare the possible return with Fixed Deposit. Why they take FD for comparison, it’s the lowest return within the financial vehicles, i.e. 2% - 2.5%. By this way, only could show their clients of the “Big Difference” of these 2 investment tools returns.

As a smart consumer, they must have a clear mind when facing this situation. Comparison must not take the lowest return (FD) as this is compare the worst investment tool with their Investment-Link in order to show their product is the best! This seems quite unreasonable, even their investment-link is obtain higher return than FD but doesn’t mean that the Investment-Link is a “worth” investment as well as Unit Trust for their consideration.

Would Your Extra Payment REALLY Can Save Your Mortgage Interest?

Most often, people would put their extra savings into the housing loan intention to

save some interest by reducing their loan principal (Let’s assume $200). However, we do not know whether the bank officer do as the borrower’s intention. They may treat $200 as

an advance payment and keep in the “Suspense Account”

“Suspense Account” defined as “any money received may be placed and kept to the credit of non-interest bearing suspense account for so long as the Bank thinks fit without any obligation in the meantime to apply the same or……”

If this the case, do you think you are able to save interest ??

One of my friend, Mr.Q has put his extra payment up to $16,000 (within 3 years time) into the mortgage loan for principal reduction by filled up the relevant form provided by bank. However, when he receive the loan statement, the bank has treated his extra payment as “Advance Payment” and kept in the suspense account without reducing the principal.

He is surprisingly when he received the bank statement that his $16,000 actually lending to bank with INTEREST FREE. Obviously, bank do not do what he expected bank will do for him (reduce principal).

Imagine if he is putting $16,000 to his other investment vehicle, he may gain some return rather than putting in bank.

Issues On Real Property Gain Tax (RPGT)

From the recent budget, government has re-imposed a 5% on Real Property Gain Tax (for property held more than 5 years )which has repealed this Real Property Gain Tax since year 2007 April.

However, higher rates (30%, 20% and 15% will impose for disposal property within 2 years; in the 3^rd year and 4^th year after the acquisition) from the Finance Bill.

Besides that, our government also give the facility of withdraw the EPF saving Account 2 for down payment on 2^nd property buying.

What do you think of these 2 implications?? Can I say the government intention is stimulate people towards buying the new trend property rather than existing 2^nd hand property? This would lead to a competitive market for new residential property investment. People would put their attention for 2^nd property to a trendy design property as their priority even it’s not a strategic location. In this situation, those investors who had invested few properties on hand and opt for capital gain, I am afraid they might need to delay their capital gain dreams….I am sure quite a number of investors are unhappy with this.

You need to have a well and correct judgment yourself before making the investing decision and not regretting after few years later, other investors might maximize their wealth in their portfolio but you are losing from your property investment. We must taking experience from the 1998 Financial Crisis which caused many of the abandoned old properties.

So, be a smart investor and have a well plan for your property investment!

Be A Smart HomeOwners!

Be A Smart Homeowners !

The sharp deceleration of the economy as a result of the worsening economy downturn and competition is heating up amongst the commercial banks for banking on home loans. More new home loan promotions and competitive on re-financing packages are available in the market to entice home owners to re-finance their existing loans.

Following the latest cut of the interest rate by Malaysia’s Central bank, most commercial banks have adjusted their base lending rate (BLR) from 6.75 to 5.55% - 5.95%. With interest rate trending lower, it is even more benefiting through restructure your repayment (Monthly Partial Prepayment) instead of re-financing.

Re-financing might not give you the maximum savings, hereby taking the Hong Leong Bank Re-financing plan comparing with Monthly Partial Prepayments (MPP) to proving the maximum savings you would obtain from MPP.

For instance, for a loan amount RM 300,000.00 with loan period 30 years and interest rate 6.55%, the bank would induce home owners to re-finance after 5 years with loan outstanding amount about RM280,000.00 by offering BLR-1.50% and BLR at 5.95%. Homeowners able to save up to RM107,000.00 due to the difference from the interest rate (about 32%).

It is save from the monthly repayment from RM1,907 reducing to RM 1,549

(Saving RM 358/month) for 25 years.

However, if the home owners apply for the revising interest rate as per above case i.e BLR-1.80%, the new interest rate would become 4.15% (5.95% - 1.8%); instead of reducing the monthly repayment, if home owners opt for MPP and revise the monthly repayment to RM 2,200 (extra payment for RM 293/month), he able to saving up RM 200,143.00 (RM119,432 from revising interest rate and RM 80,711 from MPP strategy).

Beside that, the loan period would shorten to 14 years from 25 years.

Outstanding Loan : RM 280,000.00

Loan Period : 25 years

BLR : 5.95%

Interest Rate : BLR – 1.5%

	Original Int. Rate (6.55%)	Refinance (4.45%)	MPP (4.15%)
Total Payment	RM 569,801	RM 464,518	RM 369,658
Loan Period	25 years	25 years	14 years

From the above comparison, you can clearly see the benefit from MPP instead of re-financing and the maximum savings up to RM 200,143.00 and not only RM 107,000 as per bank advertisement.

You will loss another $100,000 in your Mortgage Loan Interest !! Incredible...

YEAR (年份)	BLR (Base Lending Rate)
2000	6.75%
2001	6.75%
2002	6.50%
2003	6.50%
2004	6.00%
2005	6.00%
2006 March - April	6.50%
2006 May	6.75%
2007	6.75%
2008 Dec	6.50%
2009 Feb	5.95%
2009 March	5.55%

Please review the BLR history from Y2000 to Y2009

What will happen to your mortgage loan when BLR Increase on 2nd year and onwards ?…

For instance,

Your Loan Amount : $150,000

Borrowing Period : 30 years

Current BLR 5.55%

Current Loan Interest : BLR -2% (i.e. 3.55%)

Repayment : $ 677

Your Total Interest for this loan package will be $94,208.97 (provided BLR 5.55% for 30yrs).

When BLR increase to 6.75% on the 2^nd Year and onwards, with same repayment $677, Total Interest will JUMP To $194,316.44. Wow…you have to pay an extra $100,107.47.

Only an increase 1.2% of loan interest could bring a disaster on bearing such huge sum INTEREST !!! 106% ! and strengthen your borrowing period from 360 months (30 years) into 480 months (40 years )

You got to get the mortgage auditor to review and monitor your mortgage loan before become one of the victims.

Do You ALERT !!!

Have you ever check your mortgage statement when you received from bank each time??

Do you have the knowledge on mortgage interest computation?

Can you understand the loan statement?

I have a friend name Mr.N, he encounter a problem with his mortgage statement. He actually dumped in few times on big sum which is the extra payment to his housing loan.

His purpose on doing this is to deduct the loan principal and to reduce the interest, However, the bank has not deducted those extra payments and reduce the interest from existing housing loan.

Notice carefully from the statement, he had paid extra payments of $3,000 twice in the same year, but the outstanding balance NOT being reduced.

In order to save on interest with the Extra Payments, are you cross checking the loan statement that bank has done it accordingly???

Credit Card Service Tax !!

Recently, a lot of credit card users who having more than 2 cards on hand, including me feel worry on government would impose a RM 50 service tax for principal card and RM 25 for the supplementary card. This of course create additional burden for the cardholders.

Credit card can provide convenience for consumers if they used wisely, they can make the purchases with nearly a month to pay for them before finance charge kick in. However, in reality it’s getting more and more consumers unable to take advantage of this benefit because they carry the balance on their credit card from month to month.

If you are one of them, I would advice to use the cash for your purchases rather than fall into credit card debt.

I myself will pay off the full amount without carry forward the outstanding. I have used to it on using credit card instead of cash, and I enjoy cash rebate on certain credit card like Citibank Shell card. Rebate like direct debit your cell phone bill, streamyx bill, insurance premium, petrol and etc…allows you to enjoy cash rebate up to RM35 per month.

I am thinking this way, if you have few cards on hand and you would like to reduce the numbers of credit card due to the service tax impose, retain the cards with cash rebate and it actually able to setoff the RM 50 service tax.