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Selling Your Property? First, Check If You Have a Home Loan Lock-in Period

BY Daniel Mehta

Updated 22 Nov 2018

When you buy something of value, you can either keep it or sell it whenever you want. Take a car, for example. You can buy a car today and even sell it off tomorrow! Except for the depreciating value, there’s nothing to lose when you sell the car.

The same thing goes with anything else that you buy, whether it’s the new iPhone XS, a Yeezy kicks, or a 100 feet superyacht (especially if your name starts with Jho and ends with Low). But here’s the thing you might not know; the same doesn’t necessarily apply to properties.

When you buy a property with a bank loan, it comes with a whole list of annoyingly strict terms and conditions. And one of them is a lock-in period.

What's covered in this article?

What do I need to know about lock-in periods?

A home loan lock-in period is a penalty that you’ll need to pay if you sell or refinance the property before the predetermined period ends. Some home loans come with a lock-in period, while others don’t - this depends on your home loan policy. On average, it can range anywhere between three to five years with an exit penalty of 2% all the way up to 5%.

Let’s say you found over a dream house. After deducting the downpayment, you apply for a home loan of RM500,000 (it gets approved!). And based on the loan policy, it comes with a lock-in period of five years and an exit penalty of 5%.

You didn’t read the fine print of the agreement, just like you always click Agree on your Apple Privacy Policy without reading it. Then, after 4 years you decide to flip it to buy another property. Home run! You’re going to make a nice little profit, right?

Well, not really lah. Because here’s the catch, since your loan has a lock-in period of 5 years and an exit penalty of 5%, you stand to pay a penalty of a whopping RM25,000!

The calculation:

Original loan amount x exit penalty percentage
RM500,000 x 5% = RM25,000

That’s like... three iPhone XS 256gb! Or a down payment for a super swanky car. Or a 5-day trip to the Maldives. That’s a lot to pay, man.

So, it’s better to sell the house after the lock-in period, right? 

You can decide to sell it before the lock-in period ends, but of course, selling it after the period is so much better because you don’t have to pay extra. Which is why knowing exactly when the period begins might make a whole lot of difference. Technically, your home loan lock-in period starts on the day that you receive the first or full loan disbursement.

So, if you still decide to sell your property on the 4th year of a 5-year lock-in period, check the date that you received your loan. Calculate to see if it’s still worth paying the additional fee and if you can wait another year.

Another way to tackle this matter is to discuss with the bank if they could charge you the penalty based on the outstanding loan amount instead of the original loan amount. Who knows, it might actually be less than that.

SIDE NOTE: Not sure if you’re eligible for the loan? Try Loanstreet’s Home Loan Eligibility Report. It's a comprehensive report which will automatically provide you with all the accurate (up to 95% accuracy) information you’d need.
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About the Author

Daniel Mehta


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