Finance legal fees

What is Finance of legal fees?

When you sign 1 year package with a gym, they will offer you an additional perk of free Sauna room usage for 3 months and 1 super hot gym instructor for 1 month.

Take above example, When you get financing from a bank, there’s an option for you to finance your legal loan fees and valuation fees into the total loan amount, not every bank offer such facilities only the awesome few does.

Bank will usually finance 2-5% of the total legal loan + valuation amount (*different bank different financing percentage*) from the total Sales and purchase price.

Example:

The sales purchase price for property A is RM292, 000, Bank A will take 2% (for example) to finance it into your total loan amount which is RM (291,3800 * 0.02 = RM5827) RM5827.

Hence your total loan amount margin of finance 90% + legal loan fees 2% = RM261,000 + RM5827 =RM266, 827

c

This is beneficial in terms of lowering your initial capital investment. You fork out less RM5827 capital to get this loan and spread it over 35 years loan tenure to pay it. This will incur higher total loan interest in the future, but save up on your initial cash flow.

Different people will have different objectives in taking this option. So it depends on your objective.

Let’s drill down how much total loan interest will be incurred with or without financing legal fees.

Example : Without financing legal fees

Property A without financing legal fees
Loan amount: RM500, 000
Interest rate : 4.5%
Loan tenure: 35 years

Monthly installment:RM2,366.28
Total Interest:RM493,837

Property B financing legal fees
Loan amount: RM500, 000
Finance Legal fees 2%: RM10, 000
Total Loan amount: RM510, 000
Interest rate : 4.5%
Loan tenure: 35 years

Monthly installment:RM2,413.61
Total Interest:RM503, 716.2

The difference of total interest paid up in 35 years is
(RM503,716.2 – RM493,837 =RM9,879.2)

d

Instead of paying initial RM10,000 capital for legal loan fees, financing it into the loan amount, whereby you paid slowly through 35 years, in the end you paid extra RM9,879 to the bank interest.

There’s no win win situation, it depends on your financial cash flow and your objective.

Leave a Reply

Your email address will not be published. Required fields are marked *