Is zero entry cost (zero moving cost) beneficial for me?

 

Is zero entry cost (zero moving cost) beneficial for me?

 

Is zero entry cost (zero moving cost) beneficial for me?

 

Entry Cost, also called Moving Cost is the cost bearable by borrower in the acquisition of a property, be it from developer, sub sale or inherited from another family member.

 

Zero entry cost is a package to ease borrower’s burden by bearing the legal loan fee and valuation fee. This indicates that borrower is not required to pay any fee for the loan agreement as the cost is borne by the bank fully. However, such feature is only applicable in loan agreements, borrower would still need to pay for Sale & Purchase entry cost. As opposed to zero entry cost, banks/ FI would also offer finance entry cost package

 

Normally, additional clauses and different rates will be attached to the loan package. For example,  a RM500,000 loan offer would be given a prescribed rate of 4.4% full tenure with 3 years lock in period. If zero entry cost is attached to the loan package, the loan offer would normally be given a variance of 0.2% to 0.3% in prescribed rate with longer lock in period; i.e. 4.7% with 5 years lock in.

 

On the other hand, finance entry cost package would also be a good way out as borrower needs not to pay anything out of pocket as far as loan is concerned. Entry cost such as legal fee, valuation fee and stamp duty will be included into the loan. On the upside, the borrower could enjoy a lower rate with lower lock in period (settlement after 3 years no penalty). On the downside, the loan amount would be greater as compared to zero entry cost package, hence rendering slightly higher monthly repayment in loan and interest payable to bank.

 

Let us assess the feasibility of the 2 features given above.

 

  • Zero entry cost

 

Total loan amountRM500,000
Rate4.70%
Tenure30 years
Installment amountRM2,594

 

  • Finance entry cost

 

Loan amountRM500,000
Financed entry costRM10,000
Total loan amountRM510,000
Rate4.40%
Tenure30 years
Installment amountRM2,554

 

 

Let us put in comparison the total outstanding, capital & interest paid for n years against the 2 features above:

 

PackageCostn years
35710
A) Zero entry cost @ 4.7% interestTotal repaymentRM93,354.81RM155,591.34RM217,827.88RM311,182.69
Total interestRM68,861.65RM112,746.15RM154,825.58RM214,167.11
Outstanding balanceRM475,506.85RM457,154.81RM436,997.70RM402,984.42
B) Finance entry cost @ 4.4% interestTotal repaymentRM91,939.70RM153,232.84RM214,525.97RM306,465.68
Total interestRM65,672.55RM107,429.84RM147,393.50RM203,611.60
Outstanding balanceRM483,732.85RM464,197.01RM442,867.53RM407,145.92

 

Taking into account the end of  3rd, 5th, 7th and 10th year as full loan settlement year, the following table is derived (based on the summation of total repayment (total installment paid to bank) and outstanding balance):

 

Total Costn years
35710
A) Zero entry cost @ 4.6% interestRM568,861.65RM612,746.15RM654,825.58RM714,167.11
B) Finance entry cost @ 4.4% interestRM575,672.55RM617,429.84RM657,393.50RM713,611.60

 

Based on the table above, package A out wins package B in the short run. If the borrower plans to repay the loan in a longer term, package B is the better choice as on the 10th year onwards, package B has a lower overall payment.

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