Due to competition, banks are willing to undertake slightly heavier risk, to lend out money when the debt-to-income (DTI) ratio for new loan is over 33%. The following illustrate a property value of RM400,000 and a young professional who earns RM5,000 (gross, before deduct EPF and income tax) is able to get 90% loan for 30 years at BLR-2.0%.
Are you surprise that 1% in BLR will have a 4% (from 36% to 40%) effect on your budget.
Interest rate may be used to control the property bubble! Most experts predict BLR will be remained for the rest of 2010 but may be adjusted UP in year 2011.
What will happen if you are caught in this situation?
- Ask for increment?
- Spend less on other things (may become a 'house slave')
- Sell it (but the price and demand may not be good because of high borrowing cost)