Standardization of loan documents

loandoc

Recently, Bank Negara announce that with effective from March 2014 onwards loan documents for loans below RM500,000 will be standardized.

What do you think?

If you take a look at some of the banks facilities agreement you will find some banks have very thick agreement and some have not so many pages. I took a copy from a bank tried to read but got lost half way. We as layman will find it difficult to understand the different terms in the agreement and also with the legal jargon used makes it more difficult. Most borrowers will just sign without even reading a single word.

The new standardized agreement is much better and easier to understand. If you would like to take a look at the sample documents log on to www.abm.org.my.

My views on the standardization of Housing Loan Agreement are as follows.
1. The new documents will fall under the facilities agreement.
2. The new agreement is a shorter version and much easier to understand as more laymen words are used as compared to the many banking jargons.
3. There are no repetitive and difficult to understand terms in the agreement. The existing facilities agreement in some banks can be as long as 70 pages in which normal consumer will be lost after reading. Some of this facilities agreement covers every corner of the law whereas the new agreement spells out the important condition only.
4. Please take note on Section 3.1 (Conditions Precedent to Drawing) in the new agreement.
“ The bank may not release any part of the Housing Loan unless it has satisfactory evidence of the following being fulfilled:
a) The conditions set out in the letter of offer and/or this agreement, and
b) {the additional conditions precedent set out in the Letter Of Offer and/or {Schedule {.} of this agreement.}”
5. This agreement is only applicable to conventional loan. Islamic Loan the agreement will be different.

The above means the release of the loan facility must fulfilled the conditions set in the Letter Of Offer . I advise the loan borrowers to make sure you have read all the Terms and fine prints in the Bank’s Letter of Offer especially sometimes there are special condition place by the bank before loan can be released. This cannot be standardized and will be different from bank to bank.

Some of the conditions to take note are:
a) Purchase of Mortgage Insurance
b) Valuation Report
c) Placement of Fixed Deposit Lien for x no of years
d) Lock in Period and Penalty
e) Loan Withdrawal Conditions

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