By
Abdul Hamid Mohamad
Last year due to the recession the interest rate have come down. The BLR rate get down from 6.75% to 5.55% and many banks offer property loan at an attractive rate. Taking the opportunity I decided to refinance my home loan. My main purpose is to have lower monthly installment so I can increase my cashflow and I want to switch to Islamic Banking. After looking around I decided to go with CIMB Flexi Home Financing-i.
If we refer to CIMB Islamic Web site the feature of this loan is written as below..
"The Flexi Home Financing-i is basically a combination of Variable Home Financing-i and the special designated Islamic current account namely Special Mudharabah Current Account-i.
The beauty of this product is that it gives customers flexibility to pay their monthly installment whilst at the same time provides a withdrawal facility as well on the customer's current account (on available credit balance in the Current Account). "
That is a generic statement and doesn't explain how it actually works. As I have been using it for 8 month I would like to share what I understand about this product.
BBA: BaiBithaman Ajil
That is the concept of the facility which mean the bank will first purchase the house from me in cash and then sell the house back to me which I agree to pay in deferred payment monthly.
For my case, the bank purchase the house from me at RM127,521.00 and then sell back to me at RM428,536.80. The selling price is quoted base on ceiling rate of 10.75% p.a. and I need to pay monthly for 30 years.
The selling price is too high at the first look but written in the contract, I actually have to pay at the rate of BFR-1.85% which is 3.7%p.a. The different between ceiling rate and effective rate will be given as Ibra or rebate by the bank.
Using my excel financial calculator, monthly payment for my financing at 10.75% is actually RM1190.38. The bank only need me to pay bank at rate 3.7% which is only RM586.96. The difference RM603.42 is rebate that I receive from the bank.
Flexi Financing
The meaning of flexi in this product means we are flexible to make any payment more that the monthly requirement. The bank won't impose any penalty for any advance payment or pre-payment we make.
The monthly installment that I need to pay is RM586.96 but I make payment RM600.00. Every month I receive a letter from bank mentioning the installment amount I need to pay. Because I pay a little bit extra every month, the monthly payment become lesser because I have pay extra.
The bank profit is calculated on daily rest which one of the criteria I choose, and the more I pay the more Ibra I will get
Recently I receive my statement from CIMB Bank. Normally in on conventional financing the statement will show the loan principle balance. On my Home Financing statement it mention the payment I have make, the rebate I get and the selling price balance.
Actually I only have make payment amounting RM4790.00 till now, but my online statement mentioning I have pay RM10,571.52. The different are the rebate I have receive.
This is the different between Islamic Financing and conventional loan. In Islamic Financing it mention clearly the amount you owe or the actual balance you have to pay while in conventional loan it mention the principle balance only. You have to make some calculation to know the total amount you'll have to pay.
Recently Bank Negara have announce increase in the OPR meaning the bank BLR will also increase. For this CIMB Financing there is a ceiling rate of 10.75%. Meaning even if the BLR will increase up to 12.3% like what happen in 1998, the bank profit rate will be capped at 10.75%. This is one other thing that I like. I know what is the maximum I have to pay and if the rate is lower I could enjoy the rebate.
Just for fun I have make a graph comparing the loan balance at ceiling rate and current effective rate. Of course at the effective rate I'm paying lower for my house and I also know the maximum that I might have to pay.
Special Mudarabah Current Account
One other thing I like to mention, there is also a current account that link with the loan. The money that you deposit into this account will give you more rebate.
Let's say you have RM5,000 in this current account, and your Finance principle balance is RM100,000. The bank profit will be calculated base on RM100,000 – RM5,000 = RM95,000. To me this is one of bank strategy to encourage people to deposit more money to them but this also bring benefit to us.
That all for now on what I understand about this product. I'm quite happy with CIMB service as a I can monitor everything through it online banking service.
Lastly…
Please read below Aya from Holy Quran and together let's think about it….
الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا ۗ وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ۚ فَمَنْ جَاءَهُ مَوْعِظَةٌ مِنْ رَبِّهِ فَانْتَهَىٰ فَلَهُ مَا سَلَفَ وَأَمْرُهُ إِلَى اللَّهِ ۖ وَمَنْ عَادَ فَأُولَٰئِكَ أَصْحَابُ النَّارِ ۖ هُمْ فِيهَا خَالِدُونَ [٢:٢٧٥]
Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). [Al-Baqarah 2:275]
Thank you for reading….
Abdul Hamid
http://rabtle.blogspot.com/
7-March-2010
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