If you have decided to buy yourself a house in Malaysia, chances are that you are on the lookout for options in financing the purchase of that house. It could also be so that you intend on purchasing a plot of land and are looking for finance for it. There are numerous banks in Malaysia that offer options to finance such expenses. These home loans come packed with a variety of features that can range from attractive interest rates to long repayment periods. Some of the loans will also help pay for the insurance premiums for the property. So as a person about to take a home loan, what do you need to know?
Types of Home Loans
There are two broad categories of loans available. The first is the conventional home loan and the other is the Islamic home loan.
- Conventional Loans
These are the home loans that can be taken and paid back over a period while paying an interest on them. They are available for the purchase of a vacant plot, the construction of a house, the purchase of property that is already constructed and for refurbishing a property. When it comes to refurbishing, the loans made available can be taken based on the value of the house and the amount needed to carry out the refurbishing.
These are loans that follow the principals of Islamic banking and come in various types. The most common is the loan that is based on the concept of Shariah and works on the basis of hire purchase. There is no interest charged on these loans. What is charged is a profit rate that is, like an interest, paid with the monthly instalments. With hire purchase loans, the bank purchases the property on the customer’s behalf then rents or leases it out to the customer for a monthly payment. Technically, the bank owns the house till such time as the payments are complete and once they are, the property is transferred to the customer’s name.
Also, know - Difference between Islamic and Conventional loans
Finance margins are the amount that the banks will provide as loans. These are set by each bank and can be as high as 85% of the cost of the property. Some banks may even help finance the entire cost of the property. Apart from the cost of the property, some of the loans also help finance the cost of insurance for the house.
Home loan Interest Rates
The interest rates are the profit that the banks will make by lending customers the money they need. They can be of two main types; fixed rate and variable rates. The fixed rate, as the name suggests, is fixed when the housing loan is approved and remains the same throughout the tenure of the loan. The variable rate, however, is linked to the base lending rate of the bank and can change from time to time. This also means that the monthly instalments can change when the interest rates change. In Islamic loans there are no interest rates but a profit rate charged.
Home loan Repayments Periods
The repayment periods for the loans can range from 35 years to such time as the borrower turns 75 years old. They are determined based on the amount borrowed and the time period that is comfortable for the customer.
Home Loans for Expatriates and Foreigners
Home loans are not just available to the citizens of the country but also to expats working in the country. They are also made available to foreigners who wish to invest in the country through the purchase of property and also to those citizens of Malaysia who have settled in another country and are permanent residents of that country. The loans available to the expats and foreigners may, at times, be slightly different than those made available to Malaysians but they still do get the option of choosing between conventional and Islamic financing.
The primary document required with any loan is the application form. Along with the application form applicants may also be asked to submit bank statements, proof of income, proof of employment and a valuation certificate for the property in question. There will also be required the submission of a proof of identity and a valid visa in case the applicants are expats or foreigners living in the country. The banks can, however, request for more documents if they need them.
Fee for Home Loans
The general fee and charges associated with a home loan can include:
- Processing fee
- Stamp duty for the contract of the loan
- Disbursement fee
- Insurance premiums
Early payment of Home Loans in Malaysia
Early repayment of home loans is permitted by most banks with many of them offering a rebate on prepayments. The rebate is basically a discount that amounts to a portion of the interest due, that is not paid while settling the loans.
How much should you borrow?
The biggest question always is the amount that can be, or should be, borrowed. The fact of the matter is that, even though you may have an amount in mind, the amount that you can borrow, will depend on numerous factors. The first of these will be how much the bank is willing to finance, the second being what the value of the property is and the last, but most important, being the size of your wallet. There is no point taking a loan that puts such a stress on your finances that paying for necessities becomes difficult. Remember, when going in for a home loan, always know what you need and what you can pay back.