Once you have a steady and fixed income, one of the better modes of investment could be putting your money into buying a property. Purchasing a house is the dream for many Malaysians, but everyone may not try to realize this dream, assuming it to be complex and risky.
Here’s a brief guide on home loans that may clear the air for you.
Decide on the Property
The first step in the home loan guide is to be sure of the property which you want to buy. This is because a bank or a financial institution offers a home loan based on the market value of the property. So, you cannot set things rolling from the opposite direction. You cannot check how much loan amount you can get based on your income and then search for a property with a cost equivalent to the loan amount.
The source from which you purchase the property matters when you have to submit documents with the home loan application form. You need to have one of the following proof to apply for a house loan:
- Purchase from the developer: Submit the booking fee receipt given by the developer as a proof to the bank. The receipt must be provided when you make the down payment to the developer.
- Purchase a sub-sale property: Pay a booking amount of 3% to the seller to get the deposit receipt from the seller’s lawyer. Submit this deposit receipt as a proof of making the down payment to the bank.
Research on Home Loans
Once you are done with choosing a property and making the down payment, start researching the available home loan options according to your annual income. When you are comparing different home loans, you have to consider the following factors:
Types of Loans
- Government Housing Loan: This is a home loan dedicated to government employees. There are certain conditions applicable on the loan such as you must apply for the loan only from one office even if you work for two different offices simultaneously and you can borrow government housing loan only twice in a lifetime. You can get financing beyond 60% of your salary.
- Islamic Loan: An Islamic home loan follows the Shariah-compliant principles to lend funds. This type of loan does not include early settlement penalty. Some of the Shariah principles used by banks to lend home loan are Murabahah, Bai Bithamin Ajil, and Musyarakah Mutanaqisah. With the Islamic home loan, you can buy a takaful cover to ensure that the home loan will be paid in full if an unexpected event occurs.
- Flexi Loan: A flexi loan provides you the provision to debit and credit money from your loan account as and when required. No charges are applied for crediting and debiting money from the loan account. A current account has to be associated with the loan account to get the facility.
- Semi-flexi Loan: A semi-flexi loan incorporates the qualities of both term and flexi loans. Any extra payment you make will be considered to reduce the principal amount. When the principal is reduced, the interest payable will also reduce. You may also withdraw the extra payment made at the cost of certain processing charges.
- Term Loan: A term loan is designed with fixed repayment schedule with a set amount of monthly instalments. This amount is constant for the entire loan tenure. Generally, any extra payments made is considered as the pre-payment for the next instalment.
- Overdraft: Similar to the regular overdraft facility, a home loan-related overdraft facility offers an option to withdraw additional funds from the current account linked to your home loan account. You can withdraw funds even when you don’t have sufficient balance in your account. This extra fund withdrawn is accountable to an interest rate. Certain terms and conditions are applicable regarding the repayment of this extra sum. This facility is granted only because the property acts as a collateral.
- Refinancing: You can borrow a new home loan instead of continuing with the existing home loan. This can be done if you have been paying the existing home loan for quite some time and you are in need of some cash in hand. You may switch if you think another bank is offering the loan for a lower interest rate. If the property value has increased over time, then you can approach another bank to mortgage the property again so that you can clear the existing loan from the new one and still get some cash for your expenses.
Fixed vs Variable Interest Rate
The interest rate can be either fixed or floating (variable) based on the bank’s discretion. Check out what each of them means.
- Fixed Rate: The interest rate will be constant throughout the loan tenure in fixed rate loan.
- Variable Rate: The interest rate is pegged to a base lending rate specified by Bank Negara Malaysia. Each bank defines its interest rate based on the base lending rate.
People usually wish to have floating or variable interest rates instead of the fixed rate because the former is mostly lesser than the latter.
Usually, banks offer a finance margin ranging from 80% to 95% on the property value. The offered margin will be inclusive of related expenses such as Mortgage Reducing Term Assurance/Mortgage Level Term Assurance premium.
There may be cases when you can manage to settle the loan amount completely much before the set tenure period. In this case, some banks may charge you an early settlement penalty because the bank loses the profit earned in the form of interest. Refinancing your home loan is also considered to be a form of early settlement. Check the stand of your bank in case of an early settlement.
Stamp Duty and Legal Charges
A home loan includes the following legal charges:
- Loan agreement fees—1% of the first RM150,000 + 0.7% of the remaining loan value under RM1 million.
- Stamp duty—0.5% of the loan amount.
- Legal disbursement charges.
- Government tax on legal fees.
If a bank specifies ‘zero moving costs’, it means that the bank handles all these fees and charges. However, a bank may pay these charges if you want to compromise the low-interest charges. Calculate these two factors in advance and decide on which of the two options is more profitable.
Apply for Home Loan
When you are done with weighing all the factors mentioned above, you would be left with one or two banks’ home loan schemes. Choose one of the following modes to apply for the home loan:
- Offline Mode: Approach either of the banks with all the necessary documents. Fill the home loan application form with accurate details and submit the application form.
- Online Mode: Many banks offer online banking facility. You can apply for a home loan on the online portal of the bank. Fill the online application with necessary details and upload the supporting documents to submit the form.
Generally, banks take about 2 to 7 working days to process your application and respond with a yes or no. If the application is approved, the bank will contact you to let you know the approved amount, tenure and interest rate. You can convey your consent to the bank for further processing and disbursal of the loan amount.
A few pre-approved home loans are also available in the market. This means the bank approves your application almost instantly based on your personal details and credit score.
When you are investing on a property, you need to be conscious about many things. The foremost factor to consider is if the house and the housing loan is affordable considering your income. Go ahead with the loan process only if you think you can afford a house.