BR(Base Rate) and Other Important Loan Terms

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If you are planning to take a loan, it is important to understand the various terminology involved. The following commonly used loan terms can be used as a guide to understand loan jargon easily:

Base Rate

Base Rate (BR) is the interest rate determined by the lender for a loan/financing. In Malaysia, the BR is determined by the banks. The base rate along with the spread gives the total interest rate for a fixed conventional loan.

Down payment

Whether you want to buy a property or a vehicle, you need to provide an upfront fee to the seller. This fee is called down payment. If the buyer has taken a loan from a bank or any other lender, when they make a down payment, it will reduce the interest rate of the loan. Down payment is usually expressed as a percentage of the total purchase price.

Balance Purchase Price

Balance Purchase Price is the balance amount that you need to pay the seller after paying the down payment. For example. If you are buying a property worth RM200,000 and you have paid RM20,000 as down payment, the balance purchase price you need to pay is RM180,000.

Foreclosure

If you have not been making your loan payments on time, the bank will take over your house and try to sell it in order to recover the amount they have offered to you. The legal process involved is called a foreclosure. In order to avoid foreclosure, as a buyer you can contact your lender and ask for the other available options. The bank could give you a refinancing option or work out on your repayment plan

Loan Tenure

Loan tenure is the total period a buyer has to repay the loan. For instance, if a buyer has taken a mortgage loan for a loan tenure of 30 years, they must repay the loan amount within 30 years.

Prepayment

When you take a mortgage loan for a number of years, but you make the payment before the completion of the tenure, you make a prepayment. If you make the prepayment during the loan facility’s lock-in period, you might have to pay early settlement charges. If it is an Islamic mortgage financing scheme, you will have to pay ibra. However, if prepayment is made after the lock-in period, you won’t be charged any extra fees.

Top-up Loan

If you have taken a mortgage loan, but don’t have enough money to meet other financial requirements, some banks offer a top-up loan facility. The rate of interest of top-up loans are slightly higher than the mortgage loan. The financing amount will depend on the buyer’s debt service ratio and the loan tenure will be same as the mortgage loan.

Refinancing

You refinance a mortgage when you pay off your mortgage loan by replacing the loan with a new one. You don't necessarily have to take refinancing from the same bank. You can opt for refinancing from another bank which offers mortgage loans at a lower rate of interest.

Free Moving Cost

When you refinance your mortgage, the bank will be paying some costs as you move from one loan scheme of one bank to another. This cost is called the free moving cost. This will include loan disbursement charges, legal fees if any, as well as Mortgage Reducing Term Assurance (MRTA) or Mortgage Reducing Term Takaful (MRTT).

Progress Payment

If you are planning to buy a property under construction, you will come across this term very often. As the name suggests, progress payment is the amount the buyer has to pay the builder as the construction progresses. The progress payment amount must be discussed and put down in writing in the Sales and Purchase agreement.

Charge, Chargee, and Chargor

When a buyer opts for a mortgage loan scheme, the property will be considered as a collateral. If the buyer fails t make payment on time, the bank can sell off the property to recover the margin of finance. Since the property will be charged to the bank when the buyer is unable to make payment, the owner of the house is called as a 'chargor' and the bank will be the 'chargee'. When the agreement is done in writing, a 'charge' is filed.

Consent to Charge

Consent to charge when a property is transferred from one party to another. In Malaysia, all states have their own rules and regulations when it comes to consent to charge. It is recommended to go through these laws when you want to consent to charge a property.

Guarantor

A guarantor ensures that the borrower has the ability to repay the loan. If the borrower defaults on their payment, the guarantor will have to make the payment on behalf of them.

Collateral

A collateral is something that is used as a pledge in order to repay a loan. For mortgage loans, the property itself is used as a collateral. This makes mortgage loans secured ones.

Co-borrower

A co-borrower is someone who takes the help of another person to get a mortgage loan. The co-borrower would be doing this as they don't have enough income to get proper financing for a property they want or if they have a poor credit score. The house will be bought by the borrower and the co-borrower and both will share the liabilities of the loan.

Memorandum of Deposit

A Memorandum of Deposit is a written document between the borrower and the bank. The agreement will state that if the borrower is unable to repay the loan to the bank, they will give the bank the permission to deduct instalments from their respective account. This agreement ensures that the borrower makes timely payment.

Deed of Assignment

A Deed of Assignment is a legal document used for the transfer of property from the seller to the buyer. It is drafted to transfer the ownership on a particular date. It is used as a proof of transaction until the property gets an Individual Title.

Deed of Receipt and Reassignment

If the buyer makes the payment before the property gets its Individual Title, then the buyer will be given another legal document called the Deed of Receipt and Reassignment. This document is to ensure that the property is discharged by the bank to the buyer.

Disbursement of the Loan

Disbursement of a loan is when the bank pays the loan amount to the borrower or the property developer. For completed residential properties, the full amount is given to the seller of the property. As far as properties under construction are concerned, the loan will be disbursed in different stages as mentioned in the Sales and Purchase Agreement.

Adjudication

This is a legal judgement involved if there is a dispute regarding the payment of the property. Though there are very rare cases, sometimes, the purchase price will be different in the agreement from the once estimated during stamp duty payment.

Conclusion

These loan terminology can be handy when you are buying a property and have taken a loan from the bank.

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