Malaysia Home Loans - the basic facts
Applying for your first home loan can be a scary experience, especially when you’re planning to be a first time property owner. RinggitPlus.com provides some basic advice for first time Home Loan applicants.
by Brendon Lee
on April 2 2013
Buying a home can be a scary experience especially when you’re planning to be a first time property owner. This is probably your first big ticket purchase and the responsibility that comes in making the right choices can be daunting.
One of the most important aspects to consider when making this purchase, will be your financing options. With so many banks aggressively pushing their personal loan packages at you, it can get a bit overwhelming.
Naturally if you make the wrong choice or are not prepared with the right information, you could end up with a home loan that is not suited for you and as such, the monthly prepayment on your loan will become a huge burden for you to manage, month after month.
One of the main concerns every home owner faces is how much of a strain will a home loan be on their budget. Then there are the invisible costs of maintenance and housing insurance. How ready are you for such a commitment in totality?
At RinggitPlus we believe that everyone should enjoy financial freedom and as such, the first step towards this goal is ensuring that we empower ourselves with knowledge. To get you started, we have put together an unofficial mini-guide for your benefit. Think of it as a checklist of things to consider before you decide to make that down payment on your dream home or even the commitment towards a home loan.
How much income should I be earning?
Generally you want to be comfortable with a monthly installment that is less than one third of your monthly income. You should also take into account other commitments such as your car loan and/or credit card repayments. Don’t over commit yourself with too much debt, have a think about your saving plan and lifestyle spending choices.
Choosing the right type of home loan
Traditionally in Malaysia most banks offer either a fixed term loan or flexi loan. However these days it is not unusual to find banks offering multiple loan packages in which installment plans are tailored to your current financial standing.
The easiest approach here is to do a comparison of all the interest rates and service charge. Generally speaking the simpler plans such as fixed term loans tend to offer slightly lower interest rates. Be mindful of loans that offer a lot of fancy benefits as they usually come at the cost of a monthly account fee or higher interest rates.
According to Ms Mariam, a Consumer Sales Executive at Maybank, Flexi loans are more attractive to business people who benefit from the convenience of an overdrafts and the use of a cheque book. For those looking at a more straightforward plan, we usually recommend a conventional fixed term loan.
She also added that these days, more and more banks are moving towards semi-flexi loans, with some banks offering to waive the maintenance fees and advance payment notices while still benefiting from attractive interest rates.
Keep in mind not all of the offers are in black and white and could vary depending on your income and credit score. Always double check with the loan officer and don’t be afraid to ask for extra privileges.
Regardless of which type of loan you choose, make sure it’s the right one for you because you will be subjected to a lock-in period with your lender for two to three years. This means you will not be able to refinance your property with another bank or settle your loan in full. Doing so will usually incur a 2-3% penalty based on your initial loan amount.
Sometimes purchasing a property can come with hidden costs. These could pop up either in the initial buying process or during the loan tenure. This includes:
Insurance – Your home will probably be the biggest investment you will ever make, so protecting it is mandatory. You can purchase either a Mortgage Reducing Term Assurance (MRTA) or Mortgage Reducing Term Takaful (MRTT). Depending on the terms of conditions, most of these insurance will ensure that your current home loan will be settled, should you face total and permanent disability or upon your demise.
Stamp duty and legal fees – You will need to hire a lawyer to prepare your sales and purchase agreement in addition to your loan agreement; and pay the necessary government stamp duties according to the stipulated regulations.
Delays and Penalties - During the process of purchasing a property, take note that you may be penalized should there be a delay in the completion of the paperwork. Speak to your lawyers and ensure you are aware of any deadlines toward payment and draw-downs.
Building maintenance fees – A common burden for those that reside in apartments and condos. This is a monthly fee that must be paid to enjoy the services offered in your condominium.
Utility deposits – Basic necessity bills required to obtain electricity, telephone and water supply.
Quit rent and assessment fees – Your annual quit rent covers the tax for the land your house is built on, while the assessment fees is to be paid twice yearly to your the local council, according to the locality of your property.
Buying a home is a major decision that requires lots of research but thankfully this process has become a lot more transparent thanks to the various online tools available today such as Banking Info and Bank Negara Malaysia where you can cross check on new policies and guidelines to help you get started.
Once you are armed with the correct and adequate information; and once you have invested the time doing the number crunching, this process will not be daunting and a home loan will be a commitment that you will be able to manage with confidence.
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