Everyone dreams of possessing their own beautiful home which would provide security for their children and a place where they can grow old with their loved ones. I still remember that my parents bought their home with cash. By the way, that’s the only property they ever bought. When it was my time to buy, the best piece of advice from my mother is – buy it with the help of banks.
Are you also looking to finance that dream home but don’t know where to begin? Well, you’ve come to the right place. If this is your first home loan then I will help you prepare for all things related, so you can walk in and snatch that loan confidently!
First off, let’s look at the types of home loans that are available and the array of offers by well-known Malaysian banks.
There are three types of Mortgage loans in Malaysia and they each have their Pros and Cons.
1. The Fixed Type
If you take a traditional/standard loan on your house or real estate, it means that you have to simply pay the amount you owe (Principal) in monthly installments plus a fixed interest rate. This is a steady type of loan so you don’t have to worry about the ‘housing bubble’ or the economic effects on the monetary policy.
Moreover, the new base rate (BR) will not apply here for those of you who have already taken home loans and are now in the middle of payment. The downside of the new Base rate is that your monthly installment will go up a notch. This is due to the way the BR is calculated, which is by adding on to the interest rate (not subtracting like in the old BLR). This, in turn drives up your effective lending rate (ELR), and subsequently, your installments.
However, one thing you must remember is that the BR is different from bank to bank, because the Bank Negara takes into account any bank’s loan efficiency and sets a rate. The said bank then can’t go below that rate because that’s their minimum. This creates a lot of competition and that’s always good news for you. As banks compete with each other, interest rates will be lower in order to decrease or come shoulder to shoulder with other bank’s ELR.
2. The Flexi type
The Flexi loans allow you to make monthly payments as usual but with the added bonus of making advance payments flexibly. Furthermore, you can withdraw these ‘extra’ amounts whenever you like, because these are considered ‘partial payments’. The more you pay, the faster you can be debt free.
The withdrawal will not affect your principal negatively as it will be adjusted by the bank. This payment option is for those who do not want to adhere to a rigid framework and have flexible income prospects to pay extra to reduce the remaining amount due. Flexi-loan normally comes with a current or checking account that you have a checkbook to use the fund whenever you want. For this facility, banks charge around RM5 to RM10 per month, on top of the cheques you’ll be using.
3. The Islamic Type
The Islamic Mortgage finance has a whole new perspective. Although they now adhere to the BR, they used to follow the Base Finance Rate reserved only for this type of loan. You will enjoy full features of standard loans but also adhere to Islamic principles of banking. There are different practices by different banks. Frankly, I am not familiar with Islamic home loan so for now, I still stick to the conventional mortgage.
Mortgage loan offered by different banks
Apart from the ones we talked about, there are additional packages tailored to suit your requirements. Maybank offers, what is called, a semi-flexi loan. Although you will have the power to make advance payments and withdraw money, you cannot do so as you please. Banks will reserve your extra payments in case of emergency.
This has its perks as it will restrain you from compulsive shopping, for example, and help you focus on spending sensibly. There is also another package called the Low interest loan, offered by AIA, which helps to reduce the total payment by decreasing the amount of interest initially, but for a limited period of time.
Whatever you choose, choose wisely! If you would to pay off the full mortgage in one go (within 2/3 years), most banks will charge you with a penalty and subject you to ‘lock in’ for its given period. However some banks like HSBC do not have the Lock-in rule, and that is why you should evaluate your options carefully.
Secret Costs of Owning a House
Beware of additional fees incurred by default according to bank regulations. These are often written in the loan letter offer, so bring out your reading glasses and don’t rush! Some of the fees and charges include:
Legal fees and Stamp duty: With regards to government regulations you have to pay stamp duties, and in order to get through the legalities you need a lawyer. It must be noted that some financial institutions offer waivers or discounts; just be sure to ask if such offers exist.
Insurance fee: It is highly advisable to get your house insured so that your years of hard work does not get swept away by one tsunami. Fire insurance is compulsory and you’ll be required to pay the premium, every year.
Renovation and Utility: Utility bills are still paid by you and no the bank, of course. Also, if you have a good credit rating, then you can also apply for a renovation loan if you want to make your home more personal.
Penalties and late fee: some banks do not appreciate dilly dally. Get your paperwork straightened out as soon as possible, as they might charge you otherwise. A lawyer is handy in this case, as he/she will let you know the deadlines.
Other than the costs mentioned above, there might also be other hidden fees that you should inquire about while making your purchase. It might also be that some of these might not even apply to you, depending on the bank. Malaysian Banks used to offer what is known as DIBS, which only applies if your house is under construction several years back. In this situation, you only pay a down payment and no monthly installments until completion. It was subsequently banned to curb property speculation.
There are numerous financial calculators and finance packages to choose from in the web. So it is absolutely acceptable if you do not have any experience at all. All you need to do is look for knowledge and consider each option carefully before making informed decisions.
I wish you all the best. Happy Hunting!