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Making a property purchase has several layers – one of which are home loans. When you buy a home, chances are you will need some financial help to secure your desired residential property. This is where home loans enter the picture as banks can lend you the money, which you will then repay back over a period of time.
It might sound pretty straightforward, but the bank has certain terms you must understand before you enter this financial partnership. So, here is what you need to know.
Conventional home loans in Malaysia
There are three main types of home loans, each with their own conditions – term, semi-flexi and flexi loans. Term loans are fixed, which means you will have a set instalment amount that you strictly follow every month.
Semi-flexi loans allows you to make your instalment payments in advanced to lower the interest rates. However, this is subject to the bank’s terms and conditions. Meanwhile, flexi loans are linked to a current account and are automatically deducted on a monthly basis. Borrowers can deposit or withdraw additional amounts above the instalment value without bank approval.
Joint home loans
Additionally, you can co-own a home with your spouse or a family member where the bank will lump your financial standing together. This can increase your chances in securing a home loan home above your individual borrowing limit.
Types of Interest rates
As with every loan, interest rates come to play because essentially, the bank needs to make money to lend you money. These interest rates are charged on the principal amount and are taken into account when deciding the monthly repayment sum for the loan. There are two types of interests rates:
- Fixed interest rate: Fixed interest rates do not change, they maintain the percentage throughout your loan duration, regardless of any market fluctuations.
- Variable interest rates: This depends on the Base Rate (BR) that is set by Bank Negara Malaysia. Banks are allowed to determine the interest rate they will impose on your home loan, based on the BR. Any increase or decrease in the Base Lending Rate (BLR) will affect your loan instalment amount as the interest will follow suit.
Islamic home loans
Islamic home financing options are not interest-based. The Bai’ Bithaman Ajil (BBA) uses a buy-and-sell concept where the bank purchases the property first based on the current market price, and then sells it to the buyer at a marked up price. The agreement is then based on the agreed price and no interest is imposed on the instalment.
Another alternative is Musharakah Mutanaqisah (MM), which is when the customer and the bank buy, as well as own the home together. The bank will then lease its share of the property to the customer. The customer has to pay rental to the bank and part of the sum is used to purchase the bank’s share of the property.
Other home loan features
Additionally, there are other terms you need to take note of:
- Loan-to-Value (LTV): This is a lending risk assessment that is reviewed by banks before they approve your loan application. Borrowers can expect a 90% margin of financing for their first and second home, while the purchase of a third home is capped at 70%. The LTV is calculated based on the net property price, and not according to the Sales and Purchase agreement which may include certain rebates.
- Loan tenure: The maximum loan tenure is 35 years or up to 70-years-old, depending on which is earlier.
- Deed of Assignment: You will need this document when applying for a home loan. This is a legal document that transfers the ownership of the property to you.
- Lock-in period: This is a time period stated in the home loan contract which states that if you pay off your home loan in full before this period, you will be subject to a penalty fee.
Quick tips on choosing the right home loan
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Choosing the right home loan can be daunting especially for first-time home buyers. The main factor you should consider is your affordability – how much can you comfortably fork out every month?
A quick tip is assessing the type of loan that suits your affordability. If you have a comfortable income and can fork out more than the instalment amount, you can consider a semi-flexi or flexi loan. This way you have the option to pay in advance on and potentially decrease your interest rates. Plus, with a flexi loan you can get a lower interest rate when you deposit more money in your current account.
If you have calculated your monthly finances at a capped sum, opt for the term loan. Do take note that if you pay off your home loan three to five years earlier, you will be subject to a penalty fee – so, pay attention to the lock-in period.
2020 home financing schemes
There are various schemes that have been introduced in Malaysia to make home ownership more accessible such as:
- Rent-to-own Scheme: This is made to avoid the hefty costs of a downpayment through a lease agreement that gives you the option to purchase the property after renting it for a certain time period. You lock in the current value of the home, which means the sale price will be unchanged at the end of the rental period.
- My First Home Scheme: This is designed to help those earning RM5,000 or below monthly to secure their first home through 100% financing. Applicants must be aged 35 or below and the minimum property value is RM100,000 and up to RM500,000. Maximum tenure is 35 years or up to 70-years-old.
- BSN Youth Housing Scheme: This is made to help single or married couples who are first-time buyers aged between 21 and 45 to secure properties prices from RM100,000 and up to RM500,000. The margin of financing is up to 100% of the purchase or market price. The interest rate ranges from +0.6% to +1.0% over the base rate. The minimum loan period is five years and up to 35 years. Other perks include 100% stamp duty exemption up to RM300,000. However the property cannot be transferred or sold within five years.
- Home Ownership Campaign 2020: This campaign exercises stamp duty exemptions for properties priced above RM300,001 and up to RM2.5mil. Full stamp duty exemption is granted for those with a Sales and Purchase Agreement signed between 1 June 2020 and 31 May 2021. An additional 10% discount is offered by developers, while the 70% margin of financing allocated to a homeowner’s third property is lifted.
Should you invest in a home now?
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Malaysia is facing a property glut which means there is a surplus of unsold homes. This plays to the advantage of keen property buyers as on top of the government housing schemes, developers are now offering extra perks with their own packages to sell off their residential units.
Mah Sing’s Eazy to Own is good campaign to consider. This campaign works in conjunction with Maybank’s rent-to-own scheme, HouzKEY, where you can enjoy low entry payments whether you choose to own now or stay first, and own later!
Visit Mah Sing Eazy to Own now to view the list of properties you can potentially own!