Securing financing for your home can be a daunting process. If you are buying a property from a developer, chances are you will have to apply for a home loan from the property developer’s panel bank.
However, it still pays to do your homework before you apply for a home loan in Malaysia. It’s increasingly easy to compare home loans online, and by doing so, you could end up saving hundreds and thousands of Ringgit on interest if you get a home loan with a low interest rate.
The maximum margin of finance you can obtain for the first two residential properties in Malaysia is up to 90% of the purchase price. However, the approved margin of finance depends on your credit health.
a Types of home loan
There are various types of loan that you should be aware of. Here are three types of home loan in Malaysia:
Basic Term Home Loan
A Basic Term Home Loan has a fixed repayment schedule, where the monthly instalment you pay is the same throughout your entire loan period.
A Term Home Loan usually does not allow you to reduce your loan interest with advance payment. Any additional payment you make is treated as pre-payment for future instalments, and does not affect the total interest for the loan.
Semi-flexi Home Loan
This type of loan enables borrowers to make advance payment to lower their home loan interest amounts.
The loan instalment is automatically deducted from the current account every month and transfered to the home loan account. By depositing additional sums of money into the said current account, you’ll also be able to offset your principle loan amount and reduce the interest amounts on your home loan.
This is suitable for borrowers who may be able to make more repayment every now and then.
Full-flexi Home Loan
Similar to a Semi-flexi Home Loan, a Full-flexi Home Loan allows borrowers to make additional payments to reduce the principal amount and ultimately save money on the total interest payments of the loan.
Typically, banks provide a Current Account that links to the home loan.
However, a Full-flexi Home Loan makes it even easier to withdraw the additional payment anytime they want without any formal request or additional charges. A Full-flexi Loan is suitable for borrowers who have fluctuating income as it allows them to make additional repayment as and when they have the extra cash.
The main features of each type of loan and the best rates available are compared below:
| Basic Term Home Loan | Semi-Flexi Home Loan | Full-Flexi Home Loan |
|---|---|---|
| Repayment schedule | ||
| Fixed every month | Additional payment on top of normal monthly instalment allowed | Additional payment on top of normal monthly instalment allowed |
| Linked Current Account | ||
| Optional | Optional | Compulsory |
| Additional payment | ||
| Treated as pre- payment for future installments | Automatically reduces principal amount | Automatically reduces principal amount |
| Withdrawal of additional payment from linked Current Account | ||
| No | Yes subject to request and bank’s approval | Yes. No request required |
Other than these home loans, you also have the option of getting a conventional or Islamic home loan in Malaysia.
The best housing loan offered by banks vary depending on loan amount and loan tenure. A quick way to compare and identify the best rates available is to use an online mortgage calculator available on iMoney.my.
In 2015, the Base Lending Rate (BLR) structure was changed to the Base Rate (BR) system. Under BR, which will now serve as the main reference rate for new retail floating rate loans, banks in Malaysia can determine their interest rate based on a formula set by the central bank.
In the new framework, banks will determine the interest rates based on their benchmark cost of funds and Statutory Reserve Requirement (SRR). Other components of loan pricing such as borrower credit risk, liquidity risk premium, operating costs and profit margin will be reflected in a spread in the new BR framework.
The decision on the type of home loan to choose ultimately depends on one’s preference but Semi or Full-flexi loans are generally preferred for its flexibility and savings potential by those with spare cash and a flexible income. Fixed rate home loans on the other hand give you the certainty that your home loan repayments will always remain the same every month.
b Loan agreement
Upon signing the loan agreement, you will be required to pay a stamp duty on the loan amount. Like the legal fee to draw up the SPA, the stamp duty on the loan amount is regulated by law and usually represents 0.5% on the final approved loan amount (which could be lower than the loan amount you initially requested).
If your home loan amount if RM405,000, you will be required to pay RM2,025 (RM405,000 x 0.5%) on stamp duty for your loan agreement.
c MRTA vs MLTA
Upon the execution of the loan agreement with the financial institution you have chosen, the loan officer may ask you to take out a mortgage life insurance.
Providing a home for your dependent is a good thing, but if the home loan is not settled in full, it can turn into a burden for your loved ones in the event of death or total permanent disability (TPD).
There are two types of mortgage life insurance that home buyers in Malaysia can take up.
| Mortgage Reducing Term Assurance (MRTA) | Mortgage Level Term Assurance (MLTA) | |
|---|---|---|
| Purpose | Protection | Protection, saving, and cash value |
| Protection | Sum insured reduce in according to loan tenure | Sum insured remains the same on a fixed level sum assured basis. |
| Transferable | No | Yes |
| Beneficiary | Bank | Anyone nominated by policy holder |
| Financing | Usually financed into home loan | Self-financed |
| Payment | One-time lump sum payment | Periodic (monthly, quarterly, semi-annually, or annually) |
| Premium | Low | High |
| Cash value | No. It has a reducing cash value, which drops to nil at the end of the loan tenure. | Yes. It has a guaranteed fixed cash value throughout the loan tenure. |
| Claim | Insurer will remit any outstanding loan amount to the bank and beneficiary will receive the home. | Insurer will remit any outstanding loan amount to the bank and beneficiary will receive the home plus cash. |
d Final payment
After signing the loan agreement, your bank will remit the remaining purchase price (i.e. 90% of the property price) in full to the seller/agent (if buying completed property) or in stages to the property developer (if buying a property still under construction).
e Transfer of title
The final step before taking possession of the keys and the house is to have the title (evidence of ownership) transferred to your name. Doing so will once again require the involvement of your lawyer. You are also required to pay a stamp duty fee equivalent to a percentage of your house value as follows:
- First RM100,000: 1% stamp duty
- Next RM400,000: 2% stamp duty
- Excess of RM500,000: 3% stamp duty
For example, for a RM450,000 property, you will be required to pay RM8,000 in stamp duty for transfer of ownership:
| First RM100,000 | ||
| Remaining RM350,000 | ||
| Total | ||
Once the title has been successfully transferred to your name, you’ll be a proud owner of a house. Congratulations!
