Understanding How Home Loan Works In Malaysia
Buying a house is an exciting event. It will probably be the biggest purchase you will ever make in your life. If this is your first time buying a house, you might struggle to make sense of all the information banks throw at you when you take out a home loan. Here at iMoney, we LOVE breaking down complexities into bite-size simplicity. Here is a short guide to understanding how a housing loan in Malaysia works:
Two common types of Malaysian housing loans
Banks generally offer the following housing loans: 1) Traditional Term Loan, and 2) Flexible Home Loan (or Flexi-Loan).
A Traditional Term Loan requires you to pay a fixed amount each month for a set period of time (e.g. 30 years). This predictable payment each month allows you to better control your cash flow.
A Flexi-Loan is essentially a traditional term loan combined with a current account. Flexi-Loans are suitable for people who want the flexibility of saving more money at different times. With Flexi-Loans, the more you save in your current account, the more you will be able to reduce the interest on your house loan.
Malaysia housing loan interest rate
Interest rates for housing loans in Malaysia are usually quoted as a percentage below the Base Lending Rate. For example, if the current Base Lending Rate is 6.6%, the interest rate on a BLR – 2.5% loan would be 4.1%. Want to know the lowest home loan interest rates in Malaysia? Check out our Mortgage Calculator!
What is lock-in period?
Banks normally charge a penalty of 2% to 3% (on your original loan amount) if you fully pay off your home loan within the first two to three years. This “two to three year” period, where you will incur a penalty for early settlement, is essentially the “lock-in period” of your house loan.
Margin of Loan or Margin of Finance
How much you can borrow from the bank depends on a number of things, including 1) the market value or purchase price of your house, 2) the type of property (e.g. residential or commercial), 3) the location of the property, and 4) the borrower’s profile (e.g. age, income level, etc.).
Banks would normally lend up to a maximum margin of loan of 80% to 90%. This means that for a RM500,000 house, you can borrow up to RM400,000 to RM450,000 from the bank, with you paying the rest of the amount up front.