Buying a house can be super fun and exciting. I used to love visiting developer show gallery where they’re always showcase an amazing show unit. When I’m there, I will try to imagine the place as mine. (Day dreaming LOL)
Buying a house involve lots of cash. Unless you’re born with silver spoon, if you’re not, then you will need a home loan. Getting a home loan doesn’t have to be intimidating, especially when you understand the basic concept and features of home loan.
Here I’m going to share 5 Things You Must Know About Home Loan.
1. Home Loan Products – Islamic and Conventional Home Loan
In Malaysia, we have one advantage when it comes to home loan. We can choose either to go with conventional or Islamic financing.
Under conventional loan, the customer will repay to the bank the loan amount, together with interest at the prescribed rate. The prescribed rate is based on a fixed interest rates plus with the bank’s base rate (BR), and the BR are variable from time to time. In a case of late payment or default, the bank is entitled to charge compounded interests. Interest payable may also be capitalised and the capitalised amount will be subject to further interests.
One of the benefits of Conventional financing over the Islamic ones is that the cost for borrowers’ early settlements, late payments or defaults are more transparent in the contract in comparison to Islamic financing.
Over the years, Islamic home loan financing has evolved and at one point it is so controversial with Al-Bai Baithaman Ajil (BBA) home loan. Currently, most banks are selling Islamic Home Loan under Musyarakah Mutanaqisah (MM) concept instead of Al-Bai Baithaman Ajil (BBA).
Musharakah Mutanaqisah also known as diminishing partnership which is an Islamic method of home or property financing whereby an Islamic Bank and the customer jointly owns the property (Mary and Aiman) and the Islamic Bank leases its share/ownership of the property to the customer in the form of ijarah (lease).
The customer promises to redeem/purchase the Islamic Bank’s ownership share of the asset until the whole property becomes the customer’s. The customer pays to the Islamic Bank, a monthly rental which serves to redeem the Bank’s share of the property. At the end of the lease period the customer becomes the sole owner of the property after he has purchased all the ownership ratio of the Bank.
2. Semi Flexi vs Full Flexi Home Loan
Once borrowers have chosen to go with Conventional loan or Islamic loan, then they have to make decision to opt for semi flexi or full flexi product.
Semi- Flexi loan is evolution from basic term loan. In the past, borrowers are not allowing to make any pre-payment. Not only the pre-payment did not save the home loan interest, in some cases customer was penalised for paying more.
However, with semi-flexi on board, any additional amount repay on top of the normal monthly instalment is automatically used to reduce the principle loan amount, subsequently lowering the amount of interest you’re being charged for your home loan. But, depending on banks, certain pre-payment will need to prompt over the counter. The most significant feature is semi-flexi account allow customer to withdraw pre-payment amount in case of emergency. A notice of 5-7 working day needed to serve to the banks. A minimal RM25-50 per withdrawal fees will be charged by the bank.
Full-flexi home loan enabling borrowers to make advance payment to lower their home loan interest and withdraw the additional payments they’ve made whenever they like, without the need for giving notice to the bank or additional charges. However, a monthly fee of RM5-RM10 will be charged and one-time account set up fees RM200 will incurred.
3. Professional Legal Fees, Stamp Duty, Disbursement Fees & Valuation Fees
When getting a home loan from a bank, there will be a few fees incurred to complete the loan documentation. Professional Legal Fees, Stamp Duty and Disbursement Fees will be charged by appointed bank lawyer. While, for valuation fees will be charged by bank’s appointed valuer. The total estimate fees will be in the range of 2.50-3.0% of the loan amount. Valuation fees only for completed property. Not for under construction property.
4. Lock-In Period
It is important to read the bank’s letter offer before signing up. In the event, you do not have much time to read. Try to zoom in to loan amount, tenure, instalment, interest rates and lock-in period.
The reason, why i am highlighting the importance of Lock-In period is if you are going to refinance or sell the property within certain period of time. You might want to look through the lock-in.
How long you will be tight up to the bank, 3 years or 5 years? and the effective date is from 1st disbursement or final disbursement?
And if you are lucky, some banks are offering no lock in period so hassle free on lock-in.
5. Late Payment
Normally, bank will have late payment charges of 1% per annum on the arrears amount. However, in recent year most banks added one additional clause to their letter offer for customer who has reputation of defaulting their home loan for consecutive 2 months and more.
Example Clause:
If you default on any two (2) cumulative payment of interest before full disbursement or default on any two (2) cumulative monthly instalments during the duration of the Facilities, the Bank shall at its discretion be entitled to vary the Prescribed Rate, which shall thereafter comprise of the following additional interest above the Reference Rate on daily rests or such other rate as the Bank may prescribe on the outstanding balance.
(a) For Facilities pegged to BR : 5.35% per annum;
(b) For Facilities pegged to BLR : 2.50% per annum; and
(c) For Housing/ Shop loans pegged to KLIBOR : 4.00% per annum
Hopefully, this article will help you out there to make the best decision in home loan. For any inquiry, please feel free to call us at 012-6946746 or go to our contact us form.
