We all want to get the best Home Loan package. And it can be done through a simple understanding of own desires.
I love the topic of Home Loan, but let’s be honest, it gets overwhelming sometimes.
Articles tell us to choose based on interest rates; the lowest the interest rate, the better it is.
But it is true we should choose based on interest rates?
Erm…I would say, maybe half true.
I often find four factors to consider before choosing the best bank for a home loan. Let’s take a look, shall we?
When applying for a Home Loan, either for refinancing or buying a house, we anticipate that the bank often will approve with a lower loan amount. And it may not be the applicant desire amount.
The reason for approval with lower amount are many; it can be due to weak profile, low income, poor monthly payment conduct, low saving, unstable employment, unfavourable property location and many more.
It can be any of the reasons or a combination of a few. The point is you can’t be sure of the cause. And the chances of appeal can be slim too.
The best bet is to apply from more banks. Simple but does the trick as every bank has a different assessment policy.
That is why one applicant can get a higher approved amount from one bank, but his application can be rejected or reduced loan amount from another bank.
Therefore, the safe bet is by submitting the home loan application to three to five banks in town.
This allows you to compare for the best home loan package and offer without wasting any precious time.
The reason I put Loan Amount as the number one consideration for the best home loan because it is!
For instance, if you are expecting bank A approval of an RM500,000 loan but instead it approved RM400,000 with a 3.10% interest rate.
On the other hand, Bank B is approving RM500k, but with a slightly higher interest rate, let say 3.20%.
With these two comparisons, I believe it will affect anyone decision because now the cheapest interest rates don’t seem to be attractive anymore; instead, the higher loan amount is.
I find a higher loan amount, which attracts an applicant to shift towards the bank. People who get loans from banks usually have no saving or limited saving and try not to use up all the savings to buy a house.
So Hell, Yes!
The loan amount is important, maybe the most important one.
In recent years, Home loan interest rates have been in a fluctuating mode. And believe it or not, now Home loan interest rates have been the lowest for a decade.
Not only that, it beats the LPPSA home loan interest rates, 4%.
Therefore, you can see many government servants are making their move to refinance their home loan out from LPPSA to a commercial bank.
Although, we would not recommend so if the refinancing is purely for the lower interest rates without taking any cash out.
Because in the long run, LPPSA will have more juice to stay at a lower rate as it is fixed for 4% for the whole tenure.
Nowadays, when it concerns home loan interest rates, people can be confused about interest rates.
Current Home loan interest rates are based on a floating rate. It is also a combination of Basa Rate (BR) plus whatever rates the bank offers.
For example, BR + 0.63%.
If the bank BR is 2.27%, then the interest rates charged is 2.27% + 0.63% = 2.90%.
When the BR increase or reduce, the interest rates will follow suit.
So, how to choose when two banks offer the same interest rate with different BR?
For me, this can be a tricky question and no right or wrong. It is quite subjective.
Base Rate is determined by different factors, including banks’ cost of funds, their statutory reserve requirements (SRR) account balances, borrower credit risk, liquidity risk premium, operating costs, and profit margin.
SRR is how much the bank has in their reserve accounts with BNM proportionate to their eligible liabilities.
In short, it consists of many inevitable factors that you and I cannot control.
So, when two banks head-to-head with the same interest rates, we usually look at what we can control.
Since we know, we can’t control BR. Then, we would look at the after “+” sign interest rates.
This is the part of the interest rate that is fixed. So, we usually will choose a lower interest rate.
However, before we come to this decision, there other factors to consider too.
We will look at the bank’s background, yearly and quarterly performance and financial analysis too.
The BR is affected by bank performances and financial background. So, we must look into it.
And If we like what we see, we will go for it.
Personally, we would also look at the customer service performance of a bank.
Some banks do have outstanding, trained and experienced customer service and vice versa. For us, this carries a vital point in decision making.
HOME LOAN PACKAGE
Islamic Loan vs Conventional Loan
When it comes to Islamic Loan vs Conventional Loan, both sides have many firm believers.
It is nothing wrong to choose an Islamic or Conventional loan as long as one understands the contract’s underlying terms and conditions.
If you prefer an Islamic loan, go ahead with it—no one judging you.
It is vital to understand and fully comprehend both packages have pro and cons before making the decision.
Full Flexi vs Semi Flexi vs Term Loan
Full Flexi is a premium home loan features provided by the bank.
Therefore, Full Flexi Home Loan used to be marketed on a premium interest rate, which means higher interest rates.
Nowadays, it has changed.
Most of the time, Full Flexi, Semi Flexi or Term Loan are marketed at the same interest rates.
We like the Full Flexi feature; it allows for more home loan saving and flexibility in withdrawal than Semi-Flexi or Term Loan.
Even so, Full Flexi is not for everyone.
It’s essential to understand Full Flexi or any home loan package before applying for one.
For example, the monthly RM10 fee in the Full Flexi package can be an unnecessary cost if one doesn’t fully utilise the facility.
HOME LOAN PENALTY CLAUSE
Almost all the home loan package comes with a penalty clause. The penalty clause keeps a bank client for a certain period.
Typically, the penalty clause will lock a borrower within three to five years.
The borrower cannot refinance, sell their house or fully settled the loan within this period. If they do so, the penalty fees will kick in.
Usually, the penalty fee is in the range of 3% of the loan amount.
When taking a new home loan, it is crucial to understand the clause.
For some investors, this clause can be a problem as they like to sell the property when a good offer comes in. That means, anytime.
Usually, an investor will avoid taking a home loan package that comes with a penalty clause.
MY FINAL NOTE
By the end of the day, you can choose any bank loan that fit your desires or criteria. And that will be the best bank for YOU!
For instance, Bank A might provide me with slightly higher interest rates. In exchange, the bank fulfils my other criteria or desires, like higher loan amount, Full Flexi package, Islamic loan, no penalty, good customer service, exemplary performance bank, etc.
Then Bank A is The Best Home Loan Bank for me.
On the contrary, Bank A might not be The Best Home Loan Bank for you if you want the cheapest interest rate in the market.
Therefore, stop asking people – WHICH BANK HOME LOAN IS BEST?
The answer lies in you.
Only you will know the best home loan package for yourself. No one understands you more than yourself.
If you find a particular home loan package that fulfils all your desires, then you have the winner! – The Best Home Loan Bank
That concludes our article today – WHICH BANK HOME LOAN IS BEST?
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