Look Before You Leap
10 things to check before signing your housing loan documents
The country’s property sector has taken a downturn, due to the current economic crisis faced by the Malaysian economy. The sales of property is greatly affected too.
Currently, a huge number of property units lies unsold and the number is constantly on the rise. This has been fueled by released unsold bumiputra lots and loan rejections. Even at the end of the first half of 2015, in June,we saw a 114% increase in the number of unsold property unit numbers, according to the information from the National Property Information Centre (NAPIC). Most unsold properties are in the urban areas of Kedah, Penang, Selangor and Johor states.
On the other hand, the percentage of property buyers who failed to secure property loans has increased from 29% last year to 35% during first half of this year.
In fact, home loans form a large chunk of the lending products in the Malaysian financial market offered by banks, from both the conventional as well as Islamic banking outfits.
According to Linnet Lee, chief executive officer and Stephanie Lai, certified member of Financial Planning Association of Malaysia (FPAM), home loan applicants should pay attention to certain things first before arriving at the phase of signing the home loan agreement:
- Margin of Finance
Depending on various factors, such as the value of the property, your financial standing and credit ratings, different banks may offer you different margins of financing. As you will be required to pay any amount not covered by the home loan upfront, this becomes very important especially if you’re short on cash.
As an example, for a RM800,000 house, you’ll need to pay RM160,000 upfront if your margin of financing is 80%; but you’ll only need to pay RM80,000 upfront if your margin of financing is 90%.
- Housing loan comparison
There are various comparison tools available online which let you know your home loan installment even before you have availed your home finance. Also, several online comparison tools available can compare various home loan options from different banks, and let you know the most favourable loan option.
Alternatively, customers can visit the official websites of various banks and research through their home loan options, and then decide which home loan product offering suits their financial requirements the most.
- Fees and Charges
A home loan application involves professional and government-regulated processes such as preparation and disbursement of loan agreement, payment of stamp duty and processing by the bank, just to name a few. All these processes usually come with fees and charges that will be borne by you, the buyer. In certain cases, it may also be wholly or partly borne by the banks as part of your loan packages.
Hence, is it best to sit down with the loan officers (for all the banks you are considering taking your home loan from) and have them run through the fees and charges with you. The task may be repetitive and time-consuming, but it will be time well spent.
- Fixed or floating
Home loans come at a fixed, floating, or a mixture of fixed and floating interest rate, as such, the customer usually has a choice.
For example: AIA housing loans are a great home loan product to avail. These home loans are offered at fixed rates of interest to safeguard customers against any rate hikes, however, loans are also available at floating rates of interest. AIA provides home loans for buying of new as well as old houses. AIA Home Loan can also be availed for those switching from one home finance to another. AIA offers the flexibility to repay home loans earlier than their stipulated repayment period. Besides, customers can choose from the two insurance options available along with the AIA home loans. These insurance schemes are offered to make sure that your housing loan is well covered in case of any unforeseen circumstances.
- Interest Rate
Check to see if the interest rates are acceptable.
Base Rates is the new system that has been adopted by the banks in Malaysia to replace the old system called the Base Lending Rate. The base rate is what banks use to determine the interest that they intend to charge on loans offered. The change was adopted in order to bring more transparency in the interest rates. Under to the new system, banks announce their base rate, which is the bare minimum they can charge. They also announce their margins and based on these two, the effective lending rate is determined.
The base rate changes from one bank to another and can range from 3.2% per annum to 4% per annum or more. When banks talk of interest rates, they will say that the interest rate will be BR + 1.25%. If we assume that the a particular banks base rate is 4% per annum then the effective lending rate will be 4% + 1.25%, which comes to 5.25% per annum.
- Lock-In Period
Lock-in period is the period you will incur a penalty (usually 2 – 3% of the principle loan amount) if you choose to pay off your home loan in full before it reaches the maturity.
When it comes to choosing a home loan in Malaysia, it pays to have the lock-in period to be as short as possible and the penalty as low as possible. Also, some banks do not charge a penalty at all if sufficient notice is given.
- Housing Loan Balance Transfer
Almost all major banks in Malaysia provide customers with the option of balance transfer on their existing home loans. This means that if home loan from a particular bank has a higher rate of interest, then customers can choose to shift their home loan to another bank that is offering a lower rate of interest.
This would lower the monthly home loan installment for customers, and will also lower the overall interest amount that is paid by customer to the bank. Some prominent Malaysian banks which offer home loan balance transfer facility are Maybank, Citibank, Standard Chartered, UOB etc.
- Penalty for late payment
Once you get the loan, ensure that you make all payments on time. But if there is any unforeseen occasion that may leads to late payment, do check what does the fine prints say on the penalty before signing the loan agreement.
The tenure of the loans will depend on the banks, and your capacity to pay back the amount that you borrow. The maximum tenure that banks can offer is 35 years, or until such time as the borrower turns 65 years old.
Prepayment is the early repayment of a loan by a borrower. Prepayments are either free or are charged a penalty fee, depending upon the lending institution. Do check if prepayment is allow for the non-flexi mortgage. If you can, try to go in for a prepayment as you can save a considerable amount of interest if you do.
Various banks in Malaysia allow customers to go out of their way and deposit cash over and above their regular home loan installment into their home loan accounts. This has double benefits of faster reduction of loan liability, as well as reduction in the amount of total payable interest as well.
Home loans are one of the largest commitments that one can engage in. These loans also last longer than any other loan agreement you are likely to encounter. Therefore, it is essential to understand the seriousness of the situation and what it entails. Make sure you are in control of your finances and never feel pressured into signing these documents, particularly if they are not presented in a way that warrants additional time and attention. Always stay in control over your own financial future.
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