Housing loan: How to apply as a first-time homebuyer in Malaysia
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Many people like to have their own place to live. However, acquiring your first home is not only the most exciting investment you will ever make in your life; the process also takes a significant financial commitment, and one bad decision might be fatal to your finances.
On the other hand, unless you are a millionaire or have a trust fund, you will almost certainly require a home loan. Applying for your first one may seem intimidating, but there are complete measures to take in order to apply for a home loan in Malaysia and make your aspirations a reality.
What to do before applying for a home loan?
First and foremost, if you have already found your dream home, it is recommended to use a home loan calculator to calculate a mortgage range with monthly repayments you can afford.
How much you can borrow is basically known as the Loan-to-Value (LTV) ratio or the margin of finance, and it is quite common to get around a 90% LTV for residential mortgages or home loans in Malaysia. In addition, “Malaysia My First Home Scheme” (Malaysia Rumah Pertamaku) provides qualified first-time homeowners with a 100% LTV, which means they can acquire a full loan.[1]
Different types of housing loans in Malaysia
Property loans come in a variety of forms. Each home finance package or plan is different and offers unique incentives to meet a variety of financial needs.
1. Basic Term Loan:
A basic term loan has a fixed repayment schedule, which means you will pay a fixed monthly loan installment throughout the loan tenure. However, due to its fixed nature, you cannot reduce the outstanding debt by making advance payments. Instead, any advanced payment will offset the incoming installments, so you will not save any interest or profit costs. Plus, if you wish to make an advance payment for your basic term housing loan, the process can be tedious as well, whereby you may need to visit the bank or write a letter to the bank to make a request.
2. Semi-flexi/Full-flexi loan:
A semi-flexi loan also has a fixed repayment schedule throughout your loan tenure. But the key difference is that you have the option to make advance payments on top of your scheduled monthly installments to cover the principal debt, which accrues interest.
The additional payments that you have made will automatically be deducted from your principal which is the initial loan amount that you borrowed from the bank. This will then help lower the interest rate charged on your installments. This will therefore help to reduce the interest rate on your installments.
For example, if your monthly instalment is RM2,500 and your outstanding principal amount is RM300,000, and you recently received a bonus of RM10,000 that you intend to use as an advance payment to your home loan, you can do so. The RM10,000 will clearly be shown as an advance payment in your online banking dashboard, and the bank will only charge interest on RM290,000 and thus reduce the monthly interest charges.
Finally, a full-flexi loan is an enhanced version of a semi-flexi house loan because this loan comes with a linked current account that will automatically deduct your installment as scheduled every month.
A full-flexi loan, as opposed to a semi-flexi loan, allows you to easily reduce your interest or profit charges by depositing any excess cash you have to the associated current account, and this amount will offset against the outstanding principal balance and therefore reduce the interest or profit charges.
A full-flexi house loan also allows you to withdraw extra funds from your current account whenever you choose without incurring penalties or charges (unlike a semi-flexi home loan).
