Are You Ready For the Added Money Responsibilities of Home Ownership?

Ready to buy your first home? You've probably worked out the loan amounts and legal fees but do you know there are many other costs associated with being a home owner?

In the market to buy your first home? Well, that’s an awesome aspiration but unfortunately it also places a financial load on your shoulders. Are you 100% financially ready for such a huge purchase and the commitments that follow?

Apart from the loan instalment that you’ll be making each month as well all other payments related to the purchase of the home (legal fees, valuation costs, bank charges), you’ll also be presented with periodic outgoings that if not managed well can really burn a hole in your pocket.

Let’s run through the additional costs to bear for the home owner. Here are the typical expenses you can expect to incur.

1. Utility Registration

If you want to use electricity in your home and we suspect you most likely do, then prepare to part with some cash to register an account with TNB and all related utility companies.

The top priorities would be electricity & water with optional utilities such as a phone line (not a must these days) and cable points for internet if you’re home is not already equipped.

On top of a registration fee, you are also required to pay a deposit to the utility company, we won’t list them all here but using TNB as an example, you can expect to pay anywhere from RM170 to RM1,600 depending on the type of property and power supply installed.

The respective websites of Malaysia’s utility companies provide more information on deposits and registration fees, so be sure to check them out.

2. Property Taxes

Home ownership also means more taxes and here’s the two you’ll be required to pay:

a) Assessment tax is based on the value of similar properties within your area multiplied by an assigned rate that is different for each administrative zone. These taxes are used to fund the activities of the city council (DBKL or MBPJ) for upkeep and maintenance costs.

Note that you’ll need to pay the assessment tax in two installments a year.

b) Quit rent is imposed on the land on which your property is built as a form of ‘rent’ for using the land. The rather nominal fee is collected by the land office of your state government and costs less than RM100 per year (depending on size of land, location and other factors).

3. Insurance

Taking on the long-term responsibility of a property purchase and by default, a mortgage, leaves you liable to pay back every last cent of said mortgage (and then some).

So what happens if you can’t repay it due to permanent disability or death? Sadly, you’ll likely lose your home. The good news is that you can protect your mortgage with a Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA) plan. The not-so-good news is that it’s going to cost you.

The MLTA costs more, is a recurring payment, and can be insured for a specific value, meaning if there is a balance after covering the loan, it would go to your beneficiary.

On the other hand, the MRTA is a one-time fee that can be calculated into your loan, costs less and only covers the remaining balance of your mortgage.

Which is better? Both will sufficiently protect your mortgage but consider your long-term budget and goals before making that decision.

A noteworthy mention for property-related insurance is a home contents insurance plan which, as its name implies, insures valuable items in your home from theft, natural disaster or damage from major events such as an explosions, riots and vandals.

Costs are difficult to estimate due to its contingency on the level of coverage needed and the amount of items to be included in the policy.

4. Maintenance / Service Charges

Condominiums, serviced suites and residential estates which require property management companies to oversee upkeep activities may impose a maintenance or management fee. The fee is roughly estimated at a minimum of RM150 per month and may be separate from security charges or all inclusive. For low cost apartments, owners can expect to pay around RM35-RM70 per month in maintenance.

Nowadays, many residential areas have guards posted at main entrances and exits even if it is not a gated or guarded community. They form makeshift barrier gates, work out of portable guard-house cabins with the guards running checks a few times at night.

The service is optional, not comprehensive and is much cheaper than you would pay for professionally guarded communities, these fees run from RM20 to RM60 per month.

5. Sinking Fund

Somewhat like an emergency savings account, and mainly for condominiums, a sinking fund (or special fund) is collected and utilised for major repairs or works done to preserve the building. Unlike maintenance fees, the permission of the owner is required before funds can be used.

Some property management companies may apportion out funds received from the maintenance fees towards the sinking funds reserve while others collect it separately.

Management of sinking funds tend to be a grey area since owners may not be clear on how much of the maintenance fee is channeled into the sinking fund reserve. So do clarify beforehand, the exact percentage or amount, you don’t want to be surprised with a separate sinking fund collection later on.

Owning your own home is a fantastic goal to aspire towards, however, jumping the gun and making that purchase before you are financially ready could make things very stressful.

Make it a point to have a realistic idea of how much cash you’ll actually need. This info will go a long way toward minimising financial surprises and it doesn’t hurt to have rainy day savings, it’ll keep you covered when those surprises do pop-up.


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