The road to owning your own home is long, winding, and kind of expensive. If you thought the down payment was the only sum you’d have to fork out, think again. As a prospective owner, are you fully aware of all the fees you might need to bear?
Let’s run through the various costs you’ll incur on the road to home ownership.
Costs Related to Stamp Duties
In relation to home loans, Stamp Duties are a type of tax levied on legal documents, calculated against a percentage of the home’s value or purchase price. In Malaysia, stamp duties are placed on three main documents:
Sale and Purchase Agreement (SPA), this contract outlines the terms of a transaction between buyer and seller for the sale and purchase of a home. The SPA’s stamp duty uses a progressive fee structure of 1% on the 1st RM100, 000, 2% on the next RM500, 000 and 3% for remainder.
A Loan Agreement differs from the SPA in that it draws out the terms of a loan between the bank (and other authorised financiers) and buyer. The stamp duty rate on a loan agreement is 0.5% of the loan amount or RM5 for every RM1, 000.
Transfer of Title applies to all completed properties only and represents the fees associated with changing the name on the ownership of a specific property to its rightful owner, usually the purchaser. The Transfer of Title stamp duty computation is the same as the SPA.
However, in line with the Malaysian government’s initiative to reduce costs on home ownership, a 50% stamp duty discount will apply for transfer and loan agreements on residential properties as of 1st Jan 2015. The offer is for first-time buyers intending to purchase properties valued at RM500, 000 and below.
To breakdown the fees or calculate stamp duties based on your own loan amount, try out the Valuation and Property Services Department’s stamp duty calculator.
Costs Related to Legal and Bank Fees
Disbursement Fees cover registration as well as bankruptcy and land searches. These payments are payable to the Land Office and Insolvency Department and vary from state to state making it difficult estimate. A reasonable range would be from RM300 to RM1, 500.
Other Legal Fees are charged by property lawyers for the SPA as well as the loan agreement. Both contracts follow the same fee structure of 1% on the first RM150, 000 and 0.7% on the subsequent RM1mil.
Do take note; the SPA legal fees are calculated based on the purchase price of the home whereas the loan agreement is calculated on loan amount only.
There are also Processing Fees are charged by the bank as an administrative cost to process a loan and is only incurred one time per application. The costs range as follows, RM50 for loans up to RM30,000; RM100 for loans of RM30,001 to RM100,000; and RM200 for loans above RM100,000.
Valuation or survey reports are necessary for a bank to ensure that the loan amount is equivalent or less than the value of the house. The report is usually carried out by a recognised real estate valuation firm selected by the financier bank and costs are borne by the buyer.
Valuation fees are calculated as follows, 0.25% on the first RM100,000 and 0.2% on the remaining up to RM1.9m. For a full fee structure, you can check the Board of Valuer's Valuation Fee Schedule.
Costs Related to Insurance
Before giving out a loan, some banks make it a requirement to insure the property and protect it against the unfortunate event that the loan bearer suffers permanent disability or death, and is unable to service the loan.
These types of loans are called Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA). The payment for MRTA-type insurance is a one-time fee and its coverage reduces simultaneously with the decreasing balance of your loan over time.
The MRTA’s beneficiary is the bank, whereas the MLTA‘s can be conferred to anyone, is more expensive, has a recurring fee and includes a cash value to be paid to the borrower’s beneficiary after settling the bank’s loan.
The premium for the MRTA is based on age, loan amount, interest rate and loan tenure. Thus, it is hard to give an estimate for this type of loan, and as not all banks make it compulsory to purchase.
What is My Total Cost Beyond Downpayment?
Here is the tally of estimated additional fees, not including your down payment and MRTA (and other general insurance), calculated for a residential property purchase price of RM500,000 with 90% margin of financing.
|Stamp Duty on Sale and Purchase Agreement||RM9,000|
|Stamp Duty on Loan Agreement||RM2,250|
|Stamp Duty on Transfer of Title||RM9,000|
|Disbursement Fees (also including fee for transfer of ownership title, loan facility agreement fees, SPA stamping and legal disbursement fee)||RM1,500|
|Legal Fees on SPA||RM3,950|
|Legal Fees on Loan Agreement||RM3,600|
|Total Additional Fees||RM30,550|
All costs are rough estimates and will vary due to differing interest rates and between providers. Whilst all care has been taken in computing the numbers - we advise you seek professional estimates based on your personal case.
Is There Anything I Can Do to Reduce the Costs?
The additional costs represent a very real barrier to entry for home purchases, especially for young buyers and even those with middle income levels.
However, since developers are keen to sell their products, you should look out for various sales packages and offers that help limit the financial burden on the buyer.
Motivated developers have been to known to absorb legal fees, some stamp duties and even insurance costs.
Banks too help out by offering zero entry costs packages for certain loan amounts or at the very least subsidise some of the fees.
In other cases, banks may also finance these additional costs such as the MRTA premium into the loan. This would increase the sum of your monthly instalment and incur more interest costs overall, so if you can afford paying the premium, try to avoid adding it into your loan.
Even though it seems that the additional costs beyond your down payment are high, go ahead and do your research, then research some more. This is to equip you with negotiating tools to ensure you are getting the best deal.
More importantly, try to carefully recognise what is and IS NOT included in your sales offer and loan packages. Beware of anything that sounds too good to be true because more often than not, they are!
Still if after you have tried you best and find that you still cannot afford your dream home, don’t fret, it’s probably a sign that you might not be ready for home ownership just yet or maybe you could adjust your preference by starting small. Whatever you decide, be sure it’s right for you in the long run.