As you take your first step onto the property ladder one of the most important aspects to consider will be your financing options. With so many banks aggressively pushing their mortgage packages at you it can get a bit overwhelming. If you make the wrong choice or are not prepared with the right information you could end up with a home loan that doesn’t suit your budget and a monthly prepayment plan that’s a huge burden to manage.
At RinggitPlus we believe that everyone should enjoy financial freedom, the first step toward this goal is to empower ourselves with knowledge. To get you started, we have put together a mini-guide for your benefit. Think of it as a checklist of things to consider before you decide to make that down payment on your dream home, or even the commitment towards a home loan.
How much can I borrow?
Generally, you want to be comfortable with a monthly installment that is less than one third of your monthly income. You should also take into account other commitments such as your car loan and/or credit card repayments. Don’t over commit yourself with too much debt, have a think about your savings plan and lifestyle spending choices.
Choosing the right type of home loan
Traditionally, most Malaysian banks have offered either a conventional fixed term loan or flexi-loan. However these days it is not unusual to find banks offering multiple loan packages in which installment plans are tailored to your personal finances.
The easiest approach here is to do a comparison of all the interest rates and service charge. Generally speaking, the simpler plans, such as fixed term loans, tend to offer slightly lower interest rates. Be mindful of loans that offer a lot of fancy benefits as they usually come at the cost of a monthly account fee, or higher interest rates. Flexi-loans might be more attractive to business people who benefit from the convenience of an overdraft and the use of a cheque book. For those on a fixed budget banks will recommend a more straightforward plan, such as a conventional fixed term loan.
These days, more and more banks are moving towards semi-flexi loans, with some offering to waive maintenance fees and advance payment notices. whilst maintaining attractive interest rates. Keep in mind that not all of the offers are in black and white and details could vary depending on your income and credit score. Always double check with the loan officer and don’t be afraid to ask for extra privileges. Remember: if you don’t ask, you don’t get.
Regardless of which type of loan you choose, make sure it’s really the right one for you because you’ll be subject to a lock-in period with your lender for two to three years. This means you will not be able to refinance your property with another bank, nor settle your loan in full. Doing so will usually incur a 2-3% penalty based on your initial property financing.
Purchasing a property can come with hidden costs. These could pop up either in the initial buying process, or during the loan tenure. Here are a few things to watch out for:
- Insurance – Your home will probably be the biggest investment you will ever make, so protecting it is mandatory. You can purchase either a Mortgage Reducing Term Assurance ( MRTA) or Mortgage Reducing Term Takaful ( MRTT). Depending on the terms of conditions, most of these insurance plans will ensure that your current home loan will be settled should you face total and permanent disability, or death.
- Stamp duty and legal fees – You will need to hire a lawyer to prepare your sales and purchase agreement in addition to your loan agreement, and pay the necessary government stamp duties according to the stipulated regulations. Note that some banks offer a fee waiver or discount on stamp duty. Always ask about fee reductions when taking to your loan officer.
- Delays and penalties - The process of purchasing a property is long and drawn out. Take note that you may be penalised if there are any delays in the completion of the paperwork. Speak to your lawyers and ensure you are aware of any deadlines for payments and draw-downs.
- Building maintenance fees – A common burden for those buying an apartment or condo. This is a monthly fee that must be paid to enjoy the services offered in your condominium.
- Utility deposits – Basic necessity bills required to obtain electricity, telephone and water supply.
- Quit rent and assessment fees – Your annual quit rent covers the tax for the land your house is built on. The assessment fee is to be paid twice yearly to your the local council, according to the locality of your property.
Once you are armed with correct and adequate information, and once you have invested some time doing the number-crunching, this process will not be quite so scary. Your first home loan will be a commitment that you will be able to manage with confidence.