5th April 2013 - 5 min read
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.
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.
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:
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.
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