Financing

Home Loan and Refinancing

When it comes to home loans, there are always 2 major issues that need to be considered. The first being application for a new loan while the second is in refinancing your current property.

Base Lending Rate

The Base Lending Rate or BLR is the main term you need to know about home loans and any form of loans for properties. It is imperative that you know what the loan is all about because the house you are buying could possibly be the most important purchase ever. You might have bought something more expensive in the past but the home loan is possibly the loan with the highest commitment you will get into.

Understanding a home loan in Malaysia

Home loans in Malaysia works almost the same way with any other form of loans. In fact, it is quite the same with any form of borrowing when it involves the bank. You need to consider the following:

  1. Interest Rate
  2. Duration
  3. Eligibility

For housing loans per se, Malaysian banks use a percentage below the BLR. They are usually calculated based on BLR + X%. If X here is 0.5% and the BLR at the moment is 4% then the interest rate is 4.5%. Take note that the BLR is decided and subsequently announced by the central bank in Malaysia, Bank Negara Malaysia.

Duration of Loan

In Malaysia, when you enter into a home loan, you must decide on the monthly payments for a duration. This is known as the agreed period or sometimes called the loan tenure. In other words, it is the time taken for you to fully repay the loan in its entirety. In most cases, you will be servicing the interest in the beginning of the loan. Later on, the repayments will be for the principal amount.

Important Terms used in Home Loans

Besides BLR, there are several other terms that you need to be aware of. The BLR is the first thing you need to know but once you understand how it works, you need to understand the rest. They are as follow:

The Down Payment

When you apply for a loan, the down payment is the first payment you need to have. Similarly to a car loan or hire purchase, the down payment in Malaysia usually is at 10%. This means that if the house is RM400,000, then you need to have at least RM40,000 before your loan can be processed.

What about foreclosure

This term is used to express the situation where you are unable to pay for the loan or service the full tenure. It is when the bank repossesses the property. What the bank intends to do really is to try to sell it so that it can pay off your loan. In most cases, the bank will not be too concerned if you fail to pay one or two months of the instalments but if it becomes too often, then foreclosure is required.

Loan Tenure

This refers to the period of time taken to fully pay off the loan. It is sometimes expressed as period or number of years. However, some banks use number of instalments expressed through 12 months per year. The common period taken for home loans can be 20 to 35 years depending on the bank and financial institution offering the loan.

Mortgage Reducing Term Assurance (MRTA)

An MRTA is actually a type of insurance for mortgage. What it does is that it gives some form of protection in the event where you are unable to service the loan for the outstanding loan amount. Inability to service the loan here refers to situations like death or permanent disability or other unforeseen circumstances. Over time, the amount of protection will reduce to match the outstanding amount because your loan will be lesser as time progresses.

Prepayment of home loan

This happens when you want to fully pay off the loan before the due date. In most cases, there is some form of penalty involved as the bank would want you to fully service the loan until the end of the tenure. You can actually choose to fully or partially pay off the loan but the deal here is to actually ensure that you continue paying as long as it takes which is where the bank makes its profits from.

What about Refinancing

This term is used to refer to the situation where you want to apply for a new loan for your property because there might be another bank offering a lower interest rate. Refinancing means you are paying off your current loan and then entering into a new one which means you might free up some extra cash.

Why do you need to refinance your home loan?

Only under certain circumstances would you need to refinance your property. Here are some of the reasons that you want to enter into a new loan:

  1. Interest rates – Applies when you have a home loan for a long time and the interest rate is high due to the economic situation at the time of application
  2. Cash flow – You will be able to get some extra cash when you refinance your property after servicing it for a while. This is because you will use your current paid amount as the ‘downpayment’
  3. New features – You might be attracted to some new features of a new loan package offered by a certain bank. This could be flexibility or other reasons
  4. Changing bank – you might want to refinance your property because you’d like to change the bank you are working with

The best home loans

Most if not all banks will offer home loans in one way or another. Some are very standard loans while there are some which offer very flexible packages. Below are some common ones:

  1. Maybank MaxiHome Flexi Loan – starts from 4.6% interest with a lock-in period of 3 years. Comes with daily rate interest calculation and flexible withdrawal of excess payments
  2. Affin Home Solution Plus – Interest rates from 0.66% plus BLR with daily interest calculation and margin of financing up to 95%
  3. Affin My First Home Scheme – Perfect for first time home buyers with 0.76% plus BLR interest
  4. AIA Fixed Rate Home Loan (ZMC) – 4.99% interest rate with zero moving cost and flexible repayment period
  5. Alliance Bank Conventional Home Financing – interest rates from 5.1% and is one of the most basic forms of home loans without any monthly maintenance fees
  6. AmBank Home Loan – 4.56% interest rates with a great option to make extra instalments to reduce interest.
  7. Bank Islam Baiti Home Financing-i – interest rate below 4.5% and up to 90% financing
  8. Bank Rakyat Home Financing-i – attractive interest rate of up to 95% margin of financing and can go up to 35 years or 70 years old
  9. CIMB Home Flexi – Below 5% interest rate with flexible repayment and up to 90% margin of financing
  10. Citibank FlexiHome Loan – below 4.6% interest with flexibility to deposit and withdraw excess anytime
  11. KFH Ijarah Mawsufah Fi Al-Zimmah Asset Acquisition Financing-I – Anyone from 18 years old can apply for this which comes with a 90% margin of financing
  12. RHB My1 Full Flexi Home Loan – Attractive interest rate of up to 35 years loan tenure
  13. Public Bank ABBA HomeSave Financing-I – up to 90% margin of financing of up to 35 years and interest rate of below 4.5%
  14. ICBC Home Loan – this loan gives you up to 30 years and 90% margin of financing and very attractive interest rate