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Home loans in Malaysia – FAQ
Home loans in Malaysia – Update: As of 2nd January 2015, Base Lending Rate (BLR) has been updated to Base Rate (BR) to reflect the recent changes made by Bank Negara Malaysia, and subsequently by major local banks.
Buying a house is probably the most important purchase you’ll ever make. Your home loan is likely to be not only your biggest household expense, but the largest financial commitment of your lifetime.
For this reason, we’ve compiled a short guide to explain how a home loan works, and what you need to know before you apply for a mortgage.
It is a comparison of your debt commitment to your income. In other words, how much of your income will be used to repay your loans.
DSR = Total debt commitments per month Total income per month
Let’s use an example. Ahmad earns RM4,500 a month. He has a car loan that requires him to pay RM800 each month and a home loan that requires him to pay RM1,600 each month in mortgages. Using the formula above, Ahmad’s DSR is 53%.
Ahmad’s DSR = RM800 + RM1,600 RM4,500
= RM2,400 RM4,500
Banks generally, will accept a DSR below 60% for all debt commitments you have. This means that if Ahmad wants to apply for a personal loan in the future, he cannot have additional monthly commitments beyond RM300, unless his earnings per month increases.
Interest rates for housing loans in Malaysia are usually quoted as a percentage below the Base Rate (BR). For example, if the current BR rate is 4.00% (Update: As of 2nd January 2015, Base Lending Rate (BLR) has been updated to Base Rate (BR) to reflect the recent changes made by Bank Negara Malaysia, and subsequently by major local banks), the interest rate on a ‘BR + 0.45%’ loan would be 4.45%. You can check all the home loan interest rates and fill in the home loan application in the home loan calculator above.
In a typical Malaysian mortgage, you make monthly payments for an agreed period (i.e. the loan tenure) until you’ve fully repaid both the principal of the loan and the interest. During the early years of the loan, the majority of your monthly repayments are used to repay interest, however, as time passes, a larger proportion of your repayments will go into paying down the principal.
We has created a housing loan calculator that makes calculating the monthly repayments easy for you. To use the mortgage calculator just scroll up to the top of this page, type in the property price that you would like to borrow and for how long. It will do all the calculations and will present you.
Base Rate (BR): BR in Malaysia is a reference interest rate used by banks to decide how much to charge for various products they offer. In Malaysia, home loans are normally quoted as a percentage above or below the BR. This means, if the BR increases or decreases by a certain amount, the interest rates charged on floating rate loans also increase or decrease by the same amount.
Down payment: An upfront payment made by the buyer of a house or car (or other highly priced goods/services). Down payments are typically expressed as a percentage of the full purchase price. For example, a 10% down payment of a RM500,000 home is RM50,000.
Foreclosure: A foreclosure happens when the bank repossesses your property and attempts to sell it in order to settle the outstanding amount on your loan. This usually happens when you consistently fail to pay your loan instalments.
Mortgage: This is an agreement with the bank to use your property as security in exchange for providing you with a loan to purchase the property.
Loan Tenure: This means “period” or “number of years”. If a mortgage has a “tenure” of 30 years, it usually means it would take 30 years to fully pay off the loan.
Mortgage Reducing Term Assurance (MRTA): This is a type of mortgage insurance. An MRTA provides protection for an outstanding loan amount (usually a home loan), in the event of death or total permanent disability of the person insured. The amount of protection reduces over time, and normally matches the outstanding loan amount.
Prepayment (of house loan): Fully or partially paying off your (home) loan before it is due.
The banks presented in the comparison table offer both Islamic and conventional loans. Islamic loans are Shariah compliant. Instead of borrowing and lending, Islamic finance relies on sharing the ownership of the assets and therefore risk and profit/loss.
Margin of Financing: the margin of financing is also known as the loan-to-value ratio. The margin of financing is the amount of your loan expressed as a percentage of the property’s value. The lower the margin of financing, the more ‘equity’ there is in the property. The margin of financing could go as high as 95% (of the value of the house), and is assessed on factors such as:
– Type of property – Location of property – Age of the borrower – Income of the borrower
Early Termination Penalty: Some mortgage lenders may apply an early termination penalty if the loan is paid off in part or in full within a specified time period, including if you refinance the loan with another lender. This specified time period where you are liable to pay an early termination penalty is called the ‘lock-in period’. Depending on the term and size of your loan, this charge can be quite significant.
Fees & Charges: There are a number of related costs (such as professional fees and government charges) that you would have to pay when you take out a mortgage.
Some common fees and charges you would expect to incur include:
Stamp Duties: Sale & Purchase Agreement (0.5% to 1.0%), Loan Agreement (0.5%) and Transfer of Title (1.0% to 2.0%)
Disbursement Fees: varies by state, land office and type of property.
Processing Fees: one time charge by the lenders (up to a few hundred ringgit).
You might choose to refinance your current mortgage in case another bank offers a lower mortgage interest rate. In order to do it, please submit your application for the bank loan that you would like to take and our mortgage consultants will contact you and explain you the details.
Disclaimer: We have made every effort to ensure the accuracy and correctness of the calculations, contents, information or data contained in this section. However, we do not represent or warrant the truth, accuracy, completeness and correctness of the same.
We accept NO LIABILITY for loss or damage suffered or incurred by your estate as a result of your reliance on the material above or howsoever arising from the use of the information or material presented herein. This page is intended for general awareness purposes only and should not amount to any form of advice.