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Home Loan is a traditional term loan that lets you opt for either a
variable or fixed rate; single tier or multi-tier rates. Few individuals
have enough savings or liquid funds to enable them to purchase property
outright. It is normal for home purchases to be funded by a home loan.
Effective 2 January 2015, Base Lending Rate (BLR) is replaced by
Base Rate (BR). Need to know how BR
works or any questions on BR? You
also can check the latest BR here.
When you
take out a home loan in Malaysia, you enter into an agreement with the
lender (usually a bank) and promise to repay your loan over an agreed
length of time (also known as the “loan tenure”). Interest rates for
housing loans in Malaysia are usually quoted as a percentage above the
Base Rate (BR).
For
example, if the current BR is 4.00%, the interest rate on a “BR + 1.40%”
loan would be 5.40%.
In a typical Malaysian home loan, 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
home loan, the majority of your monthly repayments are used to repay
interest on the loan, however, as time passes, a larger proportion of
your repayments will go into paying down the loan principle.
Because your housing loan interest is calculated based on what you owe
on your home loan each month, by paying a little bit extra each month,
the interest on your loan in subsequent months will be lower. Check the
latest home loan Base Lending Rate (BLR)
/ Base Rate (BR) here.
Some
factors you need to be aware of when you choose a home loan
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 home
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 home loan, this charge can be quite significant.
Home Loan 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 home loan. Some common fees and charges you
would expect to incur include:
1) Stamp duties: Sale & Purchase Agreement (0.5% to 1.0%), Loan
Agreement (0.5%) and Transfer of Title (1.0% to 2.0%)
2) Disbursement Fees: varies by state, land office and type of property
3) Processing Fees: one time charge by the lenders (up to a few hundred
Ringgit).
Islamic Financing
Islamic Financing avoids interest-based transactions (riba), and instead
introduces the concept of buying something on the borrower’s behalf, and
selling it back to the borrower at profit. In place of interest, a
profit rate is defined in the contract. Like Conventional Financing,
profit rates can be a fixed rate, or based on a floating rate (e.g.
BFR).
The majority of Islamic home financing options in Malaysia today are
based on the Bai Bithamin Ajil (BBA) concept. A small number of
alternatives are based on the Musyarakah Mutanaqisah (MM) concept.
Bai Bithamin Ajil (BBA)
The principal amount, tenure and profit rate determines the “sale price”
and the profit earned by the lender. Like Conventional financing,
payments are deferred over installments.
The loan contract for BBA Islamic Financing is known as a Sale and
Buy-Back Agreement.
Musyarakah Mutanaqisah (MM)
Musyarakah mutanaqisah or diminishing partnership is a form of
Musyarakah (partnership) in which one of the partner promises to
purchase the equity share of other partner gradually until the title of
the equity is completely transferred to him. This transaction starts
with the formation of partnership, after which buying and selling of the
equity take place between the two partners. One partner may lease his
share of the asset to the other partner on Ijarah (lease) basis. The
partnership will come to an end with one partner being the sole owner of
the asset or business venture.
Common
Home Loan Terms
Base Lending Rate (BLR): The BLR is a reference interest rate
used by banks to decide how much to charge for various products they
offer. It is a rate that takes into account banks’ cost of operations,
and is typically similar among the major banks. In Malaysia, home loans
are normally quoted as a percentage above or below the BLR. This means,
if the BLR increases or decreases by a certain amount, the interest
rates charged on floating rate home loans also increase or decrease by
the same amount. Read More
on BLR
Effective 2 January 2015, Base Lending Rate (BLR) is replaced by
Base Rate (BR). Need to know how BR
works or any questions on BR? You
also can check the latest BR here.
Downpayment: An upfront payment made by the buyer of a house or
car (or other highly priced goods/services). Downpayments are typically
expressed as a percentage of the full purchase price. For example, a 5%
downpayment of a RM500,000 home is RM25,000.
Foreclosure: A foreclosure happens when the bank repossesses your
property and attempts to sell it in order to settle the outstanding
amount on your home loan. This usually happens when you fail to pay your
home loan.
Loan Tenure: This means "period" or "number of years". If a home
loan 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.
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