When you are looking for a home loan to finance your property buy, making the right choice is crucial.  

That is how you will be able to manage the monthly installment properly and improve the return on your investment.

Generally, most home loans in Malaysia operate on the reducing balance method but reading the fine lines is crucial.

Here is our guide to help you make a worthwhile choice.

1. What Types of Home Loan that the Bank Offers?

When you are looking at home loans across Malaysia, there are primarily three types.

You have to carefully understand how each one operates.

The type of your income and the extent of it will also have a bearing on the type of loan that you choose.

That is how you will be sure about which one’s the best fit for you.

a) Non-Flexi Loan

This is also known as the basic term loan in housing finance.

This is the type of loan that comes with a fixed schedule of repayment. Your monthly installment remains the same through your entire tenure.

In this case, you generally do not have the option of pre-payment or reducing your interest thereby.

Whatever advance payment is adjusted against future installments but the total interest on the loan remains the same.

Needless to mention, these are not very popular anymore. Customers are spoilt with many choices of several other flexible payment options, and this is no longer a preferred form.

But normally banks can offer better interest rate for non flexi loan.

b) Semi-Flexi Loan

As the name indicates, this is the type of housing loan that has a reasonable amount of flexibility about it.

This type of loan has some distinct features that include

  • Advance payment of the loan
  • Lower the overall interest payment with the advance payment

The best part of this type of loan is the advance payment goes towards reducing the principal over and above the monthly installment.

So as a result, your overall interest too comes down with every slab of advance payment.

As per the name mentioned, semi flexi loan is not 100% liquid compare to fully flexi loan.

But in a dire situation, you also have the flexibility to withdraw any advance payment that you may have made, but for that, you will have to pay the bank some processing fee per withdrawal.

This is one of the most preferred loan options compare to non-flexi loan if you have a flexi income amount.

You can always use your savings to pay up the loan in advance and save on the additional interest amount.

c) Full Flexi Loan

It is undeniably one of the most flexible loan options when you are looking to finance your property.

This full-flexi home loan actually takes the concept of flexibility to an absolutely new level.

Whether you are making advance payments or withdrawing the same, it lets borrowers have their way minus the procedural hassles.

No charges, no complicated procedures, as a borrower you can choose to repay your loan your way.

In this, your property loan account is connected to your bank current account, and the installment is auto-debited.

Every time you deposit additional amount in the current account, you reduce your principal amount and the interest on it slowly and steadily.

2. What is the Interest Rate?

The interest rate is typically what you have to pay in addition to the principal amount that you take up as a home loan. 

This can be either a fixed rate of interest where the interest rate remains the same irrespective of market condition.

The floating rate of interest adjusts as per market conditions. If you expect the interest rates to go down in the near future, you can opt for this type of interest rate.

Moreover, check for the degree of flexibility and the basis on which the interest rate is charged.

Most home loans in Malaysia work on the principle of reducing balance. But you have to be careful about the exact details of your loan.

When you are looking for the right home loan option, the rate of interest is one of the most important deal clinchers for you.

In Malaysia, this is generally calculated on the basis of the Base Rate Structure now. So make sure that you snoop around well and undertake thorough research.

The Base Rate is dependent on factors like the cost of fund, credit risk and the like. So it is better to look up for loans offered by banks with higher cash reserve and better efficiencies.

The chances are you will be able to negotiate a far more favorable deal for yourself.

Look for banks that are offering the lowest interest rate. This will not just reduce the monthly installment amount but it will also improve the return on your investment.

This is because every percent of interest rate that you can negotiate for, it is that many percents of savings that you are undertaking. You have to be therefore careful about making a prudent call.

3. How Long is the Lock-In Period?

When you are dealing with home loans in Malaysia, this is that one crucial fine print that you will want to pay attention to.

In the context of a housing loan, the lock-in period refers to the period that you will have to pay penalty for if you prepay the entire loan amount or when you refinance your loan with other banks.

Normally borrowers are more busy checking the interest rate and do not realize what they are getting into till it is really late.

So the lock-in period on a loan is as important as the rate of interest on it. This lock-in period on loans can range from anywhere between 2-5 years, and the penalty could be anywhere between 2-3% of the entire loan amount.

For example, let’s say you applied for a RM500,000 home loan. This has a lock-in period of 5 years, and you will be charged a penalty of 3% if you prepay this amount before the stipulated 5 years.

So your penalty will be RM15,000. It is very important to check if this risk-return ratio is justified.

Normally home buyers tend to overlook this point when they are applying for home loans. The basic premise is you are negotiating for the best rate for a pre-decided tenure.

But let us think of a situation where you need urgent money and are keen about selling of the property. Or it may so happen that you get the opportunity to refinance your loan at a way better rate elsewhere.

But if you opt for a loan with a long lock-in period, you may have to part with a significant amount of that profit from the investment as a penalty. So make sure that you make a prudent choice and pay attention to details.

4. What is the Loan Amount That You Are Able to Get?

The loan eligibility depends on a large number of factors like your income, your existing debt and many such factors.

It is important to take everything into consideration before you go ahead and apply for a fresh home loan. Normally you will never be able to get 100% of the loan amount.

You will have to pay a certain downpayment and have to organize that separately.

You can calculate your monthly loan installment amount using a House Loan Calculator here.

You can easily feed in your monthly income details and select the type of loan. This will give you a definitive idea about the maximum amount of loan that you can hope for.

For your first two residential property, normally you can borrow up to 90% loan in Malaysia. But it is subjected to your financial track record and this will always differ from case to case and bank to bank. 

While for your 3rd property, maximun loan amount you can borrow is 70%.

In this context, your credit score can be a crucial factor too. Those who have a relatively higher credit score may see relatively more flexible terms from the bank.

But these also would depend on the type of property that you are applying the loan for.

The condition of the property, its strategic positioning and the expected return on investment do play a role in deciding the exact loan amount that you can hope to receive from the bank.

The specific bank in question can also matter.

Some banks operate on relatively more flexible terms compared to others. So, you have to take into consideration all of these factors and then go ahead with your loan application.

That will help you get the most favorable terms and extent of loan that you may need.

5. How Stringent Is the Bank in Giving Out a Housing Loan?

The bank’s independent policies are crucial and need to be taken into consideration when you are applying for home loans.

Given the overall sluggishness in the economy, getting a home loan is no longer as simple as it used to be. Banks are quite cautious about giving housing loans right now.

Most time every housing loan application is assessed on a case by case basis. It means that just because your neighbor got the loan does not mean you will and the vice versa.

Another easy option is to contact the panel bakers associated with the specific developer that you are planning to buy the property from. Most times these banks and developers work in tandem.

As a result, the procedural hassles are significantly lesser in this case, and you can always have a better chance of getting your housing loan application approved by them a lot more smoothly.

6. How Fast Can the Bank Approve Your Loan?

Now, this is again a subjective element and one of the many uncertainties that you have to deal with when applying for a housing loan in Malaysia.

On average, banks take about one week to process the housing loan application. You can hope to hear before or within a week of applying.

But in some special cases, it can even extend till about 10 days if the bank feels the need for.

But there are some banks which may run special schemes for a limited time for fast-tracking your application.

It is possible that in several cases your application may be approved in 48-72 hours, subject to the conditions decided by the bank.

Your annual income and the nature of your employment also have a bearing on how fast the bank approves your loan. So compared to someone with a fixed monthly salary and ones with permanent employment, a freelancer’s loan may take longer to get approved.

Your savings and other assets too sometimes play a role in deciding how fast the bank approves your loan.

Conclusion

For most homeowners in Malaysia, the choice for a home loan today is between a semi-flexible or a full flexible loan with a favourable interest rate.

But we also need to properly pay attention to details like lock-in period and penalty amount.

Most importantly, you have to improve your finance scoring first before applying for the house loan.

That will improve the chances of your application being accepted.