Home Loan Frequently Asked Questions (Tips by Bank Negara Malaysia)
How much can I afford?
This depends on your income and other financial obligations. As a rule of thumb, most house buyers buy houses that cost 1.5 and 2.5 times their annual income. For example a house buyer earning RM40,000 a year would buy a house between RM60,000 and RM100,000. Furthermore, the monthly loan repayment should not exceed about 1/3 of your gross monthly income. In assessing your repayment capability, the financial institution would also take into account your other debt repayments such as car loan, personal loan and credit cards.
How much can I borrow?
This will depend on the value of your property, your income and your repayment capability. Margin of financing can go as high as 95% (inclusive of MRTA). The higher the margin, the higher you will have to pay per instalment. Also, at a given rate, a shorter tenure will require you to pay higher instalment.
How long does it take to process a loan?
It usually takes about one to two weeks for your loan application to be approved from the time you supply full documentation. You should ask the financial institution for the checklist of documents required for the application to avoid any delay.
What is the difference between conventional financing and Islamic financing?
Under conventional financing, your outstanding loan consists of principal plus the interest charged on you. The interest is actually the financial institution's cost in obtaining the funds. Islamic financing works on the concept of buying and selling where the financial institution purchases the property and subsequently sells it to you above the purchase price.
Why do I need a valuation?
A valuation is required if you are buying a completed property. The financial institution requires a valuation to ascertain whether the property provides sufficient security for the loan given. It also provides an indication that the property is worth what you are paying for.
Do I need to appoint a lawyer? Can I choose my own lawyer?
Yes. You need to appoint a lawyer to draw up your loan documentation. Normally, the financial institution will provide a panel of lawyers who are familiar with their documentation requirements for you to choose from. If you prefer to engage your own lawyer, you should discuss this with your financial institution.
Who pays for the legal fees?
Generally, legal fees are borne by the buyer. However, certain developers and financial institutions may offer to pay the legal fees on the legal documentation as part of their marketing package. In addition, some financial institutions also extend financing for the loan documentation fees.
What if I run into financial difficulties and cannot meet my loan repayments?
If this happens, you should contact your financial institution to discuss a reasonable repayment program, which could include extending the tenure of the loan.
Can I pay off my loan in full earlier than the agreed loan tenure?
Normally there will be penalty charges for early loan settlement. Depending on the financial institution, penalty charges will range between 2-5% of the outstanding amount. The charges that are made will depend on the type of product you have chosen and when you decide to redeem your loan. Note that in some loan packages, there are certain minimum periods you need to observe before full settlement is allowed.
Is there any waiver of penalty fees for early loan settlement?
Any waiver of penalty fee is strictly at the discretion of the financial institution.
Why does my outstanding loan remain high at the initial stage despite the repayments made?
During the early years of the loan, a significant amount of your repayments will go towards the payment of interest. So if you make partial repayments to repay the principal sum outstanding, you make substantial savings in your interest payments and thus shorten your loan tenure.
Can I make extra payments other than the monthly contractual repayments?
This depends on the terms and conditions stated in your loan agreement. By paying in extra money each month or making an extra payment at the end of the year, you can speed up the process of paying off the loan. When you pay extra money, be sure to indicate that the excess payment is to be applied to the principal. However, if you make a lump sum payment or partial repayments to your principal loan, you must give notice to your financial institution. The notice period ranges from 1 to 3 months.
Do I need a guarantor for a loan facility?
This is at the financial institution's discretion and depends on the credit standing of the borrower.
Does the financial institution have the right to charge my loan account for any miscellaneous charges incurred by them such as late payment charges, legal costs, insurance, etc?
The financial institution's power to impose charges on your account is normally indicated in the Terms and Conditions of the loan.
How long is the grace period for payment of my monthly instalment/interest?
Generally, the financial institution gives a grace period of 7-14 days for you to repay your instalment payment. Any payment received after the grace period will be subjected to late payment charges.
When does the financial institution release the loan to the seller/developer?
For houses under construction, the financial institution will release the progressive payment to the developer based on the claim made upon completion of each construction stage as certified by the Architect's Certificate. For completed properties, the loan will be released upon completion of legal documentation or when all relevant approvals, such as the approval of the state government have been obtained.
Can I purchase a house under joint names and apply for the housing loan only under my name?
The financial institution will consider such applications on the merits of each case, under the following circumstances:
The co-owners are related as husband and wife, and one party is not working and the other party is solely responsible for the loan
The co-owners are related as father/mother and children, the parents are old and not working and the children will be responsible for the loan
However, the above is at the financial institution's discretion and they may also consider other circumstances.
If the developer abandons the project, am I still required to service my interest/instalment payments?
Yes. You are still obliged to service your loan based on the loan agreement signed between you and the financial institution. However, since the financial institution has vested interest in the property, you could discuss a repayment plan with your financial institution. You should also report the matter to the Ministry of Housing & Local Government.
What happens when the loan is fully repaid?
When the loan is fully settled, the financial institution through its solicitors, will release its charge on the property. The financial institution (chargor) will uplift his claim on the property and the title to the property will be transferred to you.
What happens in the event of death of a borrower who has not bought insurance?
The deceased's survivor/next of kin can claim through the court the rights of the deceased's property. The person will have an option to either proceed to service the loan or redeem it. However, most financial institutions make it compulsory to insure (MRTA) against such an event.
What can the financial institution do if I do not make repayments?
If you fail to make three consecutive payments, the financial institution will take the necessary actions to recall the loan. In the worst case scenario, the financial institution will foreclose the property and sell it to settle the loan. The borrower would still be liable to pay the difference between the auction price and the loan amount outstanding.
What is the most convenient way to repay my loan?
Financial institutions offer a wide range of services to make banking easier for you. Some of the alternative ways of servicing a loan include:
- Open a savings/current account and arrange for standing instructions with minimal charges (if you maintain deposit and loan accounts with the same bank, the charges may be waived)
- Through an ATM transfer
- Internet Banking
- Telephone banking service
- Deposit your cheque at the deposit machine or send your cheques direct to your financial institution
Should I consider refinancing my loan if I am offered a lower interest rate?
The main consideration in refinancing would be the costs involved. As you are clearly aware, you have incurred a substantial amount to pay for the necessary fees to obtain your first loan. For example, processing fees, legal fees, stamping and transfer fees. Refinancing means you would have to incur the same charges again. Before you decide to refinance, you should ensure that the savings from the lower interest rate is enough to compensate all the costs incurred associated with refinancing, including penalty charges, if any.
How much can I borrow?
This will depend on the value of your property, your income and your repayment capability. Margin of financing can go as high as 95% (inclusive of MRTA). The higher the margin, the higher you will have to pay per instalment. Also, at a given rate, a shorter tenure will require you to pay higher instalment.
How long does it take to process a loan?
It usually takes about one to two weeks for your loan application to be approved from the time you supply full documentation. You should ask the financial institution for the checklist of documents required for the application to avoid any delay.
What is the difference between conventional financing and Islamic financing?
Under conventional financing, your outstanding loan consists of principal plus the interest charged on you. The interest is actually the financial institution's cost in obtaining the funds. Islamic financing works on the concept of buying and selling where the financial institution purchases the property and subsequently sells it to you above the purchase price.
Why do I need a valuation?
A valuation is required if you are buying a completed property. The financial institution requires a valuation to ascertain whether the property provides sufficient security for the loan given. It also provides an indication that the property is worth what you are paying for.
Do I need to appoint a lawyer? Can I choose my own lawyer?
Yes. You need to appoint a lawyer to draw up your loan documentation. Normally, the financial institution will provide a panel of lawyers who are familiar with their documentation requirements for you to choose from. If you prefer to engage your own lawyer, you should discuss this with your financial institution.
Who pays for the legal fees?
Generally, legal fees are borne by the buyer. However, certain developers and financial institutions may offer to pay the legal fees on the legal documentation as part of their marketing package. In addition, some financial institutions also extend financing for the loan documentation fees.
What if I run into financial difficulties and cannot meet my loan repayments?
If this happens, you should contact your financial institution to discuss a reasonable repayment program, which could include extending the tenure of the loan.
Can I pay off my loan in full earlier than the agreed loan tenure?
Normally there will be penalty charges for early loan settlement. Depending on the financial institution, penalty charges will range between 2-5% of the outstanding amount. The charges that are made will depend on the type of product you have chosen and when you decide to redeem your loan. Note that in some loan packages, there are certain minimum periods you need to observe before full settlement is allowed.
Is there any waiver of penalty fees for early loan settlement?
Any waiver of penalty fee is strictly at the discretion of the financial institution.
Why does my outstanding loan remain high at the initial stage despite the repayments made?
During the early years of the loan, a significant amount of your repayments will go towards the payment of interest. So if you make partial repayments to repay the principal sum outstanding, you make substantial savings in your interest payments and thus shorten your loan tenure.
Can I make extra payments other than the monthly contractual repayments?
This depends on the terms and conditions stated in your loan agreement. By paying in extra money each month or making an extra payment at the end of the year, you can speed up the process of paying off the loan. When you pay extra money, be sure to indicate that the excess payment is to be applied to the principal. However, if you make a lump sum payment or partial repayments to your principal loan, you must give notice to your financial institution. The notice period ranges from 1 to 3 months.
Do I need a guarantor for a loan facility?
This is at the financial institution's discretion and depends on the credit standing of the borrower.
Does the financial institution have the right to charge my loan account for any miscellaneous charges incurred by them such as late payment charges, legal costs, insurance, etc?
The financial institution's power to impose charges on your account is normally indicated in the Terms and Conditions of the loan.
How long is the grace period for payment of my monthly instalment/interest?
Generally, the financial institution gives a grace period of 7-14 days for you to repay your instalment payment. Any payment received after the grace period will be subjected to late payment charges.
When does the financial institution release the loan to the seller/developer?
For houses under construction, the financial institution will release the progressive payment to the developer based on the claim made upon completion of each construction stage as certified by the Architect's Certificate. For completed properties, the loan will be released upon completion of legal documentation or when all relevant approvals, such as the approval of the state government have been obtained.
Can I purchase a house under joint names and apply for the housing loan only under my name?
The financial institution will consider such applications on the merits of each case, under the following circumstances:
The co-owners are related as husband and wife, and one party is not working and the other party is solely responsible for the loan
The co-owners are related as father/mother and children, the parents are old and not working and the children will be responsible for the loan
However, the above is at the financial institution's discretion and they may also consider other circumstances.
If the developer abandons the project, am I still required to service my interest/instalment payments?
Yes. You are still obliged to service your loan based on the loan agreement signed between you and the financial institution. However, since the financial institution has vested interest in the property, you could discuss a repayment plan with your financial institution. You should also report the matter to the Ministry of Housing & Local Government.
What happens when the loan is fully repaid?
When the loan is fully settled, the financial institution through its solicitors, will release its charge on the property. The financial institution (chargor) will uplift his claim on the property and the title to the property will be transferred to you.
What happens in the event of death of a borrower who has not bought insurance?
The deceased's survivor/next of kin can claim through the court the rights of the deceased's property. The person will have an option to either proceed to service the loan or redeem it. However, most financial institutions make it compulsory to insure (MRTA) against such an event.
What can the financial institution do if I do not make repayments?
If you fail to make three consecutive payments, the financial institution will take the necessary actions to recall the loan. In the worst case scenario, the financial institution will foreclose the property and sell it to settle the loan. The borrower would still be liable to pay the difference between the auction price and the loan amount outstanding.
What is the most convenient way to repay my loan?
Financial institutions offer a wide range of services to make banking easier for you. Some of the alternative ways of servicing a loan include:
- Open a savings/current account and arrange for standing instructions with minimal charges (if you maintain deposit and loan accounts with the same bank, the charges may be waived)
- Through an ATM transfer
- Internet Banking
- Telephone banking service
- Deposit your cheque at the deposit machine or send your cheques direct to your financial institution
Should I consider refinancing my loan if I am offered a lower interest rate?
The main consideration in refinancing would be the costs involved. As you are clearly aware, you have incurred a substantial amount to pay for the necessary fees to obtain your first loan. For example, processing fees, legal fees, stamping and transfer fees. Refinancing means you would have to incur the same charges again. Before you decide to refinance, you should ensure that the savings from the lower interest rate is enough to compensate all the costs incurred associated with refinancing, including penalty charges, if any.
posted by ebazaar at 11:47 PM
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