A guide for first time buyers in home loan application
When you apply for your first mortgage, there are many hurdles to deal with such as bank letters of offers, mortgage terms and trying to understand words like like “lock-in period” and “variable rate” .Understanding the home loan terms and agreements can be a daunting task.
To simplify it, here is a list of questions you should clarify with your loan officer before you sign the letter of offer. This could save you a lot of hassle in future.
Question 1: What kind of home loan is this?
Term Loan is a standard home loan account. However, Flexi Loan is linked to a current account. For Flexi Loans, you can deposit extra money into the linked current account to reduce your principle loan amount, or withdraw the extra money you’ve deposited as you see fit.
Question 2: What is the interest rate? Is this the best you can offer?
Most want to keep the loan interest as low as possible. Based on the experiences of many home buyers in Malaysia, it is a common tendency for loan officers to tell you that “all loan rates are the same”. However, something as small as a 0.05% difference could yield thousands of Ringgits in savings, so it would be in your best interest to get the best rate!
You have the option to apply for a few home loans, as long as you don’t sign on the letters of offer yet during the decision period. One you receive the offer letters, you may then negotiate for better rates with all the banks you’re interested to sign up with.
Question 3: Is the interest rate fixed or variable?
In Malaysia, most home loans are calculated based on Base Lending Rate (BLR), which is regulated by Bank Negara Malaysia. Say the current BLR is 6.6% p.a. and the bank offers you -2.4% p.a., it means your home loan is charged at an interest of 6.6% – 2.4% = 4.2%p.a. You pay more interest if BLR goes up, and less interest when BLR goes down. This form of calculation is commonly known as a Variable Rate.
On the other hand, some banks may offer you a Fixed Rate, which remains unchanged throughout the loan period. Say you’re offered a fixed rate of 4.2% p.a. in your letter of offer; you’d basically be paying the same 4.2% for the rest of your loan period, irregardless of the change of BLR changes.
As a home buyer, there is really no “golden formula” to determine the better option though many believe that interest rates as a whole are about to increase. So if you get a low fixed rate, it might be good to lock in your home loan at this rate.
Question 4: Can I pay more than the monthly instalment to reduce my principle loan amount?
Nowadays, banks generally do allow you to make extra payment to reduce your principle loan amount. For a Flexi Loan, you may deposit your extra funds into a linked current account. For a conventional Term Loan, you may need to inform the bank a month or a few months in advance. Ensure it is clearly stated in your letter of offer.
Question 5: Who pays the loan legal fees?
In Malaysia, taking a home loan involves legal and stamp duty fees that generally include: loan agreement fees, legal disbursement charges and government tax on legal fees. For a home loan of moderate value, this easily comes up to a substantial amount.
If you wish to avoid paying legal costs, you may look up home loan packages that come with “zero moving costs” (which basically means that the bank absorbs part or all of the aforementioned costs and charges). However, banks generally do so in return for less competitive interest rate on your home loan. So just be aware of that.
Of course what’s most important you find a mortgage specialist who is able to provide you professional advice accordingly that will cater to your financial needs and requirements. Give us a call and will be glad to assist you !