For Malaysian first home buyers: Tips for getting home loan

Most Malaysians probably thinking there is nothing more intimidating which is signing up for home loan to buy a house for the very first time like your very first house in Malaysia. Not only you are making final decision which could affect the best part of working life; you will also need to deal with bank letters of offer that contain jargons that you don’t understand  and loan officers saying words like “lock-in period” and “variable rate” with seemingly intention other than to make you confuse.

However, many Malaysian first-time buyers ended up signing on the dotted line without truly fully understanding the terms of their loans. There could be few reasons like wanting to look good in front of the loan officer and constantly pestered into signing without reading the terms and conditions on the papers. For first time home buyers who think banks terms and conditions are too time consuming to read and understand, there are few questions you should be get it clarify with your loan officer before signing the offer letter. Don’t worry to ask questions as it could potentially save you tons of headache and regrets many down the road, better be safe than sorry later on.

Here are some key questions for you to ask:

Question 1: What is this home loan about?

First off, the basic and easiest question, find out if the loan offered is a Term Loan or a Flexi Loan. In layman terms, the term loan is a standard home loan account, as for flexi loan is linked to current account. For flexi loan, you are able to deposit extra money into linked current account to reduce your principle loan amount or withdraw extra money that you have deposited as you may see fit. Usually, it is just a fee of RM10 per month to maintain the said current account.

Question 2: Is this interest rate the best offer for you yet?

With any matter involves in borrowing money, keeping the loan interest as low as possible is ideal for now. Based on sharing experiences from many home buyers, it is common tendency that for loan officers to let you know that “all loan rates are the same”. But, there is something as small as 0.05% difference could yield thousands of Ringgits in savings so that it would be in your best interest to get the best interest rate. Imagine the thousand Ringgits can do for you.

You may apply for multiple numbers of home loans from different banks as much as three for comparison purposes, as long as you don’t sign the offer letter. You can bargain and negotiate for better rates with all the banks you are interested to sign up with.

Question 3: Is the interest rate fixed or variable?

Most of the home loans are calculated based on Base Lending Rate (BLR) that’s regulated by the Bank Negara Malaysia, click here to check for the updated news on BLR. 

For example the current BLR is 6.6% p.a. and the bank offers you at 2.4% p.a. this shows that your home loan is being charge at the interest of 6.6% - 2.4% = 4.2% per annum. You tend to pay more if BLR goes up and lesser interest when the BLR goes down. This calculation is also known as Variable Rate.

Meanwhile, some banks may offer you Fixed Rate, which remains the rate unchanged throughout loan period. For example, you’re offered a fixed rate of 4.2% p.a. in your offer letter. Basically, you will be paying the same 4.2% during your loan tenure no matter how the BLR changes.

Being a home buyer, there isn’t really “golden formula” to determine better option though many believers insist interest rates as a whole about to increase. If you get a low fixed rate, it would be good to lock in your home loan at this rate.

Question 4: What happens if I settled the loan early?

At times, you wish to refinance your home loan, shorten your loan period or pay it off entirely. This requires you to cancel your loan agreement before loan period in the form of early settlement.  If this happens during the “lock in” period, you will have to pay penalty. In Malaysia, the “lock in” period is usually three to five years though some do not have lock in periods at all. The penalty charges range from 2% to 3% of the full loan amount. If your loan package indicates an overly lengthy lock in period or ridiculous penalty charges. Well, you’re better off finding for other banks’ offerings.

Hopefully with all the questions above, you will be certain some of the most important terms of your home loan. But along the way, there will be more complicated questions but it’s alright. At least you have gone through the basic issues for now and may the force be with you to a success journey of getting the loan of your dream home!