A home loan repayment refers to a housing loan in which the monthly repayments covers a portion of the capital amount loaned as well as the accrued interest. This means that your home loan balance will gradually decrease each month, and with faithful (steady) repayments, the loan would be fully paid by the end of its term.
But what is home loan exactly?
One of the most common forms of debts, housing loans are offered by a mortgage company, bank or other financial institutions for the purpose of acquiring a property.
Under a home loan, the title of the property is transferred by the owner (borrower) to the lender (banks or financial institutions) as collateral (guarantee). It would be transferred back to the owner once the housing loan is fully paid and all other terms are met.
This gives more people the chance to own a home as the entire payment of the house does not need to be provided up front. With a tenure of 10 to 30 years, home loans have two main types – fixed rate and adjustable rate. In a fixed rate home loan, a borrower pays the same interest rate throughout the duration of the loan. In an adjustable rate home loan, the interest rate charged by the lender varies.
Generally, adjustable rate home loan has lower interest rates than fixed rate home loans as the borrower bears the risk of a hike in interest rates.
A person wanting to secure a home loan must submit an application and the information on his/her financial history to the lender to prove that he or she is capable of repaying the loan.
Calculating a housing loan is no easy feat – what with all the jargons you will have to face as well as the numbers and formulas to determine your monthly home loan repayments.
An accurate calculation of home loan could significantly lighten a borrower’s efforts to acquire a home. A wrong calculation could affect your home loan instalments, which could eventually lead to the foreclosure of your house.
Thankfully, we have the Home Loan Calculator – a special calculator created to help homebuyers determine how much money they would have to pay monthly and how long it would take to fully pay the loan. With this tool, a homebuyer can easily see if he or she could afford the monthly loan repayments for their dream home.
We have a few other tools you might find useful in your property-seeking journey:
The Home Loan Calculator takes into account the principal on the loan and the repayment of interest to arrive at the length of time that a homebuyer would have to pay off the loan. To achieve the most accurate figure, a homebuyer should ask the lender the interest rate in which they qualify.
The calculation of housing loan is based on the term of the loan as well as the size of downpayment given by the homebuyer.
Paying a large downpayment can help a homebuyer secure a high credit ceiling with a relatively low home loan amount. This is based on the assumption – with a fixed period of time – the bigger the downpayment paid by the homebuyer, the smaller the home loan gets.
Homebuyers who cannot afford to pay a large downpayment, can opt for a longer loan term to keep the monthly home loan repayment low. It has to be noted, however, that a longer instalment period means more money would have to be paid due to the accrued interest.
Using the PropertyGuru Home Loan Calculator will help you get an estimate of the monthly home loan repayments for your dream home. It's easy to use and gives you a clear view on how much housing loan is needed. Take note that home loans (also known by some as ‘mortgage’) are subject to interest. Therefore, this calculator will help you to find out what’s the total price of the house that you need to pay in comparison to purchasing the house in cash.
In addition to estimating the monthly repayment, this Home Loan Calculator can also help you find the right combination between the amount of interest and the duration of the loan term, so that you can be confident committing to the monthly instalments.
Ideally, the total amount of your monthly instalments is no more than 30% of your monthly income. To calculate a highly accurate mortgage size adjusted for monthly income, you can find out through the Home Loan Pre-Approval.
Using this home loan calculator is simple. You only need to fill in three indicators:
In the Summary section, what needs to be considered is:
Another thing that needs to be considered is that banks usually offer fixed interest rates for the first few years. This means that the interest rate during this period remains unchanged. After that, you will enter the floating interest period. Floating interest means the amount of interest changes according to national economic development – it may fluctuate up or down.
Do take note that this Home Loan Calculator is a simulation, not a certified reference for actual instalments. The actual instalments will be determined by the developer (for new projects) or seller (for subsale) and the bank you apply your home loan from. After knowing the calculation of home loan with this calculator, the next step is to understand the procedure and how to apply for a housing loan. You can also find out why some home loan applications are rejected, to avoid making the same mistake!
Do you feel that a bank’s computation for your monthly home loan instalment is wrong or too high? Are you afraid of being cheated into paying too much? Have no fear, we created a guide that details how your housing loan instalment is computed.
Calculating the monthly repayment for home loans is not the same as that for personal loans and hire purchase loans (which is often used for cars).
This is because home loans use the Reducing Balance Rate (also known as the Diminishing Balance Rate), which only imposes interest on the loan’s remaining principal balance. In comparison, personal loans and hire purchase loans come with Flat Rate Interest, meaning the interest remains the same during the entire loan tenure.
For instance, if the interest component for a personal loan is RM500, then during the last repayment schedule, the interest component will still be RM500. On the other hand, the interest component of a housing loan declines as interest will only be charged on the remaining principal balance.
What is the Formula for Monthly Home Loan Repayment?
Below is the formula for determining your monthly housing loan instalments.
P = Principal Loan Amount
i = Monthly Interest Rate (Convert annual interest rate into decimal and divide by 12)
n = Loan Tenure in Months (Multiply annual loan tenure by 12)
In Microsoft Excel 2016, you can use the PMT function to compute the monthly instalment for a housing loans. Just type “= PMT( ” and provide the required data for rate, nper, pv, [fv], [type]. Please note that loan payments in Excel are indicated in negative as it considered a cash outflow.
The entire function looks like this: = PMT (rate, nper, pv, [fv], [type])
rate = Monthly Interest Rate
nper = Loan Tenure in Months
pv = Principal Loan Amount
[fv] = An optional argument that specifies the future value of the loan/investment at the end of loan tenure. If left blank, the default value is 0.
[type] = Another optional argument that defines whether the instalment is paid at the beginning or the end of the month. If left blank, it is set at the default value of 0, meaning payments are made at the end of the month.
But if you find that manually calculating the monthly loan instalment is a hassle, no worries! Just use our housing loan calculators mentioned above. In addition, we strongly advise you try our Home Loan Pre-Approval, a new solution launched in 2019 that provide a 99.9% accurate estimate for Malaysian property seekers. With this, you will know exactly how much banks will lend you for your property purchase.
Expressed as a percentage of the principal loan, interest rate is the amount charged by a lender (banks or financial institutions) for the borrower’s use of assets. In Malaysia, interest rates for housing loans are generally cited as a percentage below or above the Base Rate (BR).
Starting 2 January 2015, BR replaced the Base Lending Rate (BLR) to reflect the changes made by Bank Negara Malaysia and later on by major local banks.
BR is a reference interest rate that banks use to determine how much they will charge for a certain product. This means an increase or decrease in BR would be reflected on the interest rates charged on floating rate loans.
To illustrate, if the current BR rate is pegged at 4% and the loan offered by your bank comes with a rate of ‘BR + 0.45 percent’, the interest rate for your loan would be 4.45%.
A typical housing loan in Malaysia would see the borrower making monthly payments for a certain period of time, also known as the loan tenure, until both the principal amount of the loan and interest are fully paid. It has to be noted that majority of the monthly repayments during the early years of the loan goes to repaying interest. As time passes, a bigger proportion of the repayments are used to paying the principal.
A borrower with an existing housing loan in Malaysia can shift to another product or lender without the need of moving home. This process is known as “refinancing”. Read more about refinancing here.