Everything You Need To Know About Home Loans In Malaysia!

To ensure you have the best possible chance at a successful home loan application, we've come up with the most COMPLETE guide to walk you through the entire process!
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Of all the achievements in life that you’re likely to accomplish, purchasing your very own home is probably one of the most looked forward to. Finally, having a place to call your own, and ticking ‘Buy my dream home’ off your bucket list!

Unfortunately, this is still a faraway dream for many Malaysians, unless one is born with a 24K gold or silver spoon in the mouth. With that in mind, you'll need to apply for a home loan to be able to afford your new property.

The entire process might seem overwhelming at first, but rest assured that once you break it down and understand it better, applying for a home loan and all the "what if's" that follow will seem much simpler.

 

What You Should Know First Before Submitting An Application

Before applying for a home loan from the bank, some of the most important things you should bear in mind, are the interest rates and the type of category you can apply for.

For the former, there are fixed and variable interest rates to consider:

  • Fixed interest rate refers to a set percentage that doesn’t change throughout the duration of your loan.
  • Variable interest rate refers to a percentage that's determined by the Base Rate (BR), which we'll discuss further down. Now, whenever the BLR goes up or down, this type of interest rate will follow suit.

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Whichever you choose, know that the lower the interest rate, the better for you. A small variation in percentage can mean thousands of ringgit saved!

The 3 main home loan categories offered in Malaysia are term, semi-flexi, and flexi loans, with each having a different way of processing the instalments and interests:

  • Term loans have a fixed repayment schedule, and don't usually allow you to reduce your loan interest with advance payments. And if you want to withdraw from the additional payments you made, you won't be allowed to do so.
  • Semi-flexi loans allow you to pay extra money whenever you like, to lower the amount of interest charged. You can also request to withdraw from the additional amount you paid, but a processing fee will be charged.
  • Flexi loans are similar in nature to semi-flexi loans, except that these are linked to your current account, and the instalment amount is automatically deducted every month. If you make any additional payments, you'll be able to withdraw from them whenever you like.

 

Understanding The Common Loan Terms

There'll be several key loan terms that you’ll encounter in official documents and conversations with your agent, banker, and/or property developer.

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These terms might have you shaking your head in confusion – things like the Base Rate (BR) we mentioned above, Deed of Assignment, and valuation, to name some of the important few:

  • Base Rate (BR): Banks are allowed to determine their own interest rate based on a formula set by Bank Negara Malaysia (BNM), and its increment or decrease affects the interest rates of borrowers directly.
  • Deed of Assignment: A legal document that acts as proof that the ownership of a property has been transferred from one party to another, and is usually used for a residential property without a title.
  • Property valuation: The process of estimating the price of your property, carried out by authorised firms or valuation experts, after taking into consideration recent property transaction prices, as well as other market factors.

Fret not! There may be plenty of other terms too, but they can be much easier to understand if you have a reliable property agent on hand as a reference to guide you.

 

Types of Property Loans in Malaysia

We mentioned the 3 main home loan categories above, but as a matter of fact, did you know that there are more than that in the market?

For example, refinancing is one form that allows you to take another loan for a property that already has a loan taken out on it. You can actually enjoy a lower interest rate and shortened tenure, if done correctly.

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Civil servants, on the other hand, get to enjoy the exclusive perk of being entitled to a Government Housing Loan.

This loan finances the renovation/construction of their home, purchase of land, and even the construction of roads leading to their home!

If you’re beginning a new life with your partner or getting your parents’ help to finance your loan, you can opt for a joint home loan that combines two incomes to get a better shot at increasing the total amount you can ultimately borrow.

However, one thing you MUST always bear in mind when applying for a joint loan is the heartbreaking prospect of the relationship ending on bad terms, which will create a property custody battle.

To protect both parties, it’s best to include the allocations and obligations of each party in the official loan agreement, should a split regrettably happen.

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For mortgage loans, the Loan-To-Value (LTV) ratio assesses the lending risks before approving your mortgage. The higher your LTV ratio, the higher the risk is. Hence if you’re approved for a mortgage loan, it’ll cost you more.

The LTV ratio is calculated based on the property’s net price, and not the price stated in the Sales and Purchase Agreement (SPA), as the price in the SPA might include promotions/rebates, which reduces the cost of owning a home.

The LTV ratio for a homeowner’s first property is about 90%, but if it’s your third home, it’s capped at a maximum of 70%.

As versatility in the property market increases, commercial properties can be called home too. Applying for a commercial property loan is similar to applying for a residential one, but you can only get a maximum loan of 85% under your personal name.

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The Process of Applying For Your Home Loan

After arming yourself with the basics needed to understand your loan application, now comes the fun part – actually applying for one.

While the required documents are all generally similar, they do differ whether you're an employee, self-employed, running a business, working abroad or a foreigner.

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You might also want to consider hiring a mortgage broker, a middle party that’ll GREATLY help you with the paperwork, ease the process of application, and finding the best loan packages, among others.

This isn't to be confused with a mortgage officer from a bank though – a bank’s mortgage officer will offer products from the bank they represent, whereas a mortgage broker is more of a free agent that can offer you a better variety.

If you're ready to apply for your home loan, you'd need to prepare the required documents, which includes:

  • Copy of your IC/passport
  • Salary slip
  • Bank account and EPF statements
  • Income tax receipt
  • Property booking form

 

What Can I Expect To Happen Next?

It’ll take the bank 1-2 days to process your loan after checking with the relevant authorities like CCRIS and CTOS. If your application is delayed, it might be because the loan repayment is too high for you to afford.

As such, you'll need to present alternate sources for income like a Unit Trust Fund or Fixed Deposit account, to avoid the loan application from being canceled. If that’s not enough, a Guarantor might be needed.

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Alternatively, your loan application might have been rejected instead. To avoid this from happening, make sure you understand the entire process, carry out proper research before deciding on a property, and never be afraid to ask for help!

Even if you’re still feeling uncertain about your loan and will do anything necessary to get it approved, you can actually increase your chances simply keeping on top of your debts, paying bills on time, and even having a good employment record.

It helps to calculate your Debt Service Ratio (DSR) too, so you know just how much of a loan you’re eligible for, based on your monthly commitments. Up to 40% of loans are rejected because of a bad DSR, so it’s no small matter!

Once you've selected the bank which offers the best interest rate, you should receive your Letter of Offer. This document lays out the buyer's interest to purchase the property, and almost always includes a form of payment to lock it down.

 

How Can I Pay Off Everything As Quickly As Possible?

Everyone wants to move the troublesome things out of the way, what more worrisome home loans that’ll shadow you for the next 30-plus years of your life?

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To get your home loans done and dusted as soon as possible, you can settle it a lot more quickly by reducing the interest of your housing loan.

How this works is that when you pay the monthly instalments, part of it goes to the interest, and the rest goes towards the loan amount owed.

Simply put: The higher the loan amount owed, the higher the interest that you have to pay. Hence, if you want to lower your interest rate, you’ll need to lower the owed loan amount.

How you can do so is by making more frequent payments or in bigger amounts, which will help to gradually reduce the loan amount owed.

The extra money can be generated by passive income such as turning your property into a source of income. This means renting it out, or homesharing à la Airbnb.

Homesharing doesn’t need to be for the whole unit; it can be for just a room where users (travellers) are free to use shared common areas like the kitchen, living room, and dining room.

So if you’ve just bought a new property and have a spare room not in use yet, make it comfy and homely enough that you can rent it out for short-term stays that’ll help you reduce your debt!

 

Be Vigilant When Applying For Home Loans

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Applying for home loans can become stressful and confusing, but always exercise caution when doing so, especially when you’re dealing with third parties like bankers, mortgage brokers, agents, etc.

Home loan scams are aplenty and at times, they’ll promise you things that they’ll claim “No other individual/bank can provide.” Be mindful and remember these tips to determine if it’s a scam or not:

  • Home loans are only approved in person, never through calls, texts, or social media.
  • You must sign the offer letter and loan agreement; the bank will not approve it otherwise.
  • Banks require collateral (a form of security) to protect themselves should you be unable to pay back your loan.

Make sure the individual and company you’re dealing with are from reputable, trustworthy backgrounds that are well-established and known (in a good way, of course!).

If you’re having difficulties with your loan, consult an agent or bank personnel that can guide you in the right direction.

 

Find out how much you're eligible to borrow (99.9% accuracy) within 5 minutes, with our PropertyGuru Loan Pre-Approval solution, free of charge!

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