We often talk about purchasing a property and the processes involved: Choosing the location, researching the developments, checking and comparing the units, applying for a home loan, and getting it approved.
But, what happens next when you are FINALLY done with paying off the home loan that you have been regularly serving all this while?
Well, you’re going to have to go through several more steps before you can say “Phew, now the property is all mine!”
1) The Final Payment
First off, you need to get the bank statement for your home loan. Here’s an example of one. You can contact your bank to obtain this, and you can also do it online.
The statement will tell you how much you owe the bank, and you can make the exact payment to complete your loan (hooray!).
Once you have settled the final payment, the bank will close the account for the loan, and will produce a letter of confirmation on the settlement.
Finally, make sure you update your credit score so that it no longer reflects your home loan anymore. There are four main sources providing credit scores and reports:
- Central Credit Reference Information System (CCRIS) – managed by the Credit Bureau of Bank Negara.
- Credit Tip-Off Service (CTOS) – score calculated based on CCRIS.
- RAMCI – features your payment pattern, overdue accounts, outstanding credit and frequency of credit application.
- Credit Bureau of Malaysia – based on your debt repayment pattern, outstanding loans and credit application pattern. It also assesses the probability of defaulting debt.
2) Appoint A Lawyer
You should know that it is not such an easy task to get the grant of your property. First, you have to appoint a lawyer to help you with the transaction, of which there are two types:
- Discharge of Charge (DOC), also known as ‘Form 16N from the National Land Code 1965′, for properties with an individual or strata title.
- Deed of Receipt and Reassignment (DRR), for properties with a Master Title.
You can appoint any lawyer you know to handle this process for you, or you can ask your bank about their recommended legal expert, if you are not sure of who to appoint.
Doing it yourself will probably be a bad idea, as you’ll need to handle many documents with complicated legal jargon and make countless trips to the Land Office, not to mention that it could take way longer than it’s supposed to be.
Your lawyer will process the required form to the bank to be signed, and then it will be taken to the Land Office for further actions.
According to Ikmal Hakimi of Hawari Hanafi & Co, there is a certain amount of fees involved, depending on the lawyer and which state your property is located.
The charges will include legal fees (around RM300 to RM400), stamping fee, registration fees, and disbursement.
3) Get The Title
For the DOC, the lawyer will hand over the 16N Form to the respective Land Office who will then process it to remove the bank’s name from the grant.
The documents you need to provide, when asked by your lawyer, to proceed with the process include:
- MyKad of purchaser/owner
- Quit rent of the current year
- Assessment rate of the current year
- Proof of the settlement of loan
The lawyer will prepare the 16N Form (see sample below), which will be signed by the bank. After that, the bank will release all the loan documents, including the original copy of the individual or strata title.
The form, after being stamped, will be registered along with the individual or strata title at the relevant Land Office.
After the registration, the name of the bank will not be in the individual or strata title anymore. Your name, as the owner, will remain in the grant.
For the DRR, it would not be processed at the Land Office, as the lawyer will be filing a Power of Attorney (PA), whereby the PA will be used for signing the document on behalf of the bank.
PropertyGuru Tip
The Power of Attorney refers to an instrument where someone appoints another person to act on their behalf for legal matters.
The lawyer will bring the DRR (signed by the owner and the PA) to be stamped, and then to the court to cancel the earlier PA. The bank will reassign all the rights, interest, and benefit of the property to you, the owner.
According to HS Lim & Co, it is important to know that once the individual or strata title is issued later on, the homebuyer will be needing to prove their loan settlement by showing the DRR.
Upon the registration of the buyer’s name on the newly issued title by Perfection of Transfer, the buyer can collect the Original Title for safekeeping, and there’s no need to forward it to the bank anymore.
PropertyGuru Tip
The Perfection of Transfer is essentially a legal document that determines the ownership transfer of the development; it is used for properties which were previously under a Master Title, and which the individual/strata title has finally been issued.
4) Manage What You Still Need To Pay
By settling your monthly home loan repayments, don’t forget you still have these OTHER payments that you’ll need to continue:
- Home insurance
- Fire insurance
- Homeowner insurance
- Burglary/theft insurance
- Natural disaster insurance
- Quit rent, parcel rent, and assessment rate
- These payments form part of Malaysia’s land tax system. The owners of qualifying properties are legally liable for these charges under Malaysia’s established system of law.
- Maintenance fee and sinking fund
- Those who live in strata properties will still be needing to pay the ongoing maintenance fee and sinking fund.
- The maintenance fee is for managing all the common areas. House owners or tenants will be needing to pay a monthly maintenance fee to the Joint Management Body (JMB) or Management Corporation (MC).
- The sinking fund acts as the emergency fund for the owners and tenants. It is used for large and sudden expenses.
- Upgrade, renovation, and upkeep
- The property is yours now, and you might want to think about upgrading it by renovating or remodelling. You’d also need to plan your finances for the upkeeping of your property for years to come.
5) What Would You Do With All The Extra Money?
Now that you are not required to serve the monthly loan repayments, you will have a certain amount of spare cash every month. You should plan wisely how you want to use it.
For example, you could use it for other forms of investment, such as a fixed deposit or buying a rental property. You could even use that amount to put towards your children’s education, or for a well-deserved vacation.
No matter what you choose to do with your spare cash, make sure it is the smartest and most beneficial move for you.
Pros And Cons Of Paying Off Your Home Loan Early
Any homeowner with some extra cash will probably be thinking, “Maybe I should pay off my home loan earlier”. However, is it the smart thing to do?
Settling your home loan early if you could afford it could be an advantage for you, especially when you are nearing retirement. Here are just some of the more common reasons for choosing to do so:
- Paying off your home loan early can give you peace of mind, and could free up some cash for travelling, retirement, or other long-term plans.
- Being debt-free, presuming that there are no other loans served, may protect you from losing your home if you run into financial difficulties.
- Depending on the type of tenure, the interest that will be potentially paid for a full-term loan might be about 30% to 50% of the property price that you purchased.
Dr Ernest Cheong of PTL Chartered Surveyors said it’s definitely an advantage to pay off your home loan early, especially if you have the available cash to comfortably do so.
"In these uncertain times, freeing yourself from the burden of a home loan could save you during unexpected predicaments such as losing your job, economic crash, and sickness," he said.
To put it simply: If you have the financial capability to do so, in the long run, you could actually be saving a whole lot of money!
As a responsible homeowner, you should make sure that you are aware of what needs to be done for your own benefit, in order to enjoy your property without heavy financial commitment.
Furthermore, once you’ve paid off your home loan, it’s time to continuously maintain it for you and the next generation!
Relevant Guides:
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