Buying a property is every youth’s dream in Malaysia. Times are however hard, and aside from searching for the right property within their budget and learning how to buy a property
There will also be the various questions that need to be answered - from the most basic of how to apply for a housing loan to what is adjudication in property transaction.
This guide will teach our readers all the basics of property buying. It will teach you the basics of how to apply for a housing loan, the documents that you will require to apply for one and the waiting periods.
There will also be an explanation of the many different types of property loans in the market, from the most common such as the Term Loans, Islamic Loans and Flexi Loans, to the less common ones such as the Overdraft.
Refinancing will also be part of this guide, as well as government loans and third party housing loans.
Finally in order to ensure complete understanding of the entire loan process, all the technical terms to getting a property loan will also be explained within this guide.
Base lending rates (BLR), balance purchase price, progress payment, margin, free moving cost and charge will all be explained below.
How To Apply For A Housing Loan
If you are reading this guide, you should already have decided on the property you wish to buy. If you have not, you will need the Complete Guide to Purchasing a Property in the Subsale Market or the Complete Guide to Purchasing a New Development/Property.
Once you decide on a property to purchase, you will next need to know the how of applying for a housing loan.
Applying For A Housing Loan
Obtaining a home loan is literally as easy as walking into a bank and asking for a home loan.
The bank will however ask for the type of property loan you are looking for, and also request the necessary documents from you.
If you are purchasing a property from the developer, among the documents that you will need from them is the booking fee receipt. Only then will you be able to approach the bank to request a home loan.
You will also need to provide a number of personal documentation such as proof of income and salary slips.
While buyers of a new developments will require a booking form receipt, buyers of subsale properties will need a deposit receipt from the seller’s lawyer.
The booking amount is usually set at 3%, but the seller can negotiate on a higher amount if they so wish.
Aside from the receipt acknowledging both party’s agreement on the amount to be exchanged, personal documentation on the buyer’s personal income is also required.
3) Bank Loan Approval Waiting Period
In the days past the waiting period for a bank loan approval could take up to months. But with modernisation, the waiting period has be shortened tremendously.
Buyers can now get verbal approval from the bank within 2 or 3 days, and the official approval within two weeks.
The bank will first run a basic check on the buyer’s CCRIS, and run a rough check on the amount of the property being bought and whether the buyer’s income is sufficient to support the loan.
Once he has done this basic confirmation, the banker will then submit all the documents and get the official Offer Letter within approximately 2 weeks.
The only reason for there to be a delay is if the supporting income documents are insufficient or if the borrower’s income is insufficient to cover the loan.
In these cases, the banker will advise the borrower on the next best way to obtain the loan such as getting a Guarantor.
The Consequences Of Failing To Pay Your Mortgage Loan
The consequences of failing to make payment on your mortgage loan depends on the Loan Agreement signed - which the terms differ from bank to bank.
But what is consistent across all banks is that the first warning you will get are reminders via snail mail to make your payment.
After a period of approximately 2 months, if any payment has yet to be made, the warnings will start coming via phone call.
After defaulting for between 3 and 6 months, the bank will highly likely produce a summons on the borrower to appear in court.
In these cases, the borrowers may be encouraged to approach the National Credit Counselling and Debt Management Agency (AKPK) to restructure their loan in order to be able to continue making their payment.
The Required Documents In Undertakings And Statutory Declarations
Everyone is allowed to purchase a property in Malaysia, whether you are a local or foreigner - as long as you fulfil all the requirements.
For a complete list of documents that need to be provided when buying a property even as a foreigner, visit our guide page.
However, on top of the providing all the required documents, borrowers will also need to provide a Letter of Undertaking and a Statutory Declaration.
A Letter of Declaration is a letter that protects the rights of the seller and will encompass terms such as the completion of the property, Certificate of Compliance and Completion and so forth.
The Statutory Declaration also protects the seller, which signing it allows the acting bank to carry out the necessary checks on the purchaser.
This document will need to be signed in front of the Commissioner of Oath or the Notary Public.
The Different Types Of Property Loans In The Market
Once you have decided on a property to buy and know what documents you need to prepare, you will next need to know what are your property loan options.
There are many choices in the market, and making the best choice may help you save more money in the long run. We list them down below:
1. Term Loan
The term loan is once of the most common loans in the market. It has the typical maximum tenure of 35 years, and the interest rates are budged together with the principal payment in the monthly instalments.
There are no benefits to completing payments early or making extra payments. Opting out of the loan within the first 3 to 5 years will also result in a penalty.
2. Fixed Rate Loans
Similar to the Term Loan, Fixed Rate Loans also have a fixed monthly payment. For those who worry that the occasional changes in Base Lending Rate (BLR) may affect them, this is the safest plan for them.
Of all the loans in the market, the overdraft is the rarest and is rarely issued by any banks anymore. The Overdraft is unique in the sense that a borrower only needs to pay the interest of the loan.
There is no tenure for this loan, and when making the monthly payment on the interest rates, the buyer can choose to pay extra to reduce the principal loan.
The disadvantage to this loan is that its interest rates are higher than the norm.
4. Flexi Loan
The Flexi Loan is popular among those who have spare cash in the bank. It is a combination of the Term Loan and Overdraft Loan.
Attached to their Current Account, those who get this loan will have lower interest rates when they put more money into their Current Account, and still be able to withdraw money of their Current Account at any time.
Withdrawing money from the Current Account will however cause the interest rates to increase again, until the borrower puts more money back into the Current Account.
5. Islamic Loan
Islamic loans are a whole different ballgame altogether, which everyone can apply for. Compliant with the Syariah law, this loan is popular with short term property investors as there are usually no penalty charges if the loan is terminated early.
Different banks however have different terms, so the terms and conditions have to be checked properly before signing the document.
There is the Al-Bai’ Bithaman Ajil loan, Al-Ijarah / Ijarah Muntahiyah Bittamlik, Musharakah Mutanaqisah and Murabahah among the more popular Islamic Loans in the market.
Refinancing is not exactly a loan; it is more of getting a loan on a property which already has a loan for it.
This kind of loan is usually utilised by those who cannot afford their monthly instalment on their property anymore and need to refinance it with another bank that can give them better rates, or by property investors who want to cash out on their property’s increase in value over the years.
Refinancing their property which has increased in price will give the borrowers a “cash back” which can be used to finance a new business or put into investment in other areas.
Here is the complete guide to refinancing from property experts.
7. Government Housing Loan
This loan is quite self-explanatory - it is a loan for government servants.
There are stringent rules attached to this property loan, such as being able to apply for a government loan from only one office even if the hold positions in two different offices, and being able to take a government housing loan only twice in their lives.
They are also allowed to finance certain items only with the government housing loan, such as the purchase of land, house, renovation of the house and settlement of other debts to purchase any of the aforementioned items.
There are 7 types of government housing loans, which out of the 7, two of them follow the Al-Bai Bithamin ‘Ajil concept - Treasury’s Housing Land Scheme and Islamic Housing Loan Scheme.
8. Third Party Housing Loan
A third party housing loan is a loan that is suitable for those who cannot afford to purchase a property by themselves due to insufficient income or bad credit records.
In these cases, the borrower can look for somebody who has higher income or clean credit records to become part of the loan agreement. This party is usually a parent, sibling or spouse.
The usual agreement is that the co-borrower will have no claim on the property upon completion of the payment, and that the primary borrower must fulfil their monthly repayments on time without affecting the co-borrower.
But then again all these terms are negotiable and depends on the agreement between both parties.
Understanding All the Different Property And Loan Terms
Upon deciding on the property you wish to purchase and the property loan you wish to acquire, you will next need to know about all the different property and loan terms in the market.
Below is a comprehensive list of property and loan terms that you will need to familiarise yourself with.
There are two types of valuations - the first by estimating the worth of the property based on the transaction prices of the properties surrounding it, and the second is by getting a professional and licensed valuer to go in and calculate the value.
Before quoting you on your loan, the bank will first valuate your property to know how much loan to provide you. They usually rely on the figures provided by the professional valuer.
2. Monthly Installments
This is the most basic of the terms. Monthly instalments is the amount that you have to pay the bank every month based on on your mortgage Loan Agreement signed between the both of you.
3. Early Settlement
Early Settlement is when you complete your mortgage loan earlier than the agreed upon time. While this is good for the borrower, it is not so favourable for the bank as they earn money from the interest charged.
Hence if a borrower settles his loan early, the bank will lose out on their profit.
As a result, some banks charge a penalty for early settlements. Aside from that, the bank will also require the borrower to bear the charge of discharging the property from the bank.
Refinancing is also treated as Early Settlement. However if refinancing to another bank, the borrower can negotiate with the acting bank to bear the costs of Early Settlement.
4. Lock-In Period
A lock in period is highly related to early settlements. the banking industry is a competitive one, and many banks offer very good refinancing packages.
Hence in order to prevent their borrower from transferring their loan to another bank, the acting bank usually makes the lock in period part of the agreement.
This means that the borrower cannot terminate their loan within the lock in period. The lock in period is usually fixed at between 5 and 7 years at a rate of 3.5%.
5. Interest Rates
Interest rates is the banks’ way of earning money. It is the extra amount on top of the loan provided that is charged to the person taking the loan monthly.
6. Base Lending Rates (BLR)
Base Lending Rates (BLR) are the rates that are set by Bank Negara Malaysia (BNM). The banks can then adjust the rates accordingly to their own calculation of their administrative costs and fund structures.
So for example BNM can set the rates at 6.7%, but the bank can charge only 5.7%. The highest BLR in Malaysia history as of 2017 is 12.27% in 1998, and 5.55% in 2009.
7. Balance Purchase Price
Balance purchase price literally means the rest of the amount that you need to pay for your property.
When you decide to purchase a property, you will have to put down an agreed upon booking fee. The balance purchase price is the balance of the money that has yet to be paid for the property.
In the event that the transaction cannot go through, the downpayment will need to be returned to the purchaser.
8. Progress Payment
Progress or progressive payment is usually only applicable on properties that have yet to be completed.
The monthly repayment amount will depend on the completion of the property, hence the term progress payment - also known as progress billing.
The payment progression is stated under the Payment Schedule for an Under Construction Property in Malaysia.
The amount will also be stated in the Sales and Purchase (SNP) agreement under Schedule 3, or Schedule G or Schedule H under the Housing Development (Control and Licensing) Regulations 1989.
9. Free Moving Cost
This term is usually only applicable to Refinancing. It is the cost of moving your loan from one bank to another to enjoy better benefits.
The original bank will usually charge a fee for terminating the loan early. But when the other bank bears full responsibility for the cost, this is called Free Moving Cost.
10. Meaning Of 'Margin' In Housing Loan
The term Margin in housing loan refers to the difference in what the bank loans to you and the price of the property.
So for example if the property is priced at RM100,000, and the bank only loans you only RM90,000, the Margin is RM10,000.
The term Charge is usually applicable to a secured loan such as a Mortgage Loan. In order to secure their position, the bank will take the property as collateral in case the loanee is unable to make their payment.
In this case, as the property does not actually belong to the bank, the bank is known as the “charge” and the property owner as the “chargee”.
12. Deed Of Assignment
A Deed of Assignment is applicable only to properties without a title. It is a document that shows that the property belongs to the buyer and is the only proof of transaction that the buyer has with the bank.
The bank will hold the original copy and give the loanee a duplicate copy.
If payment for the property is completed before it gets its title, the property owner will get a document called the Deed of Receipt and Reassignment when the bank discharges the property to the borrower.
Only when the property gets a title will the owner be able to get a Form 16A for it.
13. Consent To Charge
Consent to Charge is the governing body’s law on transferring a property to another party. Every state has their own laws on transferring a property to another party.
But required across the board are the qualifying documents such as the identity cards of both parties - and if the property is still under a banking loan, a letter of consent from the bank allowing the properties to be transferred is also required.
14. Adjudication In Property Transaction
Adjudication is a formal judgement on a matter of dispute. When this term is used in property, it actually means a disagreement on the Stamp Duty charged.
This usually happens when the Stamp Duty paid appears to be lower than the stamp duty’s office estimation.
When this happens, the lawyer will file a Form 14A from the National Land Code 1965 - the document for transferring a property from one party to another. This can also happen in the event of a parent to child transfer.
15. MRTA / Takaful
Both MRTA and Takaful are property insurances. The bank usually requires their loanee to acquire a property loan so in case of their death or total permanent disablement, the bank loan for the property will still be paid for.
Both the MRTA and Takaful insurance works the same way, with the only difference being that the Takaful insurance follows the Islamic finance guidelines issued by Bank Negara Malaysia (BNM).
In case of a joint loan and the co-borrower dies or is permanently disabled, the insurance will also cover their half of their loan.
16. Co-borrower, Guarantor And 3rd Party Loans In Housing Loan
All these terms refer to somebody who assists the home buyer in obtaining a mortgage loan. A co-borrower is one who enters into a joint loan with the property buyer to enable him or her to get the loan.
A co-borrower will share all the liabilities with the main borrower.
A Guarantor on the other hand is one who vouches for the reliability of the loan applicant to make their payment. Unlike a co-borrower, a guarantor does not share liabilities with the loan applicant.
They can also opt out from being a guarantor at any time. The bank can however choose to go after the guarantor if the loanee defaults on their repayment.
A 3rd Party Loan is similar to a co-borrower. The property can be purchased under more than one name with only 1 name appearing in the loan or vice versa.
The name on the loan and SNP can also be entirely different. These cases are rare and usually only occur between family members and spouses.
17. Memorandum Of Deposit
The Memorandum of Deposit is a safety measure for the bank.
When signing up for a mortgage loan, the bank may require the loanee to open an account in the bank and put a deposit in it where the bank is allowed to deduct the monthly repayment from the account if the loanee does not make their repayment on time.
18. Disbursement Of Housing Loan
This is the final stage of the loan. It is when everything has been approved and the bank makes their first payout either to the loanee (for secondhand/ subsale properties) or the developer (for new developments).
This concludes the guide to home loans in Malaysia. For more details on purchasing a new, subsale or commercial property in Malaysia, please visit our other guides.
i. The Complete Guide to Buying a Commercial Property
ii. The Complete Guide to Purchasing a Property in the Subsale Market
iii. The Complete Guide to Purchasing a New Development/Property
Below are the other useful information you will need when purchasing a new home:
i. Freehold, leasehold or Bumi Lot? Know the differences and restrictions
ii. Preparing Mortgage Loan Documents
iii. The Payment Schedule for an Under Construction Property in Malaysia
Want to learn more on how you can own a home? Our ‘Own Your Home’ programme aims to empower 100,000 Malaysian households to become homeowners by 2020. Take charge of your home ownership aspirations now!
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