Financing a home is a huge commitment. There are five things you need to consider when getting a mortgage loan.
1. Down payment
Many people pay the down payment for their first home using their savings. In Malaysia, you also have the option of drawing from your Employee Provident Fund (EPF) for this purpose. With a higher down payment, you can borrow less.
2. Monthly payment
To find the ideal mortgage loan, you need to know the monthly payment for the house you would like to purchase. You can use the following formula to get an estimation of that figure:
| P = L x (i / (1 – (1 + i)^ -n)) |
P – Monthly payment
L – Amount of loan
i – Monthly interest; annual interest divided by 100, then divided by 12
n – Number of months of amortization, determined by length in years of loan
If you take a loan of RM200,000 for 30 years at 6% annual interest rate, your monthly loan payment is:
|
i = 6/100 ÷ 12 = 0.005 n = 30 x 12 = 360
P = RM 200000 x (0.005/ (1 – (1 + 0.005)^ -360)) |
3. Types of Mortgage Loans
With this figure in mind, you can now consider the various loan packages in the market. We will discuss the types of mortgage loans offered by banks in Malaysia based on the table below:
Standard Chartered
Conventional term loan
4.2 – 4.8
35 years
Maybank
Flexi home loan
4.4 – 5.5
35 years
OCBC Bank
Semi-flexi loan
4.3 – 4.45
35 years
AIA
Low interest loan
4.25
35 years
RHB
Islamic home loan
4.2 – 5.6
35 years
Conventional term loan
A straight forward loan package with an interest rate pegged to the Base Lending Rate (BLR). Monthly payment is fixed throughout the term so it is easy to manage your budget.
Flexi home loan
This financing package is a combination of a term loan and current account overdraft. It allows you to put in additional cash when you can afford it or withdraw from it when you need extra cash. This flexibility is great for those with irregular income.
Semi-flexi loan
Similar to a flexi home loan, this package allows you to reduce your principal with advance payments. That way, you can save on interest payments. You can also withdraw surplus payments.
Low interest loan
This type of loan typically offers low interest rate for a specific time period. This will help you to save on interest payments for the first few years.
Islamic home loan
Structured as a mortgage loan which is compliant to Islamic banking principles, this home loan offers many of the features available in conventional loans.
4. Other expenses
In addition to the interest rates and monthly payments, you may also need to pay for other expenses tied to taking up a home loan. These may include mortgage insurance, legal fees and valuation fees.
5. Choosing the right loan
Financial institutions may offer home loans with a combination of various features discussed above. Evaluate each package and select the one that will give you the best deal in terms of value for money and ease of financing.
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