Zero Entry Cost Home Loan: Is It A Better Choice?

PropertyGuru Editorial Team
Buying a home is a major “next step” in life, especially for those purchasing for the first time. However, the joy and excitement of being an owner could be troubled by financial issues that are caused by wrong choices.
For example, if you choose the right type of housing loan by doing proper research and know what is best for you, you won’t have any sudden headaches. After all, you will be paying the monthly instalments for a longgg while!
As a homebuyer seeking for a home loan, you may have heard about the Zero Entry Cost home loan, which is normally recommend by mortgage specialists for first timers. Let’s see what this is all about.

First Off, What Are The Entry Costs To Take Note Of?

  1. Legal fees: Calculated based on a percentage of the buying price of the property, which can be anywhere from 0.25% to 1%, depending on the value of the property.
  2. Stamp duty: Sale and Purchase Agreement (0.5% to 1.0%), Loan Agreement (0.5%) and Transfer of Title (1.0% to 2.0%)
  3. Disbursement fees: Varies by state, land office and type of property
  4. Valuation fees
  5. Processing Fees: A one-time charge by the lenders
These charges normally will amount up to 2% to 3% of your loan amount. For example, the total entry cost will be around RM10,000 for a home priced at RM400,000 with a 90% financing margin.

What Is Zero Entry Cost Home Loan?

Zero Entry Cost or Zero Moving Cost home loan is essentially a type of package that will absorb all the entry costs which would normally be charged to the buyers.
The Zero Entry Cost home loan is offered by major local banks with competitive interest rates, and a financing margin of up to 95% of the house price. This is for properties which are under construction, completed, or auctioned.
Under this package, the minimum amount for the financing facility must be RM300,000 and above, and the loan interest rate will usually be higher, by about 0.2%.
In addition, the banks will bear the valuation cost, legal fees, and stamp duties related to the financing documentation.
This is up to an amount equivalent to 3% of the facility amount, or in the range of RM20,000 to RM30,000, whichever is lower.
Now, under ordinary home loan packages, all of the entry costs mentioned above will be paid for by the buyers.
So, with the Zero Entry Cost home loan, you don’t have to think about arranging the normal large lump sum of the property price, and you can proceed with your home ownership plans more easily!
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What Are The Pros And Cons Of Taking This Type Of Loan?

Basically, the Zero Entry Cost home loan is an option that will provide convenience in terms of financial matters when you are ready to purchase your new home.
Imagine: As the buyer and borrower, you do not need to pay for the legal fees, stamp duty, disbursement fees, and valuation fees!
It will improve your cash flow and you can use the additional cash that you’ve saved for other matters such as buying furniture, renovation, and hiring moving services.
Although you would have to bear the cost eventually due to higher interest charged (through your monthly instalments), you may have gotten a better job in the future, with more salary to help you cope.
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However, that is exactly what the main disadvantage of the Zero Entry Cost home loan is: Higher interest rates compared to the ordinary home loan packages.
It is also noted by bank officers and mortgage sales representatives that choices for the Zero Entry Cost home loan are limited, as they are not offered by all the banks in Malaysia.
"In addition, borrowers need to be aware that a lock-in period will be established for the property that they purchase under this loan, and the principle will be adjusted accordingly during and after the lock-in period," said Nor Hazerin Yusof, business branch manager at a local bank.

PropertyGuru Tip

Normally, a three-year holding period from the date of the first disbursement is applicable.

Another disadvantage is that the Zero Entry Cost home loan is not flexible and you would not be able to change it. You will also need to acquire a mortgage insurance such as MRTA, MRTT, MLTA, or MLTT with the bank.

Is It Recommended To Take This Type Of Loan?

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Generally, mortgage experts recommend this type for first-time homebuyers, for properties which are under construction, or those who would want to refinance their property.
Nor Hazerin said that her customers can save a lot by getting this type of loan, “For homes which are under construction, buyers can choose to use their EPF for the deposit. Normally, they will only need to pay the entry costs such as legal fees, valuation fees, and stamp duty. So, with this type of loan, it will be easier for buyers to purchase their house,” she said.
The Zero Entry Cost home loan can be a real financial help to you, depending on your situation. It can help with your cash flow as you will have extra during the move, and could use it for setting up the house to become a home!

What Are The Differences Between This Type Of Loan vs Regular Types?

When compared to the ordinary home loan packages, as mentioned, the Zero Entry Cost home loan will have a slightly higher monthly instalment to cover the entry costs borne by the bank.
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Table 1: The difference in interest rate per annum for Zero Entry Cost Home Loan and Non Zero Entry Home Loan

RM300,000 to RM499,999
BR + 0.15% + 0.20%
  • 2.85% + 0.15% + 0.20% = 3.20% p.a.
BR + 0.15% = 3.00% p.a.
RM500,000 and above
BR + 0.00% + 0.20%
  • 2.85% + 0.00% + 0.20% = 3.05% p.a.
BR + 0.00% = 2.85% p.a
Source: Al-Rajhi Bank
Notes:
  • Current Base Rate is 2.85% and is subject to changes from time to time.
  • 0.20% is derived to cover the entry cost that the bank has to bear.

Table 2: The standard profit rate/interest rate for different types of home loan packages

Segment/Packages Refinancing End Financing Free Moving Cost Property Financing Affordable Home
Property type Completed Under construction Completed Completed/under construction Completed/under construction
Financing amount RM250,000 and above RM250,000 and above RM500,000 and above RM500,000 and above Below RM250,000
Profit rate BR + 0.95% BR + 1.05% BR + 1.59% BR + 1.39% BR + 1.39%
Effective rate 4.70% 4.80% 5.34% 5.14% 5.14%
Minimum financing amount RM250,000 RM250,000 RM500,000 RM500,000 RM150,000
Ceiling rate 12% 12% 12% 12% 12%
Floor rate 4% 4% 4% 4% 4%
Note: The rates may change from time to time as determined by the bank.
Now, it’s time to look at the calculations involved so that you can have a better idea of the differences. Based on the interest rate in Table 1, here are four different types of buyers who have applied for their respective loan amounts:

Buyer 1:

Loan amount (RM)
350,000
350,000
Interest rate (%)
3.20
3.00
Tenure
35
35
Monthly Instalment (RM)
1,386
1,347

Buyer 2:

Loan amount (RM)
500,000
500,000
Interest rate (%)
3.05
2.85
Tenure
35
35
Monthly Instalment (RM)
1,938
1,883

Buyer 3:

Loan amount (RM)
800,000
800,000
Interest rate (%)
3.05
2.85
Tenure
35
35
Monthly Instalment (RM)
3,101
3,012

Buyer 4:

Loan amount (RM)
1,500,000
1,500,000
Interest rate (%)
3.05
2.85
Tenure
35
35
Monthly Instalment (RM)
5,815
5,648
For your reference, here are some of the major banks in Malaysia which offer the Zero Entry Cost Home Loan:
  1. Bank Islam: Property Financing-i (Tawarruq) – Baiti Home Financing-i
  2. Bank Rakyat: Home Financing-i Zero Entry Cost
  3. CIMB: ZERO MOVING COST home financing package
  4. RHB Bank: Offers several packages which suit first-time homebuyers
Ultimately, the choice to take up a Zero Entry Cost home loan is based on your own judgement as a homebuyer and someone who will be servicing the loan for many years to come.
It can be a better choice in terms of saving you some money at the moment you might need it the most – during your move to a new home.
So, before you sign up for ANY type of loan, make sure you do your due diligence and get the necessary help from the experts, just to be sure so that you will make a decision that you won’t end up regretting down the road!
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