The excitement and nervousness of signing your very first home loan, or the Sale and Purchase Agreement (SPA), is something that every person should go through during the process of home ownership. It’s a huge decision that requires lots of research, budgeting, critical thinking, and decision-making – not an easy task, I guarantee. Once you’ve done all that, you feel a sense of accomplishment when you sit down with a pen, ready to sell your soul sign your name on that piece of paper with lots of fine print.
Before you go signing your name on that piece of paper, remember to check these 10 things to make sure you’re prepared for one of the biggest financial decisions of your life.
Margin of Finance
Your loan margin from different banks may vary depending on various factors, including property value, financial standing, credit rating, etc. You will need to pay the amount not covered by the home loan e.g. if you’re buying a RM500,000 house will 80% margin or finance, you will have to pay RM100,000 upfront.
Housing Loan Comparison
There are lots of tools and calculators online that let you have a good estimate of your home loan installment before you even obtain financing. There also also online comparison tools to compare the various home loan options from different banks, so you can prepare and decide according to your requirements.
Fees and Charges
Buying a home isn’t just about the downpayment and property price. A home loan application involves professional and government-regulated processes, such as the loan agreement, stamp duty, legal fees, etc. Most of these costs will have to be borne by the buyer, although there are banks and developers which offer schemes that waive some of these costs. It is advisable to sit down and discuss these extra costs with the loan officer so that you have a good idea of how much these fees and charges will amount to.
Fixed or Floating
Home loans come with fixed, floating, or a mixture of fixed and floating interest rate. It is best to understand what the different types of interest rate mean, what they entail, and how it will fit into your housing needs and budget.
It is important to check whether the interest rates offered by your chosen financing institution is acceptable. Base rate is used by banks to determine the interest that they charge on loans offered. Base rate can differ from one bank to another, and can range from 3.2% to 4% per annum on top of the lending rate of 1.25%.
Lock-in period is the duration in which you will get a penalty if you choose to pay off your home loan in full before it reaches maturity. When it comes to choosing a home loan in Malaysia, it is best to have the lock-in period as short as possible, and the penalty as low as possible.
Housing Loan Balance Transfer
If a home loan from one bank has a high interest rate, customers can opt to shift their home loan to a bank that offers a lower interest rate. This will lower the monthly installment as well as overall interest amount paid to the bank. Almost all major banks in Malaysia provide the option of balance transfer on existing home loans.
Penalty for Late Payment
Ensure you are able to make all installment payments on time. Make sure to carefully read and check the loan agreement on the penalty for late or default payments before signing the document.
The tenure, or duration, of the loan will depend on the bank and your capacity to pay back the borrowed amount. The maximum tenure given is 35 years, or until such time the borrower turns 65 years old.
Prepayment is the early repayment of a loan by a borrower. It can be free or charged a penalty fee, depending on the lending institution. If possible, try to go for a pre-payment as you can save on a considerable amount of interest. Various banks will allow customers to deposit cash above their regular installment amount. This not only reduces loan liability faster, but also reduces the amount of payable interest too.
For many people, a home loan is one of the largest commitments they make in their lifetime. It is crucial to understand the gravity of the situation and all that it entails. Always make sure you are in control of your finances, don’t give in to pressure to sign those documents, and remember, don’t bite off more than you can chew!