Buying a house is a huge financial decision. Unless you are insanely cash-rich (like these billionaires), you will have to take out a housing loan or mortgage to purchase property. However, there are many types of loans in the market that you can take to pay for the property you intend to buy. How do you know which is the best for you? Take a look at the four most common home loan packages in Malaysia:
Term Loan
This is the most conventional of all the loans. You pay interest and principal throughout the tenure. A term loan has a maximum tenure of 35 years or age 70, whichever comes first, in Malaysia. For example, your monthly installment of RM2,129.66 will consist of RM442.16 being the principal amount and RM1,687.50 being interest incurred. You will pay more interest and less principal in the initial years of repayment. If you would like to pay more to finish the loan earlier, you will need to inform the bank before hand in order to reduce the principal. You will have to do that as otherwise the extra payment will go towards prepayment for the following months.
Overdraft
For overdraft, the borrowers only pay interest portion without having to pay the principal. How much interest you are charged will depend on how much you have utilised the overdraft facility. Overdraft is good for businesses, apart from withdrawing only what they need to meet commitments. Any surplus funds at anytime can be deposited into the overdraft account, therefore reducing the overdraft balances and consequently, the interest charged, which is calculated on daily rest.
Flexi Loan
Flexi loan is a hybrid between a term loan and overdraft. The borrowers will still need to pay the monthly instalment but can do any additional repayment at any time without informing the bank. The additional repayment will go towards reducing the interest charged on the flexi-loan facility as the principal owing to the bank has now been reduced. This facility makes use of the current account to operate. Be extra careful when you choose this package from the banks as there are banks that charge extra when you pay more towards reducing the principal.
Islamic Loan
Islamic loan uses the Murabahah concept under syariah principle. Under the Islamic concept of lending, banks will buy the property from the borrower and then rent it back to them. The bank will determine the profit rate in advance after considering the tenure duration. You have a choice to choose either the fixed interest rate or the floating rate. The interest on the floating rate is lower than the fixed.
Do keep in mind that the approval for whichever loan you apply for will depend on many factors – not just your credit score – including whether you have a criminal record (burglary, arson, fraud, murder, etc), stable income, existing loans (car, student, personal, etc), credit card debt, and more. If you have a felony on your record, banks may still approve your loan but your interest rate will be higher than normal.
Which type of loan better suits your financial circumstances and personal preference? Remember to keep your objectives in mind, research your choices, and choose wisely for such a big decision!
(Source: New Straits Times)
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