What is a mortgage loan?
A mortgage loan is a loan that helps you buy a property with the property itself as collateral until you’ve repaid the loan, plus interest, in full.
Am I eligible for a mortgage loan?
Most banks require you to be at least 18 or 21 years of age, although Malaysian nationality is not necessary. Other factors that determine your eligibility include your income, credit history, and outgoings.
What types of mortgage loans are there?
Typically, in Malaysia, you’ll find three common home loans: standard home loans, flexi home loans, and Islamic home loans.
Is there a mortgage loan for Muslims?
Yes, there is. Islamic loans that work on either the principle of Mudharabah or Ijarah are free of ‘riba’, or interest, and comply with Syariah laws.
If I am a non-Muslim, am I eligible for the Islamic home loan?
Yes, everyone can apply for Islamic home loans provided they meet the other eligibility criteria set out by the lending bank.
Should I apply for several loans and see which one I get?
No, you shouldn’t. Once you’ve submitted a formal application for a loan, your action is noted in your credit file. If you’re shopping around for the best deals, you can research online, enquire at the bank’s customer service counter, or ask your friends and family, but whatever you do, don’t make a formal application for a mortgageÂ loan until you’re sure that’s the one you want.
How much can I borrow?
The amount you can borrow, usually expressed as a percentage of the value of the property, is called the margin of finance (MOF), and varies according to loans, banks, your income, your credit history, and a few other variables. It isn’t uncommon to be able to borrow up to 90% of the value of your property, although your success in actually applying for such a high-valued loan will depend also on your loan-to-value ratio.
What is a loan-to-value ratio?
The loan-to-value ratio shows the level of equity in the property of both borrower and lender. Basically, the loan-to-value ratio is the amount you intend to borrow over the appraised value of the property. You can further lower it by having a bigger downpayment, which reduces the amount you’ll have to borrow.
How much do I need to prepare for the downpayment for my property?
A bigger downpayment means a smaller loan, less debt, less interest payments (though not necessarily lower interest rates), shorter loan tenure, and perhaps most importantly in the early stages, a lower loan-to-value ratio. You’ll need to prepare at least 10% downpayment as most loans only offer up to 90% MOF.
How does loan-to-value ratio affect my successful application for a mortgage loan?
The lower your ratio, the higher your chances of successfully getting that mortgage loan. The loan-to-value ratio is a risk assessment tool, and a lower value equals lower risk to the bank, making it more likely that they’ll approve your loan application than not.
How is interest/profit calculated?
As of 2 January 2015, all interest or profit from the sale of products and services are calculated based on a Base Rate (BR) set by Bank Negara Malaysia. For example, if a loan advertises a ‘BR – 0.20%’ rate and the current BR rate is 4.50%, the interest rate (or profit) on that loan will be 4.50%-0.20% = 4.30%.
How can I repay my loan?
Your loan must be repaid monthly, and some of the methods you can use in Malaysia include conventional over-the-counter payments, online transfers, MEPS ATMs, your lending bank’s ATMs, Interbank GIRO, standing instruction facilities, mobile banking, or even cheque by mail.
What happens if I can’t keep up with the repayments?
Your property will be at risk of being repossessed by the lender and auctioned off. It is prudent to seek out your lender to discover your options, such as a momentary reprieve or a new repayment plan, so that you don’t lose your property.
Can I switch to a better loan package/different bank halfway through?
Yes, the process is called remortgaging. However, you may be charged an early redemption fee if you decide to back out of your current deal before the tenure is up, and there will be other charges involved as well.