Found a beautiful property to call your very own home? Before you start browsing for your favourite type of furniture and fittings, you would need to do some research on obtaining your home loan. By taking a loan from a bank or financial institution, you don’t need to pay the full amount of that home you’ve been eyeing – which is what most regular Malaysians will do to afford their very own home.

If you would like to check how much loan you will need to take from the bank including the amount of interest you would need to pay, you can check out our Guyub loan calculator to decide if you can afford to buy your dream home.

What does it mean to take a housing loan in Malaysia?

Housing loans differ from country to country. In Malaysia, when you take a loan from the bank, the home will be used by the bank as collateral. What does this mean? Well, after taking a loan, the property will be charged or assigned to the bank as security until you have fully paid off your entire loan.

If the individual title to the property has been issued, the title will be charged to the bank and the original title will be kept by the bank. The charge will be registered with the land office and on the title there will be an endorsement with the word “GADAI”. If you default in the repayment of the loan, the bank will have the power to foreclose the property. Foreclosure is a process where the bank will enforce the charge and then auction off the property for the bank to reclaim their money.

If individual title has not been issued, the property will assigned to the bank and normally you will be required to sign a Deed of Assignment and a Power of Attorney. The Deed of Assignment will have the effect of the borrower assigning or in simpler words vesting the ownership of the property with the bank. Whereas, the Power of Attorney will have the effect of the borrower granting a power of attorney to the bank that will allow and empowered the bank to sign on behalf of the borrower. Similarly, if you default in the repayment of the loan, the bank will have the power to sell the property to reclaim their money.

After you have fully repaid the bank all loan instalments, the bank will release the original title back to you and the charge will be discharged (if there is individual title) or the bank will reassign the property back to you in a document called Deed of Receipt and Reassignment (if there is no individual title).

Knowing the jargon

Before running to your nearest bank to apply for a loan, there are a few important home loan related terms and schemes you would need to know. But please note that some bank may use different jargons and names to describe their type of loan but rest assured that the Bank Negara has control and monitor of all these loans to protect borrowers.

1. Loan-To-Value (LTV)

   Known as a margin of finance, this assessment is done by banks and lenders before approving a loan. If your LTV ratio assessment is high, then you would be considered a high risk borrower, thus the loan will cost much more than someone with a lower LTV ratio. In Malaysia, getting a 90% LTV ratio is considered normal especially with housing loans. Should you have 2 or more existing housing loans, your LTV would be capped at 70% for the next loan you apply for.

2. My First Home Scheme (SRP)

   If this is your very first property, you can take advantage of My First Home Scheme (SRP) to obtain up to 110% financing from selected banks, provided the property value does not exceed RM500,000.

3. Base Rate (BR)

   BR is a new system that is used to replace BLR since January 2015. The BR is what banks in Malaysia use to refer to the minimum bank rate set by the Central Bank of Malaysia (BNM), before deciding on the interest rate to apply to your housing loan. The BR system replaced BLR in order to make the rates more competitive for financial institutions.

4. Base Lending Rate (BLR)

   Prior to the new BR system, housing loan interest rates were referred to as Base Lending Rate (BLR). The BLR interest was a fixed and predictable rate using a blanket formula across all Malaysian banks.

Types of housing loans

1. Basic Term Loan

   Basically, this is the most straightforward housing loan in Malaysia with a fixed repayment schedule and fixed monthly installment amount throughout the entire loan tenure. The good thing about this loan is the stability of it; you know what to expect and prepare for it the same way right until you’ve paid off the loan. However, this loan comes with a big flaw – should you want to make additional payments, the bank will not accept it! So, although it is rigid, the predictability of the repayments make it ideal for some. Most banks do not allow repayment or additional repayment for a lock-in period of 3 or 5 years. You may after the lock-in period discuss with the banker to restructure your loan if you wish to make additional repayment or even to extend the tenure of your loan.

2. Semi-Flexi Loan

   The Semi-Flexi Loan is actually an adaptation of the Basic Term Loan, giving you an option of making additional or advanced loan repayments that is out of the usual schedule, as long as you submit an email or written request to the bank. This allows your overall interest rates to reduce since the principal amount is paid off earlier than planned. You can also sometimes withdraw a certain amount from the sum paid, which is subject to the bank’s discretion. All these conditions might feel like the perfect home loan, however, it comes with a price. The interest rate for semi-flexi loans are usually higher than for basic loans, although that too differs from bank to bank. So you may have a term loan with overdraft facility.

   This scheme may sometimes allow you to have an overdraft account which allow you to make repayment as you wish that will stop the accruing of interest, so you can bank into the overdraft account the entire loan amount and no interest will be imposed. But if you redraw or use money from the overdraft account, interest will be imposed accordingly. But do be informed that even if you do not use the money in the overdraft account, the bank may still impose a minimal charge.

3. Full-Flexi Loan

   This type of loan gives you the same flexibility as Semi-Flexi Loan without the troublesome approval procedures whenever you want to place additional payments or withdraw access sum paid. This loan usually comes attached with a current account at that bank in your name. The loan installment is usually automatically debited from that current account at an agreed time every month, however, do take note that this compulsory current account charges a maintenance fee. On top of that, another drawback of this loan is the high interest rates compared to term loans. Not every bank offers Full-Flexi Loans, so you would need to do a bit of shopping around. In general, this is a full overdraft account.

4. Islamic Home Loan

   Despite its name, this loan is not only available to those of Islam faith. Generally, this loan type is based on the Syariah law that forbids paying the interest rates in what you normally get in a regular home loan. So, instead of paying that loan and interest rates, Islamic home loans in Malaysia under the Bai Bithamin Ajil (BBA) concept, which states that you will co-own the home with your bank, and you pay a set amount every month back to the bank to buy back the bank’s share of your home. The home will finally be transferred to you as a gift known as Hibah once you have paid the final payment.

5. Fixed Rate Loan

   This is the most basic and straightforward home loan. It offers a specific interest rate that doesn’t change throughout the entire loan duration. The difference between this and Basic Home Loan, is that Fixed Rate Loan is based on reducing balance. That means, you will pay x% on whatever you owe currently.

How much can I borrow for a home loan?

Banks will loan you depending on your salary. Generally, most banks will loan you approximately 30% of your gross annual income.

Documents when applying for home loan:

• The property booking form
• Identification documents (copy of your IC/Passport)
• Salary slips (up to 6 months)
• Bank and EPF statements
• Income tax receipt/tax form

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.