Home Loan Buying Guide for Beginners

Then you are ready to buy a property. Congratulations! It marks an important milestone in your life. Whether it’s for personal use or an investment, buying a big ticket item involves careful planning based on your financial capability. Most of us will need a home loan, but with so many options, finding one can be overwhelming.

Before you drown in terms and conditions (T&C) pages, here are three basic things you should choose for comparison:

  • Interest rate

  • Possibility of withdrawal

  • Blocking period

The lower the better?

Of course, the first thing you need to pay attention to is the interest rate. So does that mean lower is better?

Generally, yes. However, this is not a sufficient indicator to make an informed decision. You should spend some time reading the terms and conditions because your monthly payment amount is not based on the interest rate alone. Your calculations should take into account many other factors, such as loan amount, loan term, and your credit history.

Refund flexibility

Next, you need to decide which type of loan you are most comfortable with. There are three types, namely the basic term loan, the semi-flexi loan and the full-flexi loan, each offering different flexibilities on your loan repayment.

As the name suggests, the basic term loan is the conventional loan, where your monthly payment is a fixed amount throughout the term of the loan. It also means that you will pay a fixed amount of interest from start to finish. The advantage is that you don’t have to worry about interest rates rising over the years, allowing you to have a clear plan for your finances. The flip side is of course that you don’t get any savings when the BR (base rate) goes down.

The semi-flexi loan gives you the option of paying a larger sum up front to reduce the principal amount of your loan. This automatically shortens your tenure, which also means savings on interest. Although this seems like a good plan, note that there are many processes for banks to authorize you for an advance payment, which includes additional fees according to the terms and conditions. In addition, semi-flexible loans can sometimes have higher interest rates than basic term loans.

Just like semi-flexi loans, full-flexi loans offer the ultimate in flexibility in loan repayment, as they avoid the entire process of applying for authorization from the bank as well as additional payment. You can even withdraw your deposits directly from the account when you need funds without having to notify the bank. So any extras you deposit into that loan account will reduce your outstanding balance, which in turn will reduce the interest calculation.

Sounds like the best, doesn’t it, so what’s the deal? Well, it comes with a fixed monthly fee between RM5 to RM10. And the interest rate might be slightly higher. So, if you are not planning to deposit large sums into this account, there is no need to pay the extras.

Penalty for early settlement

Although you can try to outsmart the game by paying off your loan early to reduce the term, note that there is such a thing called a lock-in period, usually between two and five years. This means that if you want to settle your debt with the bank within this period, you must in fact pay a penalty, which can amount to a substantial sum.

Additionally, if you cancel or convert your loan on time, a penalty will also be imposed, which typically ranges from 2% to 5% of the outstanding loan balance.

So, when looking for a home loan, check the length of the lock-in period or negotiate for the shortest term possible.

Use EdgeProp’s LoanReport tool to view your custom loan/refinance packages from different banks. Check your eligibility at https://www.edgeprop.my/home-loan-report

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