- here are the 6 things you should consider before making what would arguably be the biggest financial decision of your life
To the common folks, choosing a home loan is almost as hard as choosing the property itself. If you’re currently in the midst of shopping for a home loan to buy the house of your dream, here are the 6 things you should consider before making what would arguably be the biggest financial decision of your life.
1) Types of home loanFirst and foremost, consider what works best for you: a Traditional Term Loan or a Flexible Home Loan (“Flexi-Loan”). A Traditional Term Loan requires you to pay a fixed amount each month for the entire tenure of your home loan (e.g. 30 years), whilst a Flexi-Loan gives you the option of reducing your interest whenever you wish (i.e. by saving your extra money into a linked current account. The more you save, the less interest you pay).
If you have a strict and predictable cash-flow pattern, a Traditional Term Loan may be best. If you prefer flexibility in paying off your loan, a Flexi-Loan is recommended.
2) Interest rateAs of all loans, your priority should probably go to the bank that offers you the lowest interest rate. Citing an example we’ve used before: for a home loan of RM500,000 over a period of 30 years, the difference in interest between an interest rate of 4.2% and 4.15% (i.e. a mere 0.05%) could be well over RM5,000!
3) Margin of financing (How much you can borrow)Depending on various factors which include the value of the property as well as your standing with the bank, different banks may offer you different margins of financing. As you’ll be required to pay any amount not covered by the home loan upfront, this becomes very important especially if you’re short on cash.
As an example: for a RM500,000 house, you’ll need to pay RM100,000 upfront if your margin of financing is 80%; but you’ll only need to pay RM50,000 upfront if your margin of financing is 90%.
4) Lock-in periodLock-in period is the period you’ll incur a penalty (usually 2-3% of the principle loan amount) if you choose to pay off your home loan in full before it reaches the end of its tenure. When it comes to choosing a home loan in Malaysia, it pays to have the lock-in period as short as possible and the penalty as low as possible. Also, some banks do not charge a penalty at all if sufficient notice is given.
5) Fees and chargesA home loan application involves professional and government-regulated processes such as preparation and disbursement of loan agreement, payment of stamp duty and processing by the bank, just to name a few. All these processes usually come with fees & charges that will be borne by you, the buyer. In certain cases, it may also be wholly or partly borne by the banks as part of your loan packages. Hence, is it best to sit down with the loan officers (for all the banks you are considering taking your home loan from) and have them run through the fees and charges with you. The task may be repetitive and time-consuming… but it’ll be time well spent.
6) The bankLastly, understand that you’ll be dealing with the bank on a very frequent basis for as long as your home loan is in effect (which may be 20 to 30 years). With that in mind, you should probably choose a bank you are very comfortable with. Some of the things you may wish to think about include:
Do you have an existing savings or current account with the bank (for ease of inter-account transfer)?Are you satisfied with their standards of service?Is a local branch available near your home or office?Do you consider the bank to be trustworthy or reliable?Does the bank offer value-added services that will make your life easier for the long haul?How is the bank’s reputation as a whole?