Unless you hit the jackpot or won the lottery, you’re probably like the rest of us that need to apply for a home loan to be able to afford your first home purchase.
Which brings us to the immediate question of: “which type of home loan is most suitable for you?”
Know the pros and cons of your options with our guide to the different types of home loans made available for Malaysians.
1. Basic Term Loan
This is the most common loan type in Malaysia. This type of loan is popular due to its simplicity. In this loan type, you will pay a fixed amount of instalment throughout your loan term, with no flexibility to reduce the loan interest at any point of time.
This loan has a maximum tenure of 35 years, and the instalment and its interest rates are bundled together in the monthly payment.
If you have a strict and predictable cash-flow pattern, a Traditional Term Loan may be best. If not, you may want to consider other types of loans.
It is also important to note that most banks will have a penalty clause, where approximately 3% will be charged if you were to resolve the mortgage earlier (this ranges within 2-5 years)
2. Fixed Rate Loans
The interest rates for this package is fixed for its entire tenure. This means that you will pay a fixed amount of instalment, without the flexibility to reduce the interest rate throughout the loan term.
Basically, this loan type is suitable for those who worry about increasing interest rates and changing Base Lending Rates.
It is important to note that the interest rate is much higher than conventional loans.
You can look up insurance companies that offer a similar package at a lower interest rate, but not as low as the packages that come under Islamic loans.
Make sure to compare the various loan products available in the market and their respective interest rates.
3. Overdraft Loan
To access this loan, you only need to pay the interest rate of the loan, where the amount is deducted from your linked Current Account.
A benefit of utilising this account is that there is no tenure attached to it.
In other words, those who pay more than the interest rate will lower their principal. The downside of this loan is that the interest rates are higher than the other types of loans.
4. Semi-Flexi Loan
Just like the name, a flexi loan offers more flexibility to a borrower. A combination of the Term Loan and Overdraft Loan, this loan type reaps the benefits of lowered interest rates when they put more money into their Current Account.
The flexi aspect allows you to withdraw & deposit your money without having to inform the bank beforehand.
Flexi loans are most suitable for those that possess extra cash flow.
The loan instalment is automatically deducted every month from the linked current account, and the balance will go towards reducing the amount owed on the loan.
Do note that there will be penalty charges incurred in the event that you need to withdraw the advance money paid for any emergency uses.
5. Full-Flexi Loan
A full-flexi loan is similar to a semi-flexi loan. The difference is that you will be able to withdraw your advance payments with no extra charges or penalty.
Loan recipients will be provided with a cheque book and a linked current account so you can withdraw money anytime at your convenience.
This loan enables you to access your funds for rainy days, with the condition that upon withdrawal, the interest will be charged back.
6. Islamic Loan
Being Syariah law compliant, Islamic home financing products operate on an interest-free basis.
This is the reason why you see the word “financing” used in Islamic products, compared to the usual “loan” used in other products.
This is because a loan implies an arrangement which involves payment for the interest rates.
Islamic home financing in Malaysia typically comes in two types – Bai’ Bithaman Ajil (BBA) or Musharakah Mutanaqisah (MM).
A) Bai’ Bithaman Ajil (BBA) home financing
BBA home financing is based on a buy-and-sell concept – where the bank “buys” the property from the borrower and rents it back to them.
In a BBA home financing, the bank first buys the property at the current market price, and sells it back to the customer at an agreed price.
This agreed price includes the actual cost of the property, plus a mark-up for the bank’s profit.
The bank and the customer would then agree to a term and an instalment amount. No interest is charged.
This loan is popular with short term property investors as the nature of this loan prevents the banks from charging the borrowers a penalty for early redemption.
B) Musharakah Mutanaqisah (MM) home financing
MM home financing is based on a partnership concept – the customer and the bank jointly buy and own the property.
The bank then leases its share of property to the customer with the promise that the customer will buy the bank’s ownership in the property.
The customer pays rental to the bank under ijarah, where a portion of the payment is used to gradually purchase the bank’s share in the property.
Popular among property investors and owners who find that the value of their property has appreciated.
This loan type allows you to approach the bank to evaluate your property, and if the value of the property has increased, you will be able to take another loan (in the form of “Cash Back”) based on the higher value.
8. Government Housing Loan
This type of loan is for government servants. It is provided under the “Bahagian Pinjaman Perumahan”.
There are 7 types of government housing loans with strict rules for government servants who apply for this loan:
You will have to appoint your own lawyer and be proactive in the application process to ensure timely disbursement of the loan.
Visit https://www.hihomes.my/ to calculate your loan eligibility and view properties listed according to your affordability.