INTRODUCTION
Buying a house is an exciting event. It will probably be the biggest
purchase you will ever make in your life. Understanding the steps
involved in securing a housing loan will help you save time and
avoid uncertainty and anxiety.
This information in the following pages will give you an insight
into the various issues on financing a house and outlines the major
steps in the overall process of financing a house. It guides you
through the basics, explains the technical terms and gives you
invaluable tips on financing a house.
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BUYING A HOUSE
Buying a house is a major step, so it deserves careful thought and
planning.
If you are buying a property under construction, you should check
the background of the developer. You should ensure that the
developer:
Has a valid licence issued by the Ministry of Housing and Local
Government which is still in force (not expired)
Has a valid advertising and selling permit issued by respective
local authority which is still in force
You have the right to enquire from the developer, information on
licence and permit. You can also refer to the Ministry of Housing
and Local Government for further clarification. A developer with a
good track record reduces the risk of the project being abandoned.
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WHAT CAN I AFFORD
Before you commit to purchase a property, you should first work out
a budget to help you determine how much you can afford and the
ceiling price on any property you may wish to buy. As a guide, your
monthly commitments on paying instalments for your house, car and
other payments should not exceed 1/3 of your gross monthly household
income.
Your source of funding can be all or any combination of the
following:
Savings
Withdrawal from Employee Provident Fund (EPF) account
Loan facility from a financial institution
SAVINGS
You should have sufficient personal savings to pay for the
downpayment and other related costs associated with buying a house.
A good estimate would be about 10%-20% of the purchase price as down
- payment and another 3%-5% for related costs, such as legal fees
and stamp duties.
EPF SAVINGS
You could also withdraw from your Account 2 to make the initial
downpayment. Please contact your nearest EPF office to inquire about
your withdrawal eligibility.
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CHOOSING YOUR FINANCIAL INSTITUTION
You should shop around before you decide on any financial
institution. Remember that when you take up a housing loan, you will
be dealing with the financial institution on a regular basis for a
period of time. Therefore, you should also consider factors other
than just interest rates. Below are some of the factors you should
consider:
How professional is the financial institution in
dealing with customers?
Does it offer quality service in terms of efficiency and
reliability?
What are the available loan packages and which package suits you
best?
What are the charges involved?
For example, legal fees, related government fees and charges,
disbursement fees and others. You should also be informed when and
how often these charges are to be paid
An innovative financial institution may offer a more suitable loan
package that suits your needs and their application process may be
faster and hassle-free. It usually takes about one to two weeks for
your loan application to be approved from the time you submit all
relevant documentation.
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LOAN APPLICATIONS:
DOCUMENTS REQUIRED
You need to provide the following basic documents before the
financial institution can process your loan application:
- A photocopy of identity card or passport
- Your latest 3 months' salary slip
- Your latest income tax return form (Form J)
or EA form
- Sale and Purchase Agreement/deposit or
booking receipt/letter of offer from the housing developer
- A photocopy of the land title (if any)
- The latest bank statements (compulsory in the
absence of salary slips and/or Form J/EA Form) dating back six
months/savings passbook/fixed deposits
- Valuation report for completed houses and/or
- If you are self-employed, you need to provide
your business registration documents, latest 3 months bank
statements, latest financial statements and other supporting
documents to support your income.
However, some financial institutions may require
additional supporting documents.
Upon acceptance of the letter of offer, you will need to appoint a
lawyer to draw up the loan documentation for you. Normally, you
would select your lawyer from a list of panel lawyers provided by
your financial institution. Some of these documents need to be
submitted to the relevant government authorities for registration
and to the Stamp Office for stamping.
Upon completion of the above, these registered documents are then
submitted to the financial institution and you will be given a copy
of the Loan Agreement. In general, the timeframe for the
completion of this legal process should not exceed 6 months.
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FEES AND CHARGES
There are also related costs such as professional fees and
government charges that you would have to pay. Below are some of the
common fees and charges you would expect to incur:
(TABLE 1)
| Type |
Rate |
| Professional Legal Fees |
|
| Sale & Purchase Agreement |
1.0% for the first RM100,000
0.5% for the next RM4,900,000 |
| Stamp Duties |
|
| Loan Agreement |
0.5% of the loan amount |
| Transfer of Title (for completed properties only |
1% for the first RM100,000
2% for the next RM400,000 |
| Disbursement Fees |
|
| Include fees for registration of charge, land search and
bankruptcy search |
These fees vary by state, land office and type of property.
For instance, in Selangor and Wilayah Persekutuan, the fees
could range from RM300 to RM700 |
| Processing Fees |
Rate (RM) |
Range (RM) |
| One time fee charged by the financial institution for loan
processing |
50
100
200 |
25,001-30,000
30,001-100,000
100,000 above |
Please note that the type of charges and the amount charged might
change in the future. You should meet with your financial
institution's loan officer for further advice and discussion
regarding any questions that you may have concerning the type of
fees and legal services.
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ASSESSING YOUR LOAN
REPAYMENT CAPACITY
A common criterion is that your monthly loan instalment repayment
should not be more than 1/3 of your gross monthly household income.
If you have savings or fixed deposits, they can be used to support
your loan application as financial institutions may take them into
account in evaluating your eligibility. Different financial
institutions have different criteria in calculating the repayment
capacity. In the case of a floating rate loan, you should also note
that your monthly repayment may increase substantially when interest
rates go up.
For example, when there is an increase in the Base Lending Rate (BLR),
the interest rate on your loan will also go up, and your repayment
would be higher. However, in most cases, financial institutions
would allow you to pay the fixed amount of monthly repayment
throughout the loan tenure and would make any adjustment caused by
the variation in interest rate by increasing or shortening the loan
tenure. You should check this out with your financial institution.
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MARGIN OF
FINANCING
The amount of financing provided by a financial institution depends
on the market value (for completed properties only) or purchase
price of the house, whichever is lower. The margin of financing
could go as high as 95% of the value of the house.
It is assessed on factors such as:
- Type of property
- Location of property
- Age of the borrower
- Income of the borrower
LOAN TENURE
The length of a loan can range anytime up to 30 years or until the
borrower reaches age 65 (or any other age as determined by the
financial institution), whichever is earlier.
LOAN FEATURES
Each financial institution packages its housing loans differently.
You should examine all the features of a loan package and not just
base your decision on any single feature. Pricing is just one
consideration; other features like flexible repayment terms could
balance the scale or even translate into greater loan savings.
Financial institutions generally offer housing loan packages either
in the form of a term loan, overdraft, or a combination of a term
loan and overdraft.
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COMMON HOUSING LOAN PACKAGES OFFERED BY FINANCIAL INSTITUTIONS
Term Loan
A facility with regular predetermined monthly instalments.
Instalment is fixed for period of time, say 30 years
Instalment payment consists of the loan amount plus the interest
Overdraft facility
A facility with credit line granted based on predetermined limit
No fixed monthly instalments as the interest is calculated based on
daily outstanding balance
Allows flexibility to repay the loan anytime and freedom to re-use
the money
Interest charged is generally higher than the term loan
Term Loan and Overdraft combined
A facility that combines Term Loan and Overdraft. For example, 70%
as term loan and 30% as Overdraft
Regular loan instalment on the term loan portion is required
Flexibility on the repayment of overdraft portion
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DAILY
RESTS VS MONTHLY RESTS
Financial institutions may charge you interest either on daily rests
or monthly rests depending upon the products offered. In the case of
daily rests, the loan interest is calculated on a daily basis, while
in the case of monthly rests, interest is calculated once a month
based on the previous month's balance. Under both types of loan, the
principal sum immediately reduces every time a loan instalment is
made.
GRADUATED PAYMENT SCHEME
A graduated payment scheme allows lower instalment payments at the
beginning of the loan but this will gradually increase over time.
This type of payment scheme will help house buyers to reduce burden
of loan repayment for the first few years and allow them to allocate
more money for other purposes. Over time, as earnings of house
buyers increase, their repayment capabilities will also increase
thus allowing higher repayment instalments at a later stage.
A graduated payment scheme is also suitable for a house buyer who
wishes to purchase a more expensive house but is restricted by
his/her repayment capability during the initial years.
PREPAYMENT FLEXIBILITY
Different financial institutions may have different terms and
conditions imposed on prepayments. Check the loan package to see if
it allows you the flexibility to make prepayments or extra payments.
Flexibility to make prepayments and paying interest on a daily rest
basis, may help save considerable interest charges. It is also
possible to start repayment of the loan during the construction of
the house, thus saving more interest charges. What is important is
to make prompt monthly repayments.
PARTIAL
PREPAYMENT OF THE OUTSTANDING LOAN
Many borrowers find it useful to shorten the loan tenure by making
partial prepayments with surplus savings or annual bonus. Partial
prepayments can be in any amount. However, some financial
institutions may impose restrictions on the amount to be pre-paid
while others may impose a penalty. It is extremely effective in
reducing the interest charges you would have to pay if prepayments
are made during the early years.
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EARLY
TERMINATION PENALTY
Financial institutions may impose a penalty on full repayment of
loan. Generally, the penalty imposed can either be a flat rate or an
'x' number of months' of interest (e.g. 1 month's interest). This is
because when a loan is granted for a certain term, the financial
institution would expect the loan to be repaid over the period
agreed and has planned their cash flow on this basis. An early
termination of the loan would therefore disrupt the financial
institution's cash flow planning. As such, some financial
institutions do not charge a penalty if sufficient notice is given
(as stated in the terms and conditions of the loan) or if the
settlement is made after the required minimum period to maintain the
loan with the financial institution has passed.
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DOCUMENTATION
The primary documentation involved in applying for a housing loan is
the loan agreement.
A Loan Agreement is a contract signed between the buyer and the
financial institution. A Loan Agreement contains major provisions
such as the terms of the loan, principal sum of the loan, interest
rates, default interest rate, penalty charges and repayment terms.
It also sets out the duties of borrower and the lender and in the
event of default, the rights and remedies of each party.
The other common legal documents that you may need to sign are Deed
of Assignments, Charge documents and Power of Attorney.
Remember that throughout the tenure of the loan, your property is
charged to the financial institution (i.e. the financial institution
has a claim over your property). Whether you are buying a completed
property or a property under construction, you should obtain an
explanation from the attending lawyer on the major clauses of the
agreement and the implications of each clause.
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VALUATION REPORT
This documentation may be required if you purchase a fully completed
property from a houseowner. The financial institution will appoint a
property valuer from its panel of valuers to appraise the property.
The valuation fee for this service starts from a few hundred ringgit
upwards, depending on the value of the property and you will be
charged for this service.
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INSURANCE
It is extremely important to take insurance coverage when you
purchase a house. The most important factor is that it gives you and
your loved ones peace of mind, in the form of financial security if
an unfortunate event should occur.
There are two important insurances to consider:
The House Owner/Fire Insurance policy
This policy provides coverage for your property against natural
disasters such as flood, fire, riot, strike and malicious damage.
For properties with strata titles such as apartments or
condominiums, you need not buy the insurance because the Management
Corporation (MC) would have taken up insurance on the entire
building. You should ensure that you obtain the sub-certificate of
the Master Policy issued by the insurance company from the MC and
present it to the financial institution. This is necessary so that
the financial institution is aware that the property has been
insured and will not buy another fire insurance on your property. In
such a case, you will be required to assign your rights under the
policy to the financial institution.
The Mortgage Life Assurance or MRTA
This type of policy provides for full settlement of the outstanding
balance of the housing loan with the financial institution, in the
event of total permanent disability or death of the borrower.
Premiums can usually be included in the loan amount, and the
repayment period of the premium is usually spread over the loan
tenure. The premium is only incurred once. There are no monthly or
yearly premiums to be paid. In the event of early termination of
housing loan, you will generally have the option to request for a
refund of the premium for the balance of the unexpired period or to
continue the insurance coverage.
Financial institutions have their own panel of insurers and most of
them can arrange insurance on your behalf with the annual premium
charged to your loan account.
LOAN DISBURSEMENT
The financial institution disburses (pays out) the loan once it has
received advice from its lawyer that the legal process has been
completed and the loan documents are in order. At this time you will
be informed of the date and amount of the first instalment you have
to make.
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RIGHTS AND DUTIES OF THE BORROWER AND FINANCIAL INSTITUTION
Both borrower and financial institution have certain rights and
duties during the course of the loan. Some of the more important
ones include:
RIGHTS
Borrower
Right to have access to all information that would affect your
borrowing decision
Right to be treated professionally, courteously and without
prejudice
Right to be consulted on changes to the terms and conditions of your
loan
Right to have accurate information on a regular basis on your loan
account
Right to enforce legal action in the event of a breach of contract
Financial Institution
Right to have full relevant disclosure of information on borrower's
credit standing
Right to correct and truthful information on the borrower
Right to timely repayment of interest/ instalments of the loan
Right to enforce legal action in the event of default/breach of
contract
DUTIES
Borrower
Duty to read and understand all terms and conditions of the loan
Duty to observe the terms and conditions of the loan at all times
Duty to enquire and get clarification on all aspects of the loan to
their satisfaction
Duty to make prompt payment on the fees, charges, interest and
instalment of the loan
Financial Institution
Duty to discharge borrowers' obligations as described in the loan
agreement
Duty to consult borrowers on any changes made to the terms and
condition, fees charged and other relevant information
Duty to attend to all queries made by borrower
A Loan Officer can provide invaluable assistance, and clarify issues
which you are unsure. Take the time to discuss your housing loan
questions with a loan officer at length so that you can choose a
loan facility that best suits your needs. |
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Frequently Asked Questions
Q: How much can
I afford?
A: This depends on your income and other financial obligations. As a
rule of thumb, most house buyers buy houses that cost 1.5 and 2.5
times their annual income. For example a house buyer earning
RM40,000 a year would buy a house between RM60,000 and RM100,000.
Furthermore, the monthly loan repayment should not exceed about 1/3
of your gross monthly income. In assessing your repayment
capability, the financial institution would also take into account
your other debt repayments such as car loan, personal loan and
credit cards.
Q: How much can I borrow?
A: This will depend on the value of your property, your income and
your repayment capability. Margin of financing can go as high as 95%
(inclusive of MRTA). The higher the margin, the higher you will have
to pay per instalment. Also, at a given rate, a shorter tenure will
require you to pay higher instalment.
Q: How long
does it take to process a loan?
A: It usually takes about one to two weeks for your loan application
to be approved from the time you supply full documentation. You
should ask the financial institution for the checklist of documents
required for the application to avoid any delay.
Q: What is the difference between conventional financing and Islamic
financing?
A: Under conventional financing, your outstanding loan consists of
principal plus the interest charged on you. The interest is actually
the financial institution's cost in obtaining the funds. Islamic
financing works on the concept of buying and selling where the
financial institution purchases the property and subsequently sells
it to you above the purchase price.
Q: Why do I need a
valuation?
A: A valuation is required if you are buying a completed property.
The financial institution requires a valuation to ascertain whether
the property provides sufficient security for the loan given. It
also provides an indication that the property is worth what you are
paying for.
Q: Do I need to appoint a lawyer? Can I choose my own lawyer?
A: Yes. You need to appoint a lawyer to draw up your loan
documentation. Normally, the financial institution will provide a
panel of lawyers who are familiar with their documentation
requirements for you to choose from. If you prefer to engage your
own lawyer, you should discuss this with your financial institution.
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Q: Who
pays for the legal fees?
A: Generally, legal fees are borne by the buyer. However, certain
developers and financial institutions may offer to pay the legal
fees on the legal documentation as part of their marketing package.
In addition, some financial institutions also extend financing for
the loan documentation fees.
Q: What if I run into financial difficulties and cannot meet my loan
repayments?
A: If this happens, you should contact your financial institution to
discuss a reasonable repayment program, which could include
extending the tenure of the loan.
Q: Can I pay off my loan in full earlier than the agreed loan
tenure?
A: Normally there will be penalty charges for early loan settlement.
Depending on the financial institution, penalty charges will range
between 2-5% of the outstanding amount. The charges that are made
will depend on the type of product you have chosen and when you
decide to redeem your loan. Note that in some loan packages, there
are certain minimum periods you need to observe before full
settlement is allowed.
Q: Is there any waiver of penalty fees for early loan settlement?
A: Any waiver of penalty fee is strictly at the discretion of the
financial institution.
Q: Why does my outstanding loan remain high at the initial stage
despite the repayments made?
A: During the early years of the loan, a significant amount of your
repayments will go towards the payment of interest. So if you make
partial repayments to repay the principal sum outstanding, you make
substantial savings in your interest payments and thus shorten your
loan tenure.
Q: Can I make extra payments other than the monthly contractual
repayments?
A: This depends on the terms and conditions stated in your loan
agreement. By paying in extra money each month or making an extra
payment at the end of the year, you can speed up the process of
paying off the loan. When you pay extra money, be sure to indicate
that the excess payment is to be applied to the principal. However,
if you make a lump sum payment or partial repayments to your
principal loan, you must give notice to your financial institution.
The notice period ranges from 1 to 3 months.
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Q: Do I need
a guarantor for a loan facility?
A: This is at the financial institution's discretion and depends on
the credit standing of the borrower.
Q: Does the financial institution have the right to charge my loan
account for any miscellaneous charges incurred by them such as late
payment charges, legal costs, insurance, etc?
A: The financial institution's power to impose charges on your
account is normally indicated in the Terms and Conditions of the
loan.
Q: How long is the grace period for payment of my monthly
instalment/interest?
A: Generally, the financial institution gives a grace period of 7-14
days for you to repay your instalment payment. Any payment received
after the grace period will be subjected to late payment charges.
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Q: When does the financial institution release the loan to the
seller/developer?
A: For houses under construction, the financial institution will
release the progressive payment to the developer based on the claim
made upon completion of each construction stage as certified by the
Architect's Certificate. For completed properties, the loan will be
released upon completion of legal documentation or when all relevant
approvals, such as the approval of the state government have been
obtained.
Q: Can I purchase a house under joint names and apply for the
housing loan only under my name?
A: The financial institution will consider such applications on the
merits of each case, under the following circumstances:
The co-owners are related as husband and wife, and one party is not
working and the other party is solely responsible for the loan
The co-owners are related as father/mother and children, the parents
are old and not working and the children will be responsible for the
loan
However, the above is at the financial institution's discretion and
they may also consider other circumstances.
Q: If the developer abandons the project, am I still required to
service my interest/instalment payments?
A: Yes. You are still obliged to service your loan based on the loan
agreement signed between you and the financial institution. However,
since the financial institution has vested interest in the property,
you could discuss a repayment plan with your financial institution.
You should also report the matter to the Ministry of Housing & Local
Government.
Q: What
happens when the loan is fully repaid?
A: When the loan is fully settled, the financial institution through
its solicitors, will release its charge on the property. The
financial institution (chargor) will uplift his claim on the
property and the title to the property will be transferred to you.
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Q: What happens in the event of death of a borrower who has not
bought insurance?
A: The deceased's survivor/next of kin can claim through the court
the rights of the deceased's property. The person will have an
option to either proceed to service the loan or redeem it. However,
most financial institutions make it compulsory to insure (MRTA)
against such an event.
Q: What can the financial institution do if I do not make
repayments?
A: If you fail to make three consecutive payments, the financial
institution will take the necessary actions to recall the loan. In
the worst case scenario, the financial institution will foreclose
the property and sell it to settle the loan. The borrower would
still be liable to pay the difference between the auction price and
the loan amount outstanding.
Q:
What is the most convenient way to repay my loan?
A: Financial institutions offer a wide range of services to make
banking easier for you. Some of the alternative ways of servicing a
loan include:
Open a savings/current account and arrange for standing instructions
with minimal charges (if you maintain deposit and loan accounts with
the same bank, the charges may be waived)
Through an ATM transfer
Internet Banking
Telephone banking service
Deposit your cheque at the deposit machine or send your cheques
direct to your financial institution
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Q: Should I consider refinancing my loan if I am offered a lower
interest rate?
A: The main consideration in refinancing would be the costs
involved. As you are clearly aware, you have incurred a substantial
amount to pay for the necessary fees to obtain your first loan. For
example, processing fees, legal fees, stamping and transfer fees.
Refinancing means you would have to incur the same charges again.
Before you decide to refinance, you should ensure that the savings
from the lower interest rate is enough to compensate all the costs
incurred associated with refinancing, including penalty charges, if
any.
Q: What should I do if I have a complaint against a banking
institution?
A: You can either phone to make a complaint or write in formally to
the banking institution. If you phone, remember to note down the
name of the officer you spoke to, date and time you called.
Usually, you will be advised to follow up with a complaint letter if
the matter is complicated. Ensure that your letter is clear and
simple to understand. Remember to give the important information for
example name, account number and photocopies of relevant documents,
and keep a copy of the complaint letter for your own reference.
Q: How long should I wait for a reply from the banking institution
after I have submitted my complaint?
A: You should get a reply from your banking institution within two
weeks after the complaint was received. If the complaint needs
further investigation, your banking institution should inform you
how much longer they will need to resolve your complaint.
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Q: What is the
standard complaint procedure?
A: All commercial banks, finance companies and Islamic banks have
set up a dedicated Complaints Unit to deal with customers'
complaints. Therefore, you should first lodge your complaint with
the banking institution concerned, as they will have a record of
your details readily available. Your banking institution will
investigate your case and give you a written reply on its decision.
Q: What if I am not satisfied with the decision made by my banking
institution?
A: If you are not satisfied with your banking institution's
decision, you could submit your complaint to the Banking Mediation
Bureau (BMB) within 6 months of receiving a decision from your bank.
However, remember to check the scope of complaints handled by the
BMB, as the BMB will not deal with complaints outside of their
purview. Make sure you submit the details of your complaint to the
BMB together with the "deadlock letter" from the banking
institution. The "deadlock letter" is simply a letter explaining the
banking institution's final decision on your case and its reasons
for the decision taken.
Q: What is the role of the Banking Mediation Bureau (BMB)?
A: The BMB was established under the Companies Act 1965 and its main
objective is to settle disputes between banking institutions and
their customers. Currently, the role of the BMB is restricted to
disputes/complaints involving direct monetary loss not exceeding
RM25,000 arising from the following:
Charging of excessive fees, interest and penalties
Misleading advertisements
Unauthorised Automatic Teller Machine withdrawals
Unauthorised use of credit cards
Unfair practice of pursuing actions against guarantors
Q: Does
the BMB impose any fee for its services?
A: No, the services provided by BMB are free of charge.
Q:
How can the BMB be contacted for further information?
A: BMB can be contacted at the following address:
Mediator
Banking Mediation Bureau
5th Floor, MUI Plaza, Jalan P. Ramlee, 50250 Kuala Lumpur
Telephone: 03-2026 2335/2337
Fax: 03-2026 2339
E-mail: bmbureu@po.jaring.my
The public can also obtain an information pamphlet on the BMB either
from their respective banking institutions or from the BMB itself.
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Q: If I wish
to lodge a complaint against a banking institution not
licensed under the Banking and Financial Institutions Act 1989 (BAFIA),
would the BMB be able to assist?
A: No. BMB can only address complaints against commercial banks,
finance companies and merchant banks licensed under BAFIA.
Q: Can I refer my
complaint directly to the BMB without going to the banking
institutions?
A: No. BMB only deals with a complaint, which has initially been
lodged with the banking institution concerned. The BMB would
therefore require a copy of the letter from the banking institution
("deadlock letter") conveying its final decision.
Q: When should I
file my complaint?
A: You should file your complaint as soon as the problem arises as
the matter can be dealt with more effectively while events are still
fresh in your memory. If you want to submit your complaint to the
BMB, you must do it within 6 months of receiving a decision from
your banking institution.
Q: Can I refer a complaint which is pending in Court to BMB or BNM?
A: No. BMB and BNM would not accept any case, which is pending in
Court since the Court is in a better position to give judgement on
the case concerned.
Q: If I am still not
satisfied with the outcome of my complaint after
deliberation by the BMB or BNM, what would be my next possible
course of action?
A: You may want to pursue legal action against the banking
institution concerned. However, once you have accepted the
settlement sum fixed by the BMB, you may lose your right to take
legal action. |
