Housing Loan Guide

Introduction
Understanding the steps involved in securing a housing loan will help Buyer save time and avoid unnecessary anxiety. This information gives you an overview into the various issues related to funding of an acquisition of a house and the requirements of obtaining a housing loan.

However, this article will serve as a guide and may be changed or vary from time to time and may be varied
from one financial institution to the other. Therefore, it will be good practice to check and/or verify with the
financial institution who finance the acquisition of the house.

Funding
The Buyer should have sufficient funding to pay the deposit and related costs for buying a house. It is estimated approximately 10% of the purchase price is needed as deposit, which payable upon signing of the Sale and Purchase Agreement and another 3% – 5% for related costs, such as legal fees and stamp duties for Sale and Purchase Agreement and Loan Documents.

Related Costs
There are related costs involve such as legal fees and disbursement including stamp duty that the
Buyer/Borrower has to pay in the process of acquiring a house.

TYPE

RATE

Legal Fee

  • Sale & Purchase Agreement and Loan Documents

Purchase Price / Loan Sum
First RM500,000 1%
Next RM500,000 0.8%
Next RM2,000,000 0.7%
Next RM2,000,000 0.6%
Next RM2,500,000 0.5%
Next in excess of RM7,500,000 if any, it is negotiable
excess but not exceed 0.5% of such excess.

Stamp Duty

  • Loan Agreement

  • Memorandum of Transfer (MOT) of Tittle

1. 0.5% of the loan amount; and
2. 1% for the first RM100,000; 2% on any amount in
excess of RM100,000.00 but not exceeding
RM500,000.00; 3% on any amount in excess of
RM500,000.00 until RM1,000,000.00; and 4% on any
amount in excess RM1,000,000.00

Disbursement Fee
Include fees for registration of MOT and
charge, land search, bankruptcy search,
etc.

These fees vary by state, land office and type of
property. They are ranging from RM500 to RM700.

Processing Fee
One-time fee charged by the financial
institution for loan processing

Normally, no processing fee will be charged by financial
institution. If the financial institution charges a
processing fee, it will be ranging from RM100 –
RM200/=.

After buying the house, the Buyer must also take note of other expenses such as monthly service charges
for apartment, condo, flat, assessment, quit rent and utilities bill.Employees Provident Fund (EPF) Withdrawal
A Buyer can withdraw from EPF account 2 to make the initial down payment and the Buyer may enquire
from EPF office for the withdrawal eligibility.

Loan Processing by Financial Institution
The financial institution may offer suitable loan package that suits a Buyer’s or Borrower’s needs. It usually
takes about one to two weeks for a loan application to be approved provided all required documents are
submitted to the financial institution.
Basic documents for housing loan application:

  • Photocopy Identity Card
  • Latest three (3) month’s salary slip
  • Latest income tax return form (Confirmation Notice) or EA form
  • Sale and Purchase Agreement/deposit or booking form/letter of offer from the housing developer
  • Photocopy of the land title (if any)
  • Six (6) months latest bank statements either current/savings/fixed deposits account, if without income tax return or EA form.

Self-employed:

  • Provide business registration documents
  • Latest three (3) months bank statements
  • Latest financial statements from the company/sole proprietor firm
  • Other supporting documents to support business income, i.e. Profit and Loss Account, latest Audited Account and Balance Sheets etc.

Upon the housing loan being approved and accepted by the Buyer/Borrower, the financial institution will appoint the lawyer from a list of panel lawyers (Borrower may choose the lawyer) to draw-up the loan documents for the Buyer/Borrower and the financial institution to sign and thereafter to drawdown the housing loan based on the terms and conditions of the duly executed Sale and Purchase Agreement between the Developer/Vendor and the Buyer and the Loan Agreement between the Buyer/Borrower and the financial institution. The Buyer/Borrower should get a copy of the loan documents from the lawyer.

Loan Repayment Capacity
The monthly loan installment repayment should not be more that 1/3 of your gross monthly income. However, the financial institution will take into consideration of the Buyer’s saving or fixed deposit account. Please take note that the monthly repayment may increase substantially when interest rate goes up, particularly for housing loan with floating rate, e.g. Based Lending Rate (BLR) plus 1%/1.5%.

However, the financial institution would allow the Borrower to continue to pay the fixed amount of monthly installment throughout the loan tenure and will make necessary adjustment whenever encounter variation interest rate by either prolonging or shortening the repayment period.

Margin of Finance
The margin of finance can goes as high as 100% of the value of the house, but usually the margin of finance shall be ranging from 80% – 90% of the value of the house.

Loan Tenure
The length of a loan can be ranging up to 30 years or until the Borrower reaches age 65, whichever is earlier.

Loan Features
Each financial institution packages its housing loans differently. Generally, housing loan packages could be in the form of a term loan, overdraft, or a combination of both term loan and overdraft or flexi loan/Flexi Mortgage.

  • Term Loan
    • A facility with regular predetermined monthly installment. Installment is fixed for a period of
      time.o Installment payment consists of the loan amount plus the interest.
  • Overdraft Facility
    • A facility with credit line granted based on predetermined limit.
    • No fixed monthly installment 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 higher than term loan
  • Term Loan and Overdraft Combined
    • A facility that combines Term Loan and Overdraft
    • Regular loan installment on the term loan portion is required
    • Flexibility on the repayment of overdraft portion
  • Flexi Loan/Mortgage or Others
    • A combination of fixed term loan with an element of overdraft facility but the housing loan
      amount is reducing on a monthly basis

Prepayment Fee
Normally, the financial institution will impose a prepayment fee, which is fixed at a fixed rate, i.e. 1% of the prepayment amount. However, it is extremely useful to reduce interest charges in a long term.

Early Repayment of Loan
Financial institution always do not encourage the Borrower to fully repay the housing loan within three (3) to five (5) years from the date of the 1st drawdown of the housing loan. Thus, the Borrower must maintain the housing loan for a minimum period with the financial institution. This is commonly known as “the lock-in period”. However, the financial institution may impose a penalty on full repayment of the housing loan during the lock-in period at a fixed rate ranging from 2% to 3% of the total loan repayment amount.

This imposition of the penalty charged by the financial institution is primarily due to the disruption of the financial institution’s cash flow planning and profitability.

Valuation Report
Purchase a fully completed house from owner required valuation report. The financial institution will appoint a property valuer from its panel of valuers to evaluate the property so as to ensure that the purchase price commensurate with the market value of the house.

However, purchase from the developer will not require a valuation report.

Insurance
It is vital to take insurance coverage for the purchased house. There are two important insurance policy worth to consider:

    • Fire Insurance and Others Policy
      It provides insurance coverage for the house against natural disasters. Properties with strata titles, the Buyer does not need to take insurance coverage against fire or natural disaster because the Management Corporation (MC) or the Joint Management Body or the Developer will have taken up insurance coverage on the entire building. However, the Buyer may need to insure moveable assets against theft/burglar.
    • The Mortgage Reducing Term Assurance or MRTA
      This policy provides for full settlement of the outstanding balance of the housing loan with the financial
      institution upon the Borrower suffers total permanent disability or death of the Borrower. Premiums can
      usually be included in the loan amount. There are no monthly or yearly premiums to be paid. Early
      termination of housing loan will generally have option to request for a refund for the balance of the
      unexpired period.
    • Loan Disbursement
      Upon receipt of the lawyer’s advice that the loan documentation is completed, the financial institution will release the housing loan based on the terms and conditions of the Sale and Purchase Agreement and the Loan Agreement.The Borrower will receive a notice from the financial institution in regard to the date of release of the housing loan and the commencement of monthly installment payment.
    • Rights of the Borrower and the Financial Institution
      – Borrower

      • Have access to all information that would affect the borrowing decision
      • To be consulted on changes to the terms and conditions of the loan
      • To have access to information on the loan account
      • To take legal action in the event of breach of Loan Agreement

      – Financial Institution

      • To have all relevant disclosure of information on Borrower’s credit standing
      • To have correct and truthful information on the Borrower
      • To have the timely repayment of interest/installments of the loan by the Borrower
      • To have right to take legal action upon default of the terms and conditions of the Loan Agreement by the Borrower

Conclusion

In any circumstances, the Borrower should check and/or verify with the officer of the financial institution
related to the issues stated above so as to ensure certainty of the terms of the loan and the fund involved to
acquire a house.