Overview and most essential information on home loans - Part 1

The Sun Daily

Posted on 6 September 2014 

BEFORE even deciding on purchasing a house, it is advisable to consider your initial deposit and mortgage sustenance capability, how much you have in liquid savings and your financial capacity estimated from regular/monthly earnings and investments.

Many people look for their dream home first, then ponder about how to make their purchase. It is both wiser and advisable to first calculate one's regular income, average monthly surplus and disposable income after adjusting for living expenses.

Only then, look for properties which fall within comfortable reach. This way, the loan amount eligibility can be gauged after adjusting the initial deposit potential. Helpful loan affordability calculators are often provided on bank and financial institution websites.

Back to basics

It is necessary to estimate the liquid capability and disposable cash you have at hand. This will give you some degree of confidence should you require financial back-up at any time.

You might also need to dip into savings when buying your home, to cover miscellaneous payments, fees and charges required, prior to loan approval.

Before venturing to buy a house, one must review the following financial important considerations:
• Purchase price of property
• Lawyer's fees for the S&P Agreement and financing facility agreement
• Processing fees for the financing application
• Valuation fee
• Maintenance fee & deposit if you are purchasing a condominium
• Renovation
• Deposits with utility companies eg. PUAS, TNB, TM
• Quit rent, assessments
• Mover's fee
• Insurance premium for Group Mortgage Term Assurance (GMTA) or GMTT
• Insurance premium for Home Owner's Insurance

(Retrieved from cimb.com.my)

Good to know

The next step is to decide which bank and home loan facility is most suitable. While it may sound easy, you will be amazed and dumb founded by the various types of home loans offered, banking terms and financial jargon when you explore the various (home loan) options online.

Catch phrases like "flexi loans", "flexi variable loans", "semi flexi loans", "tiered loans", "home financing-i", "fixed rate loans", "savelink options", "conventional loans", "mortgage loans", "asset acquisition financing", "term equity financing" and the long line of Islamic home loans will leave you perplexed.

Ringgit Plus CEO Hann Liew says, "Each person's circumstance is different, so the big rule of thumb would be:
a) for people with steady incomes – conventional variable rate;
b) for those with lumpy incomes (commission earners, bonuses, or those with large savings or FD etc) – flexi variable rate; and
c) for people who are very risk averse and do not want to be subjected to the fluctuations of the BLR (base lending rate) in the short-medium term – fixed rate loans."

As an entrepreneur, Liew does not have a fixed/steady income, so his home loans are flexible ones. "If I have extra cash at any time, I can dump it in to reduce my interest costs."

He adds that even though a wily investor would suggest that he maximise on his loan amount at all times and go for the conventional loan so he can invest the rest of his money in "higher-than-mortgage-interest financial assets, he says: "Someone like me with lumpy income might need the cash on short notice. Investments may not give me the short-term liquidity I need."

Smart approach

Liew suggests that one realises the fact that developers will engage, both lawyers and bankers (who will most likely put their interest first) on their panel.

"It is better to at least get a second opinion on legal matters or find out about other mortgage plans offered by other banks – as a comparison … or at least check out RinggitPlus," he says.

You can leverage on the information and use it to negotiate for better rates so you can get a good deal.

"Quite often, buyers can't avoid it anyway as developers will 'require' you to use their panel 'vendors' if you want special promos or special discounts. Still, it is worth just making sure everything is in order, by getting a second opinion," adds Liew.

"At the core, home loans are created for consumers to own homes without having to save up 20 to 30 years first. So, in effect, loans are all consumer-centric.

However, you have to keep in mind that banks will never sell products which don't make them money. Your job as a consumer is to make sure you are getting the best loan for you - there is no one size fits all.

This includes checking the interest rate, which type of home loan suits you, your lifestyle best, etc."

Liew's recommendations

So which loans would be best to consider with the many offered by banks and financial institutions (even if you are not looking to apply for a loan)?

Says Liew: "I think it is fine if you stick to these three types of loans – the conventional variable rate (which is most common), the flexi variable rate or the fixed rate.

All these three loan types have tenures that can be negotiated – terms of between five to 35 years, depending on other factors. High margin and low interests are dependent mainly on the bank's appetite and the consumer's own position, and these apply to all three (loan types)."

Liew also informs that many people would classify Islamic Home loans as the fourth type … "but they are economically similar to the consumer as the other three … they are just Shariah-compliant versions," he says.

Important piece of advice

"One of the most important things about home loans that I think Malaysians need to know is not to have the mentality of 'what's the most that the bank will approve me for', but 'what I can afford'," says Liew.

"Do your own personal budget, find out how much you can afford for your home loan installment and back-calculate how much you can borrow from the bank, rather than the other way around."

Read our column next week for more information and guidelines on various available loan options and recommendations, besides other practical tips and suggestions.

Bandar Rimbayu Friendship Charity Run 2014

IJM Land Berhad's Bandar Rimbayu is situated near Kota Kemuning. It is a premier development that has been certified a green township. Nature-inspired, Bandar Rimbayu was also established to create a sense of community among its residents.

Tranquil in its lush, green surroundings of 1,879 acres, this mixed development township epitomises green living at its best. From energy-efficient smart solutions, water-saving measures and many other environmental-conscious applications incorporated in the design of the township, the highlight of this development is the 10-acre urban park known as The Arc.

A private park in the heart of Bandar Rimbayu, The Arc boasts an elevated green roof deck that is one-of-a-kind.

In line with its green and community-centric foundation, come Sept 27, the developer will flag off a "Friendship Charity Run".

The event is aimed at encouraging healthy lifestyles, to inculcate a love for the outdoors, as well as to strengthen relationships and ties between families and friends. Funds raised will be donated to the Children Wish Society (CWS) and the National Kidney Foundation (NKF).

Closing date for registration for the run is Sept 21. The route will cover 6km and requires a pair per team. This offers a chance for family and friends to run together and bond in a fun and healthy manner.

There will be stations along the route where participants will need to slow down and carry out simple activities before moving on.

Fees stand at RM50 per pair, of which each will receive a surprise running bib and a goodie bag. The first 50 teams to complete the run stand a chance to win a prize of RM100 per team. There will also be lucky draw prizes worth RM10,000.

So, put on your running shoes, call on your friends and family members, and enjoy a fun-filled day outdoors. For details, log on to rimbayu.com or IJM Land's official website.