Home loans - Part 2

The Sun Daily

Posted on 16 September 2014 

AS AN entrepreneur and one of four founders of Saving Plus Sdn Bhd, (the parent company behind four financial comparison sites - RinggitPlus, SaveMoney, JimatCermat and KreditGoGo), Hann Liew points out that home loans were created for consumers to own homes without having to save money for up to 20 or 30 years first. Therefore, all loans are consumer-centric. However, he suggests to keep in mind that banks will never sell products that do not make them money ... "which means that our job as a consumer is to make sure we get the best in a loan. No one size fits all, so check the interest rates and the overall deal for a loan that will best suit your earnings and lifestyle," he says.

In general

Looking at housing loans in general and the buffet offering in the market, Bank Negara Malaysia (BNM) shares some valuable tips to consider when considering a loan.

1) Find out about rates offered and the period of the offer. Look at the overall deal that a banking institution is offering, rather than just the initial interest rate. In some instances, you may end up paying more interest in the future although the initial interest is low.

2) Check whether the rate is a fixed rate or floating rate. For floating rate loans, the interest rate charged will move in tandem with changes in the base lending rate (BLR). Therefore, ask how your loan repayment will vary when the rates change; if your loan repayment can be reduced when rates go down or increased when rates go up.

3) Also check whether you can opt to leave the loan repayment amount unchanged. By choosing this, the tenure of your loan can either be shortened or lengthened, depending on the movement of the interest rate.

Documentation, duties and rights

One's margin of financing depends on factors such as the type of property, the location, the borrower's age and his/her income. This is the list of documents banks and financial institutions will need when applying for a housing loan and before signing on the dotted line.

• Copy of your identity card or passport

• Latest three months' salary slips

• Latest income tax return form (form J or EA)

• S&P Agreement/deposit or booking receipt/letter of offer from the housing developer

• Copy of the land title (if any)

• Latest bank statements (in the absence of salary slips and/or form J/EA dating back six months/savings passbook/fixed deposits

• Valuation report for completed houses
(These additional documents will be required for the self-employed)

• Business registration documents

• Latest financial statements

• Other supporting documents required by the banking institution

As borrowers, we have rights as well as responsibilities. It is best that we read and be aware of the documents we sign and its implications. Ask if unsure. Read and understand all terms and conditions of a loan. Observe these terms and conditions, enquire and clarify with the other party until you are satisfied with the answer before signing. Ensure you can meet the requirements and make payments on time.

As lenders or financial institutions providing loans, those on the other end have the right to relevant disclosure of the borrower's credit standing. They also have the right to take legal action in the event of a breach of contract.

Loans to consider

1) AIA Tiered Home Loan

AIA Berhad chief life operations officer Alan Teo introduces AIA's Tiered Home Loan & Fixed Rate Home Loan Package 2. He says, "Currently, AIA offers the lowest long–term fixed rate plan in Malaysia with its three home loan packages. Our signature package commits to a fixed rate of 4.99% per annum, for the entire loan duration. If a house buyer is looking for zero moving cost, our second package at 5.39% per annum fixed rate pays for the legal fees, stamp duty, disbursement charges and any valuation fees incurred for loan documentation. Those seeking lower initial installments should consider AIA's tiered-rate package offering an interest rate of 4.35% per annum for the first two years, followed thereafter with a fixed interest rate of 5.15% per annum for the remaining years."

For existing policyholders of AIA, including new customers subscribing to AIA policies, there is a new programme that was recently launched, offering two package options at lower fixed interest rates (see table below).

Teo informs of the benefits of taking up this loan:
* Good financial planning as loan installments are within the borrowers' control and not subject to market volatility and interest rate cycles.
* Hedging of risks, whereby the risks of rising interest rates is now assumed by AIA instead of the individual borrowers.
* Computation is based on daily rest rates and pre-payment helps the borrowers to save even more.
* Zero moving cost packages alleviate the burden of purchase or re-financing as these costs are paid up-front by AIA.

"Our maximum tenure for our policies is 35 years or up to 70 years of age, whichever comes first. Our margin of financing is up to 90% but take note that this applies to qualified applicants, in line with BNM's margin of financing ruling.

"With the BLR currently at 6.85% and expected to be on an upward trend, a fixed rate mortgage is worth serious consideration for concerned house buyers," shares Teo. Moreover, the borrower is allowed to pay in excess to reduce already low interest charges. This package is applicable to all Malaysians, permanent residents, Singaporeans and Brunei nationals aged between 18 and 70.

Foreigners with a valid work permit/registered business in Malaysia or who are married to a Malaysian, may also apply, along with those under the Malaysia My Second Home (MM2H) programme (terms and conditions apply).

2) Maybank Maxi Home Flexibility

This loan is said to be able to help one manage their money efficiently. It is based on a variable rate and offers full flexibility in a housing loan. One gets a home loan account and a current account, with an option for an overdraft that can earn interest of up to 1.85% for a balance of about RM5,000. You can also deposit additional cash when you can afford, to reduce your principal borrowed sum, at the same time, redraw the money you overpaid when you need to (terms apply). You may also request up to 90% margin + 5% for MRTA, legals fees and evaluation fees if this is your first home loan (terms apply again).

To note: It is compulsory to purchase Mortgage Reducing Term Assurance (MRTA) of which you can pay off the one-off payment by cash or include it in your home finance loan. Perks and benefits to this loan include Personal Accident cover of up to RM50,000 and free medical expenses of up to RM3,000 (conditions apply).

Another star point to highlight: You can take up this loan for property valued less than RM100,000 and you can minimise the initial down payment required in getting your mortgage by including capitalisation-related expenses like MRTA premium, legal fees and valuation fees, into the total loan financing package. This loan works well for those with irregular income. Foreigners can apply but for a minimum sum of RM500,000.

3) CIMB HomeFlexi

Similar to loan number 2), HomeFlexi from CIMB is easy to understand and allows extra money onto your mortgage when you can afford it. It also allows one to withdraw excess cash from the loan, direct to one's current account when needed. On loan approval, CIMB can finance up to 90% of the value of a property for the first two properties, and 70% for subsequent properties. One can also opt for an additional 5% of finance on each mortgage that will go towards legal fees, valuation fees and the inevitable MRTA. This loan is ideal for those active in the property investment market. It covers completed properties and those under construction.

To note: One only needs to service the interest rate for properties under construction. Risks: The interest rate may change as and when the BLR fluctuates, resulting in higher monthly repayments. Still, payment alternatives can be discussed.

Star point: Depositing excess amounts into your linked current account can lower interest rate charges on your home loan by a significant amount. There are also reward points you can collect with your borrowings.

4) AmBank Flexi Home Financing-i

This is explained as a conventional Islamic term loan that is based on the Bai Bithaman Ajil (BBA) concept. Here, the mortgage interest is a variable rate pegged to the base financing rate (BFR), with a capped profit rate to save one from the risk of a higher BFR.

To note: Subject to credit approval and agreement on payment terms AmBank is able to finance up to 95% of the value one's house. Possible to opt for an additional 5% financing to go towards Mortgage Reducing Term Takaful (MRTT) which is highly recommended.

To highlight: AmBank has strict policies on late payment, with penalties. Failure to make payments for two consecutive months and your interest rate might be raised.

5) RHB Equity Home Financing-i

A dependable and semi-flexible home financing plan that is known for its low interest. It is shariah-compliant following the Musyarakah Mutanaqisah concept and is based on variable interest rate pegged to the Islamic Base Rate (IBR). The Musyarakah Mutanaqisah concept, also known as the Diminishing Partnership, is a contract between the borrower and RHB, to acquire the property together. As an example, if you apply for and are approved for 90% financing, RHB owns 90% of the share at the beginning of the mortgage tenure and you own 10%. As you pay your monthly installments, you are gradually purchasing the bank's share which includes a profit rate (loan interest). At the end of the financing period you will own 100% of your home.

Good to know: One can make excess payments on top of the monthly installments to reduce the loan principle, hence the interest. Possible to include Liability Reducing Term Takaful (a MRTT-like insurance), House Owner Takaful (house content insurance) and other capitalsation-related expenses, like legal and valuation fees, up to 10% of the property value, making it easier to stay protected.

To note: It is not possible to redraw surplus cash paid to reduce the loan principal. House Owner Takaful (house content insurance) is compulsory while Liability Reducing Term Takaful (LRTT) is optional, but strongly advised.

Other attractive bank loans to consider include: Public Bank ABBA Financing-i Home Loan, Al Rajhi Home Financing-I and Bank Islam Baiti Home Financing among others.

Information retrieved from BNM and RinggitPlus websites with quotes from industry professionals Hann Liew and Alan Teo.