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What is a home loan?

A home loan, also known as a mortgage, is the sum of money given to you by a financial institution to buy a property. In exchange for this sum of money, the financial institution will have security in the form of their legal entitlement to keep your property’s deed until your home loan has been paid bank in full.

What is the meaning of certain terms in a home loan?

Principal – The total amount you are borrowing from your bank.

Interest – The charges from the bank to you. You will be paying back your loan amount to the lender plus the rate of interest given by the bank.

Fees – The charges from the bank to cover things such as servicing the home loan.

Term – The length of time you must repay your loan amount plus interest to the bank.

Repayments – The amount you pay to the bank to cover your home loan.

Collateral – The bank is entitled to hold your property’s deed as a form of security in case you are not able to repay your home loan.

What are the types of home loans available?

These are the types of home loans available:

Term Loan – This home loan allows you to have a maximum loan tenure of 35 years. If you pay off your home loan earlier within the first 3 to 5 years, you will be charged a penalty fee of approximately 3%.

Fixed Rate Loan – The interest for this home loan will be charged a fixed rate throughout the loan tenure. If you don’t want to worry about whether the interest rate will increase or decrease, this would be a suitable type of home loan to apply for.

Overdraft Loan – This loan requires you to only pay for the interest rate of the loan and the amount will be deducted directly from your current account. There is no loan tenure. However, the interest rate you are required to pay is higher than usual.

Flexi Loan – This loan is a combination of a term loan and an overdraft loan. You can get a lower interest rate when you put in more money in your current account.

Al-Bai’ Bithaman Ajil – An Islamic home loan which follows a buy-and-sell concept. The bank will buy the property for you at the current market price. Then, they will sell it back to you at an agreed price where you will have to pay in monthly instalments.

Musharakah Mutanaqisah – An Islamic home loan where you and the bank enter into an agreement to buy a property. You will become a tenant to the bank and your monthly repayments will cover your loan and part of the bank’s share of the property.

What is a lock-in period?

A lock-in period is the length of time where you will incur a penalty from the bank if you choose to do a full settlement of your home loan. For example, if your lock-in period in your home loan contract is 5 years but you have decided to pay your home loan in full before the 5 years, the bank can impose a penalty of 2% to 3% of the total loan amount.

Therefore, when you apply for a home loan, be sure to pay attention to the lock-in period because you might have to incur extra costs for an early settlement.

What are the eligibility criterias to apply for a home loan?

These are the criteria to apply for a home loan:

  • You must be a Malaysian citizen or a foreigner with a valid working permit and visa.
  • You have to be 18 to 75 years old upon loan maturity.
  • Your joint applicant must be a direct relative such as spouse, parents, siblings, or child.

However, some banks requirements may differ from the above. For the minimum annual income, it depends on the bank and which financing scheme you are applying for. Make sure to check with your respective bank on their requirements.

How can I apply for a home loan?

On Loanstreet, just press apply and fill in your details. We will give you a call or send you an email within 1 working day, depending on your application. After that, we will submit your application to the respective bank. However, if your application does not meet our criteria, we will send you an email stating that you may have to walk into the bank to apply for the home loan.

What documents do I need to apply for a home loan?

For Employee:

  • Copy of your NRIC
  • Property booking receipt
  • Vendor Sales & Purchase Agreement / Title (copy) / New Sales & Purchase Agreement
  • Latest 3 months pay slip (for Basic Salary) / Latest 6 months pay slip (for Basic + Commission Earner)
  • Latest 3 months personal bank statement (for Basic Salary) / Latest 6 months pay slip (for Basic + Commission Earner) to show your salary credited as per pay slip
  • Latest employment letter / EA form
  • Latest EPF statement
  • Income Tax – Latest Form B / BE with payment receipt acknowledgement
  • Deposit statement eg. Fixed Deposit, ASB or Bonds (if any)
  • Diploma / Degree certificate for a longer repayment period

For Self-Employed:

  • Copy of your NRIC
  • Property booking receipt
  • Vendor Sales & Purchase Agreement / Title (copy) / New Sales & Purchase Agreement
  • Latest 6 months company bank statement
  • Latest 6 months personal bank statement
  • Deposit statement eg. Fixed Deposit, ASB or Bonds (if any)
  • Business registration

That being said, some banks may require you to provide more documents. Make sure to check what documents are required by your respective bank.

How long is the home loan application process?

Once you have submitted the necessary documents required by your bank, it will take up to approximately 7 working days to approve your application and disburse the loan to you. This process depends on the loan amount, loan tenure and your eligibility. Make sure to submit all the relevant documents with the correct details to help speed up the application process.

Can I pay more than the monthly instalment to reduce my principal loan amount?

You can make additional payments if your bank allows you to do so. Before making any additional payments, make sure to check whether there is an early settlement fee and whether it is worth it. Besides that, you should also consider recalculating the monthly instalments with your bank if you were to make additional payments because sometimes making additional payments will not reduce your monthly instalments.

What happens if I am not able to repay my home loan?

When you are not able to repay your home loan, your bank will have to seize your assets and you may be evicted from your home. However, your bank will send reminders on your missed payments. If you know you aren’t able to make your monthly repayments, go to your bank and discuss on what other alternatives they can provide you.

*This article & tools was done in collaboration with Loanstreet.

https://loanstreet.com.my/

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