Choosing a suitable home loan package is important as investors will be tied up with the loan for 20 to 35 years.
Type of home loans
Investors will need to consider a traditional term loan or a flexible home loan (flexi-loan).
- Conventional home loan
Conventional loan accounts for a large majority of the total housing loans in the market. In a conventional housing loan, a borrower agrees to repay the loan amount together with interest over an agreed loan period.Investors who have a strict and predictable cash-flow pattern, a traditional term loan may be suitable.
- Flexi home loan
In an increasingly competitive environment, banks are forced to innovate and expand the types of property financing products being offered. This has brought about the emergence of flexi loan products.
Every investor’s priority is to select the bank that offers the lowest interest rate. For example, consider a home loan of RM500, 000 over a period of 30 years. The difference in interest payment between an interest rate of 4.2% and 4.15% (0.05%) could be well over RM5,000.
Margin of financing (Borrowing amount)
Depending on various factors which include the value of the property as well as the financial standing with the bank, different banks may offer different margins of financing.
Example, a house that costs RM500,000. Investors will need to pay RM100,000 upfront if the margin of financing is 80%, but RM50,000 upfront if the margin of financing is 90%.
Lock-in period is the period an investor will incur a penalty if they choose to pay off the home loan in full before it reaches the end of its tenure. Usually, the penalty is between 2% and 3% of the principle loan amount. When it comes to choosing a home loan, it pays to have a lock-in period that is as short as possible with a penalty that is as low as possible. Nevertheless, some banks do not charge a penalty at all if sufficient notice is given.
Fees & charges
A home loan application involves professional and government-regulated processes. This includes preparation and disbursement of loan agreement, payment of stamp duty and processing by the bank. All these processes usually come with fees and charges that will be borne by the investor.
In certain cases, it may also be wholly, or partly,borne by the banks as part of the loan package. Hence, it is best to sit down with the loan officers (with all the banks investors are considering taking the home loan from) and get them to explain the fees and charges that will be incurred. The task may be repetitive and time-consuming, but it will be time well spent.
Dealing with the bank
Lastly, understand that investors will be dealing with the bank on a frequent basis for as long as the home loan is in effect (which may be 20 to 30 years). With that in mind, investors should probably choose a preferred bank.
Here are some points investors need to consider in loan application:
- Do you have an existing savings or current account with the bank (for ease of inter-account transfer)?
- Are you satisfied with their standard of service?
- Is a local branch available near your home or office?
- Do you consider the bank to be trustworthy and reliable?
- Does the bank offer value-added services that will make your life easier for the long haul?
- How is the bank’s reputation as a whole?
- Does the bank provide online banking facilities? This will allow you to pay your instalments easily
- Is your loan officer approachable? Can you call him/her when you have a question?