House loan repayment: How well do you know?

Home Loans are an investment. Buying a house is probably the biggest purchase you’ll ever make in your life. But how well do you actually understand the steps involved, its processes and factors to its purchase? Find out more here.

House loan repayments could mean a few things – Self assessment of your eligibility to certain home loan packages, different criteria and factors taken into consideration to tailor-make your home loan, and so forth. Usually, the bank will calculate your repayment capacity by using various methods – And they vary from one banking institution to another. (see Debt Service Ratio [DSR])

Housing loan packages come in different service terms — Now financial institutions are getting smarter, as they tailor-make a home loan to suit your very needs. However, picking the right (not rich) choice to a suitable home loan takes you more than just a guess and a rough evaluation of your finances, repayment capital and joint household income. Here are three different facilities that you might encounter while applying for a Malaysia home loan:

1. Term Loan

Loan amount plus interest payment over the number of repayment years. A predetermined loan term (e.g. 20 years) with a fixed amount with interest.

2. Overdraft Facility

a) Higher interest charges as compared to term loan.
b) Credit line granted based on predetermined limit.
c) Interest calculated based on daily outstanding amount — No fixed monthly installments.
d) Allows flexibility to repay loan to reduce interest charges.

3. Term Loan + Overdraft

a) A combination of two (2) of the above. It could be 50% term loan and 50% overdraft.
b) Repayment methods are as above (Term and Overdraft) depending on the agreement.

    Confused? Ask home loan consultants and find out more about how 406 home loans in Malaysia and 26 banks can offer you!

    People with greater financial stability (at least they think so at the moment they signed their housing loan terms) would prefer a term loan + overdraft facility in under certain proportions depending on their affordability. As the Daily Rest vs Monthly Rest should be understood:

    • Daily Rest – Interest calculated on daily basis.
    • Monthly Rest – Interest calculated on monthly basis.

        Interests are calculated based on the previous day/month’s balance, and the principal sum reduces immediately after payments are made. On the brighter side of things, if you can afford, take the term + overdraft facility in order to reduce interest costs. Whenever you have enough money to repay, collect the excess and immediately reduce your principal sum.

        Many home loan packages now offer graduating payment schemes. Graduating Payment Schemes are loan repayments THAT ARE lowered at the beginning OF THE loan (usually 3 years), and gradually increases over time. This scheme benefits home buyers as they allow a wider budget stretch – A seemingly better option for investment purposes or paying off any other loans or commitments before striking the biggest ever – Property Repayments.

        Home buyers should be aware of the decision they make — Term loan, overdraft facility and a mix of both. Each facility has its pros and cons, and home buyers should weigh factors like future investments, DSR calculated at different periods, income per household, and so forth. Since the Margin of Financing can go up to 95% of the property value, home owners should not be tempted by term loan offers – As BLR rates increase, so does the price-per-month. (see BLR 2010 Malaysia)

        Margin of Financing is defined as the loan amount granted by a financial institution, expressed as a percentage of the value of property pledged to secure the home loan. Factors affecting the percentage of Margin of Financing are:

        1. Borrower’s Age and Income Level.

        2. Type and Location of Property

          The mortgage and financial consulting services are offered to you FREE of charge without any obligations. Kindly contact us or email to  consultant@malaysialoan.com.my if you need any enquiry. Thank You.

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          Malaysia Loan

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