After placing the nominal booking fee of RM1000 (not all developers have the same practice, some require 10% downpayment upfront), the developer gives you about 1 month to get your loan approved.
And so begins the arduous search for the best loan package. After going all out to find my choice property, I have to say I was a little more tardy about the loan package.
There are three types of banks in JB – local, Singapore based and international. You can approach any or all of them to get a loan quotation.
The list is not exhaustive of course but these are some of the more common banks buyers approach to get their loans. I specifically approached only the local banks as they tend to give better terms and rates.
There are pockets of commercial zones in JB where the banks tend to congregate for ease of public access. Some of them are in city centre Jalan Wong Ah Fook, Taman Molek, Permas Jaya etc. I did my hunting in Permas.
Interest on loans is determined by the publicly available Board Lending Rate (BLR) plus or minus a premium or discount offered by the banks calculated daily rest. Banks will offer better rates for loan amounts exceeding RM 300,000.
Historically the BLR used to be in the excess of 10% but has dropped to close to historical low of 6.6%. Depending on economic outlook, the government may raise or lower it.
Loan tenure is typically up to 30 years or age 70 whichever is earlier. In terms of margin of finance, the maximum banks offer to foreigners is 85% though some banks offer strictly only 70% for the first and second property. However if one of the loan applicant has registered income from Malaysia, the banks may offer even higher MOF.
Lock in period is 3 years so full repayment of loan during this period will incur a penalty fee. However the banks accept partial repayment with no penalties.
There are 3 types of loan packages that one can choose from fixed, semi-flexi and flexi loan. Fixed is the normal loan where borrower pays a fixed monthly repayment over the entire tenure at the slated interest rates.
Flexi loan packages come with an attached current account. Borrower can choose to deposit additional money into this account. What happens is that when computing the interest for the day, they will use the loan balance less current account balance to calculate the principal on which the interest is applied to. This effectively reduces the interest on loan and helps borrower to pay off the debt faster. In addition, the money in the current account can be withdrawn at any time should the need arise. This package requires a RM 200 setup fee and RM10 monthly maintenance fee.
The semi-flexi loan works like the flexi loan except that additional monies deposited goes directly into the loan account to reduce the balance. Everytime borrower decides to withdraw the excess money they have deposited into the account, they have to write to the bank to request for withdrawal. The money will be available for use within one working day. There is no set up or monthly maintenance fee for this package, however every withdrawal incurs a RM50 charge so this will require more cash flow planning.
Another feature of the home loan is taking up the mortgage reducing term assurance or MRTA. Some banks require minimal coverage to get better rates while others don’t require it at all.
What the MRTA does is that in the event of death or permanent incapacity of borrower, the insurance kicks in to pay the bank the share of the borrower’s loan. Any additional amount will then be paid to the borrower. The sum insured should mirror the reducing balance of your loan.
Borrower can choose to be covered for at least 5 years or for the entire loan tenure. Obviously with a shorter term coverage, you will not be fully covered for the loan amount as the sum insured reduces to 0 at a faster rate.
Another thing to consider is whether to buy 100% coverage for each co-borrowers or simply each borrower’s share of loan but the sum total should be equal to 100%. It really depends on your needs.
MRTA premiums for a RM 450,000 loan over 10 years for person aged 30 estimates to be about RM4,500, while a 30 year plan is RM 19,000.
Premiums are paid upfront and can be tagged to your loan if you do not want to pay for it upfront. Should you decide to sell your property or terminate your insurance before expiry, you get a pro-rated refund.
An alternative that one can consider is getting a MRTA from Singapore instead. Premiums are comparative surprisingly and pays to insured in cash instead of the bank direct. This gives you the flexibility to decide what to do with the lump sum payout. In addition, premiums are paid annually and in SGD.
I highly recommend that you take up some form of insurance on your loan. As this is a liability, if you are not around to assume the responsibility, you are unnecessarily saddling your dependants with debt.
Lastly, there is also legal fees attached to the bank loan. This legal fee is separate from the one you may need to pay at the developer’s end to prepare the Sales and Purchase Agreement (SPA).
Make sure you enquire on the estimated legal fee to be paid. This amount is based on your loan quantum and you can also tag it to your loan if you do not want to pay upfront. For a RM450,000 loan, fees estimate to be RM 6,000.
You will need to produce some if not all of the following documents when applying for a loan –
1. 3 months payslip
2. CPF Contribution history
3. Salary bank account for 3 months to verify your pay quantum
4. Tax assessment from IRAS
5. Letter of employment from your employer
6. Credit Bureau records
7. NRIC and passport
You can always make the loan application first as this is essentially just paperwork and non-commital. After submitting the application, be prepared for a grueling wait of 2 – 3 weeks before the bank gets back to you on your loan application.
Given that developer gives you one month to settle the loan, you pretty much have to start submitting loan applications after placing the booking fee.
Once you have received the loan application status, it is then up to you to to choose the package with the best features or meet your needs most. Upon deciding, you will then need to sign the letter of offer, with which the lawyers will use for drafting the SPA.
Will update on the other documentary process again.