There are 2 types of purchasers:
- Cash purchaser
- Loan purchaser
A cash purchaser buys properties with 100% cash. A loan purchaser buys properties by borrowing money from the bank. The loan purchaser can finance his property purchase with a bank loan of up to 90%. Therefore, the loan purchaser only needs to fork out a downpayment of 10% for the property.
Margin of Finance
For the first two property purchase, borrowers are entitled to a maximum 90% margin of finance (MOF). Then, 70% MOF for the third and subsequent property purchase. Borrowers have to fork out 30% downpayment for the third and subsequent property purchase. These are further subject to the individual bank’s internal credit policies. For example, even though a borrower is a first time home buyer, he may only be able to get 85% MOF due to the individual bank’s stringent policies.
Then, why a buyer who already owns three properties, bought a fourth property, and managed to secure a 90% MOF on the fourth property? All four properties are residential properties. Banks don’t look at the number of properties under ownership, instead they look at the number of properties under mortgage. This is because the buyer’s first two properties were either bought with cash or the loan has already been fully settled. The third property is still under financing from the bank. Therefore, for the fourth property purchased or in other words, the second property now under mortgage; the buyer subsequently managed to secure a 90% MOF for it.
Secondly, borrowers need to know how long they intend to borrow the loan, as they can’t borrow forever. Borrowers can borrow for a maximum tenure of 35 years or up to 70 years of age, whichever is earlier.
For example, if a borrower is 21 years of age, he or she can only borrow for 35 years, therefore up to 56 years of age. The borrower is not qualified to borrow up to 70 years of age. However, if the borrower is 56 years old, he or she can only borrow up to 70 years of age. Even though its stated the borrower can borrow for 35 years; the 70 years old mark comes first.
After knowing how much and how long as a whole they want to borrow, borrowers then have to know what will be their monthly loan instalment and repayment to the bank. A guide to the monthly loan instalment is the interest rate.
Currently, banks in Malaysia use the Base Rate and Effective Lending Rate systems. What is Base Lending Rate (BLR), Base Rate (BR), and Effective Lending Rate (ELR)? Click the link to learn more about BLR, BR, and ELR.
A purchaser wants to purchase a RM670,000 property. The purchaser is a first time home buyer and intends to take a 90% loan. RM603,000 is 90% of RM670,000. The interest rate will then be based on the RM603,000 loan. Assuming the interest rate is 4.35% per annum, it works down to RM2,797 per month. The purchaser now borrower, has to repay the bank RM2,797 every month.
Sometimes, banks have promotions for interest rates. It is to provide an incentive and enticement for borrowers. Below is an example.
Debt Servicing Ratio (DSR)
After knowing how much the borrower needs to borrow, the borrower then needs to know how much he or she can borrow. There is a difference between knowing how much one needs to borrow versus how much one can borrow.
Debt servicing ratio is a measure of how much more debt a person’s income can take. A rule of thumb is that a borrower can only borrow up to 70% of his or her income. If the borrower is earning an income of RM4000 or more per month, the borrower is able to repay the RM2,797 instalment per month. The formula to calculate the DSR is below.
When it comes to the required income level in the DSR, some banks take the net income while other banks take the gross income for the calculation. Furthermore, some banks may recognise a portion of rental and foreign derived income, whereas other banks may recognise 100% of them. Every bank have their respective guidelines for max allowable DSR threshold. Best to check with the banks individually on their guidelines for the above. In the meantime, here is more information about how much you can borrow based on your DSR.
Home Loan Comparison
As there are so many banks and different types of banks in the country, which bank can provide the best interest rate? Borrowers can go online to research and compare home loans. This will quicken and aid them in their decision making. These three websites – iMoney, RinggitPlus, and Loanstreet – are the most common and popularly used for home loan comparison. They appear in the first page of the Google Search Engine. Click the images to compare the best home loans in Malaysia.
Furthermore, with modern technology, we’re able to calculate our loan commitments and get up-to-date information on loans at our finger tips. For us real estate agents we use these home loan calculator applications to advice our clients on their financial eligibility. At the end of the day, borrowers still have to seek the professional advice of bankers and mortgage consultants. They are in a better position to provide a more sound advice.
With the home loan calculator applications, our clients are able to calculate the monthly instalments, legal fees, stamp duty, real property gains tax, and EPF withdrawal. The applications which we, real estate agents use and would recommend to our clients are:
MY HOME LOAN CALCULATOR APP on Android & IOS
EASYLAW APP on Android & IOS
To Be Continued in HOME LOAN 101.2