IN July 2013, Bank Negara Malaysia implemented stricter policies on home and loan regulations to curb the growing household debt.
This move was deemed as a controversial decision as the new measures have led to higher rejection rates, lower loan margins approved, and an overall drop in loan approvals, thus dampening the hopes of people who wish to be the new owner of their dream property.
Many are still calling for Bank Negara to review the guidelines, including to increase the maximum housing loan tenure from the existing limit of 35 years to 40 years.
In addition to this, experts at the 10th Malaysian Property Summit held last February said that the market outlook was not too favourable and is expected to be “soft” at least until year-end.
Nevertheless, despite these challenges, there are still many potential properties buyers out there as they want to take advantage of the current oversupply of properties.
If you are one of them, here are five important things that you should know to help you make better, informed decisions to secure a mortgage loan:
1. Figure out your budget
Don’t be ashamed to ask yourself, “How much can I afford?” This is not only important for you to evaluate your financial standings, but also for you to find out if you have enough to pay for the upfront costs.
One of the ways to determine your financial standing is to get a Central Credit Reference Information System (CCRIS) report. A CCRIS report influences the eligibility to apply for credit products, including mortgage loans, as it will contain all historical credit information of the borrower in the last 12 months.
Both the borrower and financial institutions (who will use the CCRIS report to make faster and better-informed lending decisions) will be able to have preliminary view on the borrower’s financial stand.
2. Keep asking questions
“How much can I borrow? How much is the monthly instalment? What’s the interest rate?”
It’s important to ask the right questions to figure out and review the terms listed when considering to take out a loan. Some of the important terms you should look out for include down payment, margin of financing, interest rates (fixed or floating rate), tenure, and instalments.
You should always get as much information as you can before you decide to take out a loan at a certain bank. Do not be overwhelmed by the amount of information provided, but take time to understand all the terms and conditions of the loan you’re about to take out to avoid complications in the future.
3. Submit the loan application
to more than one bank
Bear in mind that banks will use the Debt Service Ratio (DSR) to determine a potential borrower’s capacity to take loans and the ability to pay off debt by evaluating the financial commitments and total financial income. However, it is noted that other factors such as employment status are also taken into consideration.
Nevertheless, you should always explore all options available and do your own research on how a bank calculates DSR (as it is calculated differently from one bank to another) so that you will not miss out on the chance to get your loan approved.
For example, bank A may reject your application but bank B may look at your loan application more favourably because of the different ways they calculate your DSR.
There are different loans available and some banks may offer loans that allow greater flexibility in terms of financing tenure, repayment, and other benefits. Other key points that a borrower may also want to take into consideration are the standard of service provided, the stability of the bank, the value-added services offered, and overall reputation of the bank as a financial institution.
4. Beware of hidden charges
Always watch out for hidden fees that you might encounter once you take out a loan.
Find out if there are any extra charges such as processing or withdrawal fees, and if these are recurring or one-off fees.
Take note that some mortgage loans in Malaysia have lock-in periods which means that the borrower will be normally be subjected to an exit penalty imposed by the bank if the borrower chooses to make early settlement.
5. Know your rights as a borrower
According to BankingInfo, a consumer education programme by Bank Negara, these are the rights that a borrower is entitled to:
• Right to have access to all information that would affect your borrowing decision,
• Right to be treated professionally, courteously and without prejudice,
• Right to be consulted on changes to the terms and conditions of your loan,
• Right to have accurate information on a regular basis on your loan account, and
Right to enforce legal action in the event of a breach of contract.
If you are in doubt, do not hesitate to consult a loan officer.
Owning a property of your own is the ultimate dream for many and the journey to obtaining one is definitely a rewarding experience.
The bottom line here is to figure out your financial position and the bank’s requirements on the loans, so that you will not be burdened in the years to come. At the same time, if you’ve yet to secure a loan, all hope is not lost — keep looking around.