Home Loans In Malaysia

What You Should Know First Before Submitting An Application

Before applying for a home loan from the bank, some of the most important things you should bear in mind, are the interest rates and the type of category you can apply for.

For the former, there are fixed and variable interest rates to consider:

·       Fixed interest rate refers to a set percentage that doesn’t change throughout the duration of your loan.

·       Variable interest rate refers to a percentage that's determined by the Base Rate (BR), which we'll discuss further down. Now, whenever the BLR goes up or down, this type of interest rate will follow suit.

Whichever you choose, know that the lower the interest rate, the better for you. A small variation in percentage can mean thousands of ringgit saved!

The 3 main home loan categories offered in Malaysia are term, semi-flexi, and flexi loans, with each having a different way of processing the instalments and interests:

·       Term loans have a fixed repayment schedule, and don't usually allow you to reduce your loan interest with advance payments. And if you want to withdraw from the additional payments you made, you won't be allowed to do so.

·       Semi-flexi loans allow you to pay extra money whenever you like, to lower the amount of interest charged. You can also request to withdraw from the additional amount you paid, but a processing fee will be charged.

·       Flexi loans are similar in nature to semi-flexi loans, except that these are linked to your current account, and the instalment amount is automatically deducted every month. If you make any additional payments, you'll be able to withdraw from them whenever you like.

Understanding The Common Loan Terms

There'll be several key loan terms that you’ll encounter in official documents and conversations with your agent, banker, and/or property developer.

These terms might have you shaking your head in confusion – things like the Base Rate (BR) we mentioned above, Deed of Assignment, and valuation, to name some of the important few:

·       Base Rate (BR): Banks are allowed to determine their own interest rate based on a formula set by Bank Negara Malaysia (BNM), and its increment or decrease affects the interest rates of borrowers directly.

·       Deed of Assignment: A legal document that acts as proof that the ownership of a property has been transferred from one party to another, and is usually used for a residential property without a title.

·       Property valuation: The process of estimating the price of your property, carried out by authorised firms or valuation experts, after taking into consideration recent property transaction prices, as well as other market factors.

 

Bank Negara Malaysia”s Lending Policies: How Do They Affect You?

The policies introduced by BNM are as follows:

• 70% loan margin on the third property onwards

• Nett Financing • Abolishment of Developer Interest Bearing Scheme (DIBS)

• Loan approval based on net income instead of gross income

• Loan tenure reduced to a maximum of 35 years

• A Maximum 10-year tenure for personal financing

 

70% LOAN MARGIN ON THE THIRD PROPERTY ONWARDS

This policy only affects residential properties. If the purchaser already owns 2 residential properties, the third one onwards will be at a 70% loan margin. Banks will base their decision whether to grant the loan margin to a purchaser based on his/her Central Credit Information Report (CCRIS). Here are some scenarios for an easy understanding:

• Borrower A owns property X and Y with 2 existing mortgages and intends to buy property Z. Property Z will be at a 70% margin.

• Borrower A fully owns X & Y, which are mortgage free and has one existing loan with property Z. He now intends to buy his fourth property, W. His loan margin will be 90%.

• Borrower A and B jointly owns property X and Y. If borrower A were to buy property Z, the margin of finance will be 70%. Even if in a joint ownership, as long as they are still owing a mortgage loan, co ownership is still considered as ownership. In this case, both A & B own 2 properties hence the third one (Z) will be at a 70% loan margin.

*Please take note that loan margins also depend on other factors. You might not get the full margin.

 

NET FINANCING

As the name suggests, nett financing means loan margins given after considering all other ‘freebies’ provided by developers. Let’s say a developer provides free SPA fees and fixtures and fittings such as kitchen cabinet, wardrobe and air conditioners as well as rebates for a property sold for say RM500,000 and these ‘extra freebies’ cost RM50,000.

Prior to this policy, a 90% financing was given or RM450,000. Now, the loan margin will be slashed to 80%, as banks have factored in the additional RM50,000 discounts. There are however banks which still lend based on gross value.

 

LOAN APPROVAL BASED ON NET INCOME INSTEAD OF GROSS INCOME

Approval calculations will now be based on net income instead of gross income. Net income means income after deducting EPF, SOCSO, income tax etc. When this was introduced by BNM, many feel that this will definitely affect loan approvals. My take is this: Do not jump to conclusions. Purchasers need to know how the banks work.

Some banks have adjusted their approval conditions so it has no substantial effect. In some banks, individual’s Debt Service Ratio (DSR) was capped at 65% but after the introduction of this new scheme, they have adjusted it to 85%. Banks use DSR calculation to determine whether a borrower is eligible for a loan or not.

 

LOAN TENURE REDUCED TO 35 YEARS

Borrowers used to be able to borrow either up to age 75 or for a 40-year term, whichever is lower. This has been reduced to 70-years old or a 35-year term whichever is lower. Please take note that there are certain banks that give only up to age 65 or a 30-year tenure only.

 

PERSONAL FINANCING. MAXIMUM 10 YEARS

At a first glance, this has minimum or no impact at all. It is a norm for banks to give up to 10 years to repay a personal loan. What this actually means is this – say for example you have a loan of RM100,000 with Bank A and want refinance RM150,000 to Bank B.

There is an additional RM50,000 extra in the loan. That RM 50,000 will be considered as personal financing and the DSR will be calculated up to 10 years only.

Do you think this will impact the loan approval? The answer is a big “YES”. The borrower’s DSR will be higher because even if they were eligible for a 35-year tenure, the bank will only calculate based on 10 years.

No doubt the loan approval process is getting more stringent by the day. Nevertheless, it is not impossible matter to deal with. Purchasers will need to carry out mortgage planning before submitting their documents to the bank. This will greatly increase their approval chances.

 

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On 5 June 2020, PENJANA - Short-Term Economic Recovery Plan (ERP)

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In addition, the current 70% margin of financing limit applicable for the third housing loan onwards for property valued at RM600,000 and above, will be uplifted during the period of the HOC, subject to internal risk management practices of financial institutions.

What Is CCRIS

What Is CCRIS

CCRIS (central credit reference information system) is a centralized system under Bank Negara which compiles data on your outstanding loan amount and payment history for the past 12 months, at any given time. Any records older than 12 months are "purged".

If you are late in payment (lets say 6 months outstanding in Feb 2015) but you have paid off the outstanding in March 2015, the records will still show February = 6 months, March = 0 months, April = 0 months. As CCRIS is a report for 12 month period, the 6 months in arrears records will only 'disappear' in February 2016 (12 months later). You just cannot erase or request to clear it before that, as it is a rolling report.

If it shows, for example, 2 2 2 2 – -, meaning your loan has been due for 2 payments for 4 months.

Everyone has their personal credit report in the form of a CCRIS report which can be retrieved by financial bodies and by the individual himself, but not by other people. In other words, your eligibility for loan has nothing to do with how well you know your banker (although that *might help?).

The Credit Bureau is a legally empowered credit reporting agency under CREDIT REPORTING AGENCIES. ACT 2010 to collect personal credit information about you from these financial institutions.

However, the Credit Bureau simply collects and reports your credit information as it is. In other words, the Credit Bureau does not "judge" your creditworthiness. Also in all fairness, information on rejected credit applications is not reflected in credit reports so that one bank will not be biased by the prior decision of another bank. Your CCRIS information could in fact be treated differently and subjectively by each financial institution.

Currently, there is an arbitrary limit for the public to print their own report – it can only be done once every three months.

How Is CCRIS Report Being Updated?

After discussing on how to do your own CCRIS check, we now want to know how CCRIS report is being updated.

In fact, CCRIS information is updated on the 15^th of every month. So if you have paid down your credit lines anytime from 1-31 Jan, time your loan application submissions on the 16^th of Feb.

In practical, issue crops up impacting consumer when the banks are delayed in updating their customers’ credit facility records to the CCRIS in a timely manner, despite the fact that the banks are supposed to do so on the 15th of each month.

Banks do have problems with their core banking systems (breakdowns, delay, heavy traffic, unable to close the end-of-month due to adjustments in accounts, etc) so there may be reporting delays.

Also, some banks default their system to classify a loan as due at different dates. Some banks classify the installment due after 5 days, 7 days or on the due date itself, depending on bank policy. This will all effect the bank’s reporting to their risk department. If a bank classify it as overdue 1 day after the due date, 80%-90% of customers will be on the due report for the Bank’s collection team. Usually, a grace period is given so that the report that the collection team gets is shorter and easier to manage.

In short, whatever that comes out in the CCRIS report will depend on how fast your bank report the account to CCRIS, as BNM only compiles whatever that have been reported to them.