what should I know when I apply mortgage loan in malaysia

A mortgage loan is a type of loan used to purchase or maintain a home, land, or other types of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property itself serves as collateral for the loan.

In the context of Malaysia, a mortgage loan can be offered through either conventional financing (which involves interest rates) or Islamic financing (which follows Shariah law and avoids interest). Mortgage loans are often used by individuals to finance the purchase of a home, with the borrower making a down payment (usually 10% of the property price) and the bank financing the remainder.

The borrower must meet certain criteria (income level, credit score, etc.) and commit to regular repayments over a set period (typically 20-35 years). If the borrower defaults, the lender has the right to take possession of the property (foreclosure).

1. Eligibility Criteria

Age: Most banks offer loans to individuals between 21 and 65 years old. Some banks may have specific upper age limits.
Income: Lenders typically assess your Debt Service Ratio (DSR) to ensure your monthly commitments, including the mortgage, don’t exceed a certain percentage of your income. This percentage is often between 30% and 70%.
Employment: Lenders prefer applicants who have stable jobs or businesses. Self-employed applicants might need to provide more documentation.
Credit History: Banks will check your credit history via CCRIS (Central Credit Reference Information System) or CTOS. A good credit score increases the chances of approval.

2. Types of Mortgage Loans in Malaysia

Conventional Loans: These typically involve fixed or variable interest rates and may come with flexibility in repayment terms.
Islamic Financing: Based on Shariah principles, banks offer Islamic home loans like Murabahah or Musharakah, where the bank purchases the property and resells it to you with a profit margin or partners with you in ownership.

3. Loan Margin

Banks usually offer financing for up to 90% of the property value for first-time homebuyers. The remaining 10% must be covered by your own funds, along with other costs like legal fees and stamp duties.
For subsequent property purchases, the financing margin may be lower (typically 70% to 80%).

4. Interest Rates

BLR (Base Lending Rate): This is the interest rate that banks offer for conventional loans, which fluctuates based on market conditions and Bank Negara Malaysia’s policy.
BR (Base Rate): Replaced the BLR and is now the main reference rate used by banks.
Islamic loans offer profit rates, which are comparable to interest rates but structured differently.

5. Loan Tenure

Mortgage loan tenures in Malaysia range from 5 to 35 years, depending on your age and the bank’s policies.
Longer loan tenures mean smaller monthly payments but more interest over time, while shorter tenures mean higher payments but lower overall interest.

6. Upfront Costs

Down Payment: Typically 10% of the property value.
Legal Fees: Includes lawyer’s fees for the Sale & Purchase Agreement (S&P) and Loan Agreement. Legal fees are usually between 1% and 2% of the property value.
Stamp Duty: Stamp duty is 1% to 3% depending on the property value. There are also other stamp duties for loan agreements.
Valuation Fees: For properties that need a valuation report, you may be required to pay a valuation fee.

7. Government Assistance

Malaysia offers various home ownership schemes for first-time buyers or those in the lower-income bracket, such as:
- My First Home Scheme (Skim Rumah Pertamaku): Allows 100% financing for homes valued below RM500,000.
- PR1MA Homes: Affordable housing projects for middle-income earners.
- Home Ownership Campaign (HOC): Offers discounts and exemptions on stamp duties for selected properties.

8. Loan Approval Process

- Documentation: You will need to provide:
  - Proof of identity (IC)
  - Latest 3 to 6 months’ payslips or income statements
  - EPF (Employee Provident Fund) statement
  - Bank statements
  - Latest income tax returns (e.g., BE forms)
  - Sale and Purchase Agreement (S&P) for the property
- Processing Time: Typically takes 1 to 4 weeks for approval, depending on the bank and complexity of the application.

9. Insurance

- MRTA/MLTA: Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA) are types of insurance designed to cover your mortgage in case of death or disability.

10. Refinancing Options

- After a few years, you might consider refinancing your home loan to benefit from better rates, lower monthly payments, or cash-out options if the value of your property has increased.
  Being well-prepared and understanding these points will help you make informed decisions and increase the likelihood of a successful mortgage loan application in Malaysia.

Summary

A mortgage loan is a loan used to buy real estate, where the property serves as collateral. In Malaysia, mortgages can be either conventional (with interest) or Islamic (interest-free based on Shariah law). Borrowers typically need to pay a down payment (usually 10% of the property price), and the bank finances the rest.

Key factors include meeting eligibility requirements (income, credit score), choosing the right loan type, and considering costs like interest rates, legal fees, and insurance. Loan repayment is spread over a long period (up to 35 years), and the property may be repossessed if payments are not made.