Brushing up on housing loans
The market for housing loans today is very competitive and lenders now offer all kinds of loans to attract customers. Some loans are even packaged with free gifts.
It is important to shop around, get as much information as you can and compare items such as interest rates before deciding on the loan suitable for you.
As with other loan products, you can choose between a conventional or Islamic housing loan.
A housing loan is a large financial commitment, one that will stretch over many years. Think very carefully about the various aspects of such a loan before making your decision, some of which are as follows:
Is the loan meant for buying a completed house or one under construction? Are you buying land to build a house?
What is the value of the house or land you want to buy? How much can you afford to pay in monthly instalments, depending on your monthly cash flow?
Do you have enough money to make the down-payments and the cash flow to pay the loan instalments?
What are the incidental fees or costs that you have to pay? The more common ones are legal fees, stamp duties, processing fees and disbursement fees Is the interest rate fixed or variable with the Base Lending Rate (BLR)?
How flexible can your loan payments be? There are several payment schemes available.
Is there an early termination penalty if you repay your loan in full before the tenure expires? Lenders may impose such a penalty because of the attractive rates they may have packaged for the loan.
Is it better to take a loan on a fixed or variable interest rate?
With a fixed rate loan, the interest is fixed and you therefore know the amount of instalments you need to pay. With a variable rate loan, the rate changes according to the Base Lending Rate (BLR).
If the BLR rises, your interest rate will increase and your monthly repayments will be higher. On the other hand, if the BLR decreases you will benefit from paying lower monthly repayments.
There are also variable interest rate loans with fixed monthly payments where any changes to the interest rate will either increase or decrease the loan tenure.
A housing loan can be paid in the following ways:
1. Graduated payment: This allows you to pay lower instalment payments at the beginning of the loan. The instalment amount will, however, gradually increase over time. This scheme is useful if you had just started working and your salary will increase over the years.
2. Partial prepayment of the outstanding loan: You can shorten the loan tenure by making partial prepayments with your surplus savings or annual bonus. If this is done during the early years of the loan tenure, you can reduce your interest charges. There may, however, be restrictions on how much you can pay.
The principal sum of a loan is reduced each time an instalment is paid.
As a borrower, read and understand all the terms and conditions of the loan Follow these terms and conditions. Ask questions on all aspects of the loan to your satisfaction Make payments on time.
Check your loan account on a regular basis to ensure that you have accurate information.
As with any other loan, if you fail to pay your instalments, the lender will take legal action against you to recover the loan. Being a guarantor: 1. You may be requested by a family member or friend to become his or her loan guarantor.
2. Think carefully before you agree to do so because being a loan guarantor means that if the borrower cannot or will not pay the loan, you are legally bound to do so.
Should you agree to be a loan guarantor, make sure that you: Read and understand the nature of the guarantee and the implications on you
1. Do not sign a blank or partially filled document
2. Do not become a guarantor to someone whose integrity you doubt
3. Know your liabilities if variations are made to the terms and conditions of the loan.
It is not easy to withdraw from being a loan guarantor. The decision is up to the lender, which may agree subject to conditions such as full repayment of the principal debt.
Even if the borrower passes away, the lender can seek recourse from the loan guarantor if there are no other sources of repayment of the loan.
You act as a social guarantor when you provide the following: -a guarantee for a loan, scholarship or grant for educational or research purposes; or – a guarantee for a hire-purchase transaction of a vehicle for personal or non-business use; or – a guarantee for a housing loan transaction solely for personal dwelling.
Pursuant to section 5 of Bankruptcy Act 1967, a financial institution shall not be entitled to commence any bankruptcy action against a social guarantor unless it proves to the satisfaction of the court that it has exhausted all avenues to recover debts owed by the debtor.
The Credit Counselling and Debt Management Agency (AKPK) is an agency under Bank Negara Malaysia tasked to help individuals take control of their financial situation. For assistance, please contact AKPK’s Power Infoline at 0326167766 or visit www.akpk.org.my.