Thinking of buying a property in Malaysia but unsure about your entitlement for housing loan?

I believe that is the question playing in most of the minds of those keen on owning properties these days. Rest assured that the following unveiling of the myth for the housing loan application is simple and straight forward.

                The financial institutions need to gauge the repayment capability of the applicant based on the income documents. The most commonly used measure is Debt Service Ratio (DSR) which equates to Total Monthly Debt Obligation over Total Monthly Net Income. Banks are more inclined to approve loans of applicants with DSR less than 65% (inclusive of the loan applied) for an obvious reason (less risk!). The maximum permissible DSR in some financial institutions could go up to 90% depending on the net income of applicant. Besides, Asset to Debt Ratio (ADR) is a less popular measure to gauge repayment capability if compared to DSR. This measure is more confined to high net worth individuals, namely, the individual with more than RM1 million net worth.

                Loan To Value (LTV) could be a deciding factor when it comes to the purchase of property.  It is also known as margin of financing (MOF), the amount of loan which financial institution would lend to part finance one’s proffered property. All Malaysians are entitled to MOF up to 90 percent for the first two housing loans.  Only 70 percent MOF would be allowed for the third one (and onwards) due to the restriction set by Bank Negara. Nonetheless, financial institutions have absolute discretion when it comes to MOF. Individuals without credit record on Central Credit Reference Information System (CCRIS), breaching of the DSR, defaulting on payment, and others could be the few reasons behind the reduction of MOF.

                Due to the recent amendment on the allowable tenure for housing loan by Bank Negara, the maximum tenure is 35 years. The tenure of the housing loan will determine the monthly debt obligation of the individual. This could also be one of the deciding factors for the loan approval. Applicant has to be of at least 18 years of age and gainfully employed for at least 6 months.

                Interest rate is one of the biggest concerns besides the financial institution’s approval on loan. There are two types of interest rates offered in Malaysia.  Most of the banks’ offers are pegged to Base Lending Rate (BLR), which is a floating rate. Its fluctuation would affect the monthly installment of the loan taken. On the other hand, non-bank financial institutions do offer fixed rate in housing loan. Generally speaking, in a low interest rate and low inflation environment, individual will benefit from floating rate. One thing for sure, fixed rate taker would sleep more soundly at night during high inflation environment as the interest rate will most likely move north gradually.

       
                Lock-in period always comes in conjunction with penalty. This normally takes place when the borrower intended to fully settle the loan taken within the first 3 to 5 years after the first disbursement of the loan. And the penalty is normally 2 to 5 percent of the loan taken. The borrower could save a big chunk of interest by doing partial prepayment to the principal borrowed. With lower outstanding principal, the interest charged by the financial institutions would be reduced.