Here’s comes the next challenge. How do you go about financing your dream home?

Of course, the first thing that comes to our mind, would be banks.

Malaysia is very fortunate, in the sense that we have numerous banks (both local and foreign banks) who are more than willing to lend new home buyers a hand in realizing their dream house.

Furthermore these banks are competing with each other by offering its customers attractive interest rates, attractive features and all in all, a very attractive home loan package to lure you to sign up with them.

(and of course sell your poor soul to them for the next 30yrs or so :))

There are numerous loan packages that are offered by banks in Malaysia today. Most of which can be divided into 3 categories namely conventional home loans, semi-flexible home loans and flexible home loans. I’ll touch on conventional home loan packages today in my blog.

Before I go into describing the different packages, let me list down a few abbreaviations I will use as we go along

BLR  - Base Lending Rate - Interest rate as indicated by Bank Negara (Malaysia Central Bank) OPR rate. The current Base Lending rate as of Nov 1 stands at 6.75% per annum

OPR - Overnight Policy Rate

Conventional Home Loans

As the name suggests, these loans are really “conventional”. Basically you will pay a fix mortgage payment for the whole duration of your loan until the full principal amount has been paid up. For example, if you sign up for a RM300k loan for 30 years at 5.75% (BLR-1%), you will pay around RM 1,600 per month for the next 30 years.

Note though, “mortgage payment” here varies with the varying BLR rate. If BLR was to increase overnight by 1%, then the banks would happily sent you a new letter stating the new mortgage amount payable.

In Malaysia, and in many other countries of course, interest on the home loan is based on daily rest calculations. Daily rest calculation means the interest is calculated daily on the amount outstanding. Hence the more you pay the more you’ll save on your interest.

Through our months of scouring the market for the various types of loans from different banks, we discovered that usually conventional home mortgages or loans, tends to offer one of the best interest around. Some banks are even wiling to offer a starting rate of BLR-1.1% for conventional loans which is abt 5.65% per annum.

However, as the name suggests, these loan packages lack in flexibility. Don’t get me wrong, you can still make lump sum payments but these lump sum payments have to be subjected to the bank’s terms and conditions. Some of which are the need to give the bank a written notice in advance, restrictions on the prepayment amount allowable and also charges for prepayment withdrawals (ie withdrawing the extra paymetns which you have made)

Note though that some bank do offer the flexibility in mortgage payment by allowing you to make monthly, twice weekly, fortnightly or weekly payments for conventional home loans. This in turn helps to reduce on the interest chargeable as the more often you pay your mortgage, the lesser the interest chargeable will be.

Conventional home loans has it pros and cons. It is suitable for people who prefers the stability of paying their home loan in a fixed and timely manner every month.  

But then again what if, you are the fast rising young workforce whose salary doubles and triples every 5 years or if you have more than one income stream….then…. the flexible home loans may suit you better.

Look out for my next blog on Flexible Home Loan