Once you reach the housing loan step of the property buying process there’s a set of mixed feelings that will surely fill you. There’s the excitement that you’ll get when realizing how close you are to owning your dream home. Then there’s the anxiousness that sets in while you’re trying to find a loan for your dream home, and the feeling will definitely linger on until you find out if your loan has been approved.
Your search for the right mortgage package can be a rollercoaster of emotions, especially without the guidance of a mortgage specialist. There are several options offered by the bank, but all stem from four basic housing loan options at different interest rates and payment specifications that fit a wide variety of customer concerns and needs.
The key is to make things a lot simpler and that’s exactly how you’ll be approaching the housing loan step in your property journey after understanding how these four housing loans work.
4 Types of Home Loan
1. Basic Term Loan
Simplicity at its best, the basic term loan charges a fixed amount of monthly installments for the entire loan term. By applying for this loan, there’s no flexibility to reduce the loan interest. While this means that you’ll always have peace of mind knowing your interest rate won’t fluctuate, it could also come as a disadvantage if you were to suddenly come into extra money and you want to use it to pay off a portion of the loan. Alternatively, you can set some money aside but it will be classified as early payments for the upcoming monthly installments and the amount of interest charged will stay the same. Also, bear in mind that banks have a penalty clause if you settle the loan within the first two to five years.
2. Semi-Flexi Loan
So, after learning all about the basic term loan, you’re probably wondering what are the types of loans that you can apply that provide flexibility regarding interest. The semi-flexi loan is one of those loans. If you get a promotion or win the lottery, you’re going to want to use that money to pay off a portion of the loan, and doing so will result in you reducing your housing loan’s interest rate.
For example, if the housing loan you took was for RM900,000 and you’ve decided that you wanted to pay off RM400,000 you would have a balance of RM500,000. This will make your new loan interest to be charged on the remaining amount of RM500,000 and not the original RM900,000, thus helping you save money in the long run. You won’t need to inform the bank in advance for any additional payments made on top of the monthly installments.
Another added benefit to this loan type is that borrowers can even withdraw the additional payments they’ve made after making a request. There are a few restrictions, mainly on the frequency and the amount that can be withdrawn. Do note that you will incur charges during the process depending on your bank’s policy for withdrawing the additional payments. For those of you with a salary that includes commission, this loan type is a great option to consider.
3. Full-Flexi Loan
The full-flexi loan is similar to the semi-Flexi loan in almost every way. You can pay a large amount of the loan off and the interest will then only be charged on the remaining about. You will also be able to withdraw the additional payments that you’ve made on top of the original monthly ones without having to request to do so beforehand with the bank without penalties. This is done by linking your current account with the loan, making it easy to deposit and withdraw as you wish.
4. Islamic Loan
Rounding out the four different types of loans offered by the majority of banks in Malaysia is the Islamic loan. You might be wondering, how is this possible when the sharia law, the very law that governs Islamic banking, believes that any form of interest-based gains known as Riba, is regarded as unlawful? This loan type approaches it in a more conventional way of issuing loans through the concept of a fixed-rate loan.
Islamic banking shifts the ordinary relationship of lender and borrower to seller and buyer, in terms of a housing loan. The idea here is that the bank has purchased the property and is selling it back to you, the buyer, at a higher price to be paid through fixed installments. By pre-determining the profits of re-selling the home to you, the bank makes a profit without having to charge interest.
If you’re a non-muslim interested in applying for an Islamic housing loan, you can. The concept of a housing loan is shaped by sharia law but it does not mean that you must be practicing the religion in order to apply for financial benefit from it.
Now that you’re aware of the different types of housing loans and how they can work for you and your financial commitments, you should find out more about the different variations of these loans from your bank. Apply what you’ve learned here as you scour through the seas of housing loan options available in Malaysia to focus on the ones that best work for you and your financial profile.