When it comes to home loan packages, we all want the best. Who isn’t right? We will window shop from one bank to another to choose the best home loan package.
If we can dream, I guess the best home loan package will be like this.
- We want the lowest interest rates in the market.
- We want the highest loan margin or at least the loan margin we want.
- The bank will pay all the costs like loan lawyer fees, stamp duty, disbursement fees, and valuation fees.
- Even better, the bank will pay the Sales and Purchase Agreement cost.
- The home loan package has to be fully flexible where you can dump in or withdraw any extra money without notice and fees.
- No penalty for the loan if you settled early.
- No late penalty if you pay late.
- The bank has a super-advanced system that protects my data, and we can make all the transactions online.
Ahh, isn’t this sound perfect? Does this home loan package exist?
Well, my friend.
After almost two decades in this industry, I can say with all my wholeheartedly, NO!
It doesn’t exist.
But, we can try to get the best possible home loan package out there.
The best home loan package, honestly, is subjective from one person to another.
For some people, the loan margin is way more important than the interest rates.
For others, interest rates may be way vital to them.
So, it is all about prioritising what is important to you.
Here I have a breakdown, the most common factors in choosing the best home loan packages.
HOME LOAN MARGIN
When it comes to home loan margin, 90% of people need the maximum. If the bank can give 100%, they will take that.
Sadly, the bank only offers up to 90% for new house purchases and up to 85% for refinancing.
The truth, people want a higher margin because they can’t afford the heavy down payment.
If a borrower expects to get a 90% loan, he can put in a 10% down payment.
And if the bank approved a loan of 80%, that means he will need to fork out an additional 10%, which in total 20% down payment.
Even Bank A gives the lowest interest rates in the market; it doesn’t matter anymore because the borrower cannot afford a down payment of 20%.
However, if the borrower is cash-rich and can afford a 20% down payment, it doesn’t matter for him.
So, the home loan approval is essential; It’s the game-changer.
We keep saying this repeatedly – Home Loan Approval is everything.
Without a bank approving the home loan, there is no point in shopping for the best interest rates.
You are just wasting your time.
Once you get the ideal home loan margin, you can start to choose.
Does interest rates matter?
Of course, it does.
The lower the interest rates, the lesser interest we are all paying.
So, when it comes to interest rates, try to get the lowest without any additional cost.
Additional cost means paying for other products to get the lowest rates.
For example or the one that is quite common is buying Mortgage Insurance.
The bank only offers the lowest interest rate when you buy mortgage insurance.
If Mortgage insurance is not something you need, you should do some calculations before buying one.
Most of the time, Mortgage Insurance is not cheap.
Try to calculate how much you need to pay more vs how much interest you will save?
And don’t forget when you add Mortgage insurance to the existing loan, that means you will pay more interest.
Ask yourself, is it worth it?
There is always a cost when applying for a home loan with the bank.
If you haven’t realised, buying a house and applying for a home loan with a bank is very costly.
When you apply for a home loan with a bank, you will need to pay loan lawyer fees, stamp duty, disbursement fees, service tax and valuation fees in addition to Mortgage Insurance, if you get one.
The slightly good news is you can finance all these costs, at least most banks, maybe one to two banks will require you to pay on your own. Therefore, with this option, you can ease the burden a little.
And of course, most people prefer when the bank finance all these costs. They do not need to come out with lots of cash, and in most cases, people have tight budgets.
If you wonder how much the Bank Lawyer fees are, you can get the quotation here https://bit.ly/2JkS7WB or fill up the form below..
MORTGAGE REDUCING TERM ASSURANCE (MRTA)
Two decades ago, MRTA was unheard of. The person who created MRTA is a genius, at least from the bank and insurance company perspective. I give that.
The MRTA was created to benefit the bank and insurance companies, but it was promoted to help the borrower.
Years ago, the bank was concerned about the home loan debts.
As we all know, the home loan amount can be huge; it’s in the hundreds of thousands to millions.
So obviously, the bank is worried about the unpaid debts in case of an unfortunate event like the borrower passing away or being permanently disabled.
Who is going to settle the vast debts?
So, they came out with MRTA.
MRTA is mortgage insurance that the bank promotes by saying, if a borrower buys MRTA, in the event of death or Permanent Disability, the MRTA will settle the outstanding loan.
Hence, your families can stay in the house and not worry about the place being taken away from them.
It sounds comforting to most people. But, the premium amount of MRTA can be a considerable sum.
Then, the bank stepped in again and said, need not worry. You can finance the MRTA with your loan.
Now, you are taking another extra loan to cover the MRTA premium on top of the original loan. That means you will be paying more interest to the bank.
It can be a considerable amount if the coverage is maximum and up to 35 years.
It’s a Win for the bank because they earned interest on the original loan, on the MRTA, and if an unfortunate event happens, the MRTA is there to cover the loan.
It’s the best bundle up package for the bank. This is why I said, Genius!
Yeah, Genius to the bank, too bad for us.
The bank will always promote MRTA because it is crucial to their revenue and profit.
But, as a consumer, you can negotiate for a lower premium if it’s not something you want or maybe not at all.
However, there are consequences when you are not buying MRTA.
The bank might increase the interest rates slightly higher than the standard package, usually to about 0.10%.
Secondly, you don’t have protection against death and permanent disability.
If the house is for your own stay, your family may be burdened with debts.
So, make your decision wisely.
Typically for every bank offer, they come with a Bank Penalty clause.
The penalty clause usually indicates the borrower can’t close the home loan account within a stipulated period. Typically, three to five years.
If they do, the bank will penalise them with specific fees, usually 3% of the original loan amount.
However, most Islamic Home Loan packages don’t have this clause.
The penalty clause shouldn’t be a big deal if you use the house for your own occupation.
The penalty clause mostly affected investors. When the market is good, and the price is right, you want to sell as an investor.
That means the home loan account will be closed hence the penalty clause kick-in.
So, set your intention right and choose the right home loan package.
HOME LOAN PACKAGE
The last factor will be the home loan package. Mainly there are two Home Loan Packages.
One, the most popular is Conventional Home Loan.
Secondly is Islamic Home Loan.
Most people prefer Conventional Home Loan because it is very straightforward and use a simpler concept.
The counterpart, Islamic Home Loan, uses Islamic concepts that can be daunting for some people.
Every bank will have its own Islamic Home Loan product that slightly differs from another.
The concept will have to abide by Shariah laws. So, no “RIBA” is allowed.
Instead of using “RIBA”, the bank uses profit sharing or buy and sell concepts.
Most Muslim borrowers will prefer Islamic Home Loan, but a non-Muslim also can opt for an Islamic Home Loan package.
The attractive part of the Islamic Home Loan package is no lock-in period, meaning you can close the account anytime you want by selling the house, refinancing to another bank or fully settling with cash.
And this attracts the investor to apply for this package.
Always remember there is no one best bank for home loan; you need to find the one that suits you most.
I have shared here six critical factors in choosing the best home loan, and it’s your job to decide which one suit you the best.
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