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What You Need to Know About Home Loans

Do home loans become a little too much for you to consume because it involves big money? We’ve broken down all the essentials you need!

If personal loans are loans you take out for personal use, home loans are loans you take out specifically to buy a house. On the surface it sounds pretty straightforward, but there are some important wrinkles unique to home loans that’s worth exploring.

You Have to Put Some Money Down Yourself

First off, the bank won’t lend you all the money you need for your new house (with exceptions; more on that later). They will usually loan out 80% to 90% of the home’s purchase price to a borrower. This means that you have to come up with 10% to 20% of the property’s market price yourself before applying for said loan so you can buy the house.

Why don’t banks just loan you 100% of the money you need like they can with personal loans? The short of it is that historically, when they did, it hasn’t been profitable for them to do so. Houses are expensive and people often take 20 to 30 years at least to pay off their home loan. That’s a long time for a bank to wait on their returns. It’s also a long enough time that borrowers’ financial standing might change such that they may not be able to continue paying the loan, which means further losses on the banks’ part if they default.

To protect themselves from these risks, banks only elect to lend out a certain percentage. Big enough to make the loan worth it, but also just short enough to make the borrower commit to the loan.

Your House is Used as Collateral

Another difference between home loans and personal loans is that there are no unsecured home loans. The house you’re buying is always used as security. That is to say, if you can’t properly pay your dues, the bank can take the property over. This, together with the maximum amount of 80%-90% of the market price that the bank is willing to loan you are used to ensure that the bank doesn’t lose out too much by lending you money for your house.

What About That Exception You Mentioned?

Oh yeah. That’s referring to the My First Home Scheme or Skim Rumah Pertamaku set up by the government back in 2011. Aimed at assisting young adults to own a home, it allows homebuyers to obtain 100% financing from financial institutions so they can own a home without needing to have the 10%-20% down payment on hand.

There are specific conditions you have to meet to fit into this category of course. Also, if you’re borrowing under this scheme and not paying any down payment, it means you have to pay back 100% of the market price for the property you’re buying. This means a longer loan term, naturally.

Ah Okay. So What Kinds of Home Loans Are There?

There are three kinds, generally:

Term Loan

This type of loan uses a fixed interest rate that’s applied over the tenure of the loan. This means you pay the same amount every month plus interest. The good thing about these loans is that you pretty much know what to expect.

Fully Flexible Loan

This type of loan allows you the freedom to make additional payments as and when you’re able. Also, the interest rates are calculated against the reducing balance of your loan. In other words, the larger your payments, the lesser total interest is incurred over the tenure of your loan. You can also withdraw you over-payments without hassle as the loan is usually linked to a current account.

Semi-flexible Loans

This type of loan is a bit of a mix between the two. You’re still allowed to make additional payments, and those payments go toward reducing the interest rate for that loan. However, withdrawing over-payments requires a formal request from the bank, and you’re likely to incur some charges for doing so.

Documents! Which Ones Do I Need?


It depends on the bank and the loan you’re going for. You can call them ahead to know what sort of documents you need. The ones commonly asked for are:

  • Photocopies of your NRIC (or passport for non-residents)
  • Income statements (3 or 6 months depending on the type of loan)
  • Proof of your other existing loans (e.g. car loans)
  • Personal details of your guarantor if your application requires one
  • Booking receipt of your desired property
  • Educational qualifications
  • Latest EPF or LHDN statements

If we’ve missed out anything you’ve learned from experience with home loans, be sure to drop us your thoughts in the comments section below – we’d love to hear from you.


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Types of Home Loans in Malaysia

Normally what people think when comes to “Home Loans” are go to bank apply loans for purchasing property. However, that is not the correct. Nowadays, a lot of banks provide various type of home loans for targeted customers and specify purpose. Some of these loans are: (via bbazzar)



🏠 Regular Home loans

The regular home loan is the one where you can borrow money to either finance the construction of a new house or to purchase a plot of vacant land. These loans can also be conventional in that, they come with interest rates and do not follow the rules of Islamic banking.

Targeted Customers: All Malaysian


🏠 Home Loans for Expatriates

Home loans can also be extended to those who are working in the country on a valid work visa. These loans can be tailored especially to suit the needs of the expatriates and may not be made available to residents of the country. These loans can also cover those who are not working in the country but stay for extended periods of time and also those who are citizens of Malaysia but have becomes permanent residents in other countries.

Targeted Customers: Permanent Resident, Outsourcing Employee


🏠 Islamic Home Loans

Islamic home loans are those that follow the rules of Islamic banking. There is no interest charged with these loans. They tend to charge a profit rate which is paid every month along with the monthly instalments. These loans can also come in the form of hire purchase where the bank buys the property and gives it to you on leases till the loan is paid back.

Targeted Customers: Islamic Banking Users


🏠 Home loans for Furnishing

Not all home loans are meant for the purchase of property. Sometimes banks will provide home loans that can be used to furnish a house or to get work done in a property that has already been constructed. The amounts sanctioned for such loans may be lesser than that sanctioned for other home loans.

Targeted Customers: Refurnish Home Applicants

project approved

🏠 Home Loans for Approved Projects

At times banks can have certain construction projects that are on their approved list for loans. Customers of the bank will be able to take loans to purchase property in these projects but they may only get such funding if the property has passed a certain percentage of construction. This rule however may change from one bank to another.

Targeted Customers: Project Investors


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Mortgage refinance for newbies

Mortgage refinancing changes the course of your previous debt by consolidating it or changing it into a preferable home loan. Now that you have been devoutly paying your dues, you are entitled to be taken seriously. You can select between several options for home loans and mortgage refinance.

When not to use it?
Don’t go for it if you have paid more than 80% of your mortgage dues. However, if you have just started or are in the middle of this phase, use the advantage by calculating interests. Banks of Australia are somewhat lenient on first home buyers and provide honeymoon loans too. In such a loan, you get to pay minimum rates for initial passage in which you can improve your financial status.

Home upgrade and negotiation
You can use your equity to counter conditions set by banks for home loans. Also look for ways in which you can increase valuation of your house. Going for kitchen remodeling or home upgrading is a valuable method of ensuring that.

You can opt for a longer term loan at fixed rates within your capacity if you have a fixed income. Mortgage refinance will preclude your previous debts and put you into one creditor: Bank that provides you home loan. You may also negotiate whether the bank is willing to provide you loan on your equity that it balances in its own payment. This will greatly reduce your burden of payments.

Govt. relief and policies
Every year, there are some relief points thrown for newcomers and first home buyers. Make use of these freebies thrown at you. Certain institutions offer consultation and provide you selective quotes of major banks. You can make your selection among them. Some also tend to go easy just after the financial year ends.

Always keeping mind that as first home buyers, you are relatively new to this world of home loans. At a certain stage, you ay feel overwhelmed by the adding weight of dues. Thus, to remain stress free, you may connect your bank to your official account and let payments occur automatically. You may also allow a wise member in your family to manage your funds. You may not be good at it.

Take loan; buy home
Home loans should be taken strictly for the purpose of buying homes only. If you become relaxed and spend this money on different purposesArticle Search, you will miss on an appreciated asset and will surely find your money squander. And then you will have to pay it back with interests. Thus wise planning is quite required as a newbie.

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