For many, buying a property is not possible without a loan due to the enormous amount involve in

the process.

Hence, it is important for buyers to learn how loans work before they borrow, in order to find out

the best loan package that suits their preferences and even save some cost.

1. Categories of loans

- Term loan

This is a loan with a pre-determined repayment schedule and maturity date. While the borrower is

allowed to make advance payment, it does not help to save on the interest as the repayment.

However, if you do not have extra money to make prepayment for the loan, or even not planning to

do so, term loan seems to be a wise choice for you as the interest rate for such loans tend to be

lower as compared to other types of loans.

- Flexi loan

Flexi loan offers flexibility in repayment and interest savings, which means borrowers can make

advance payment to enjoy savings in the interest.

Moreover, borrowers can park their fund into the current account linked with their loan account and

enjoy lower interest. They will be able to withdraw the fund from their account with/without written

notice (subject to respective banks’ policy).

It could be a good choice for those who has extra money to make advance payment every month as

this will allow to enjoy higher interest savings.

2. Types of interest calculations

- Variable interest rates

The interest rates are calculated based on the Base Rate and a spread determined by the bank,

effectively from Jan 2, 2015. Prior to that, Base Lending Rate was served as the main reference rate

for banks to come with up the interest rates they will be offering.

With the calculation, the interest rates will be influenced by several factors, including the Overnight

Policy Rate, bank’s profit margin and operating cost, and move higher or lower.

- Fixed interest rates

This means that the interest rate is determined and fixed over the tenure of the loan and will not be

affected by the change in Overnight Policy Rate or other influencing factors.

The fixed interest rates offer by banks tend to be higher as the financial institutions need to take into

considerations of situations whereby the Overnight Policy Rate is increased to a much higher level

than the fixed interest rate, thus resulting in less income for them.

3. Tenure and lock-in period

A loan tenure is the amount of time you're given to repay the loan and in Malaysia, the maximum

loan tenure is 35 years or until the borrower turns 70 years old, whichever is earlier.

Notably, a longer loan tenure will result in higher interest to be paid to the bank, but it can lower the

monthly instalment and make the property purchase more affordable.

As for lock-in period, it is a period of time whereby borrowers are not allowed to refinance or fully

settle their loans unless they pay a penalty which usually equivalent to about 3% of the loan

outstanding.

The lock-in period generally lasts between one to three years for housing loans. This is to protect the

bank’s profitability from lending to borrower.

For more property buying tips, contact PropNex Malaysia at +603 7954 2233 or