Fixed Rate vs. Variable Rate Home Loans – How to choose the Perfect Home Loan?

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Buying a Home and obtaining the right type of Home Loan from the Bank is always a challenging task. Why you may ask? I think everyone will agree with me if I were to say owning a Home is our single largest commitment in our lifetime. If you do not get proper financing done, it can cost you thousands or even tens of thousands in interest payment alone to the Bank.

For Investors, structuring the mortgage financing correctly will be even more critical as it can mean the difference between a profit or a loss. This can be the difference between creating a wealth generating property portfolio or never progressing beyond the first property investment.

Throughout my entire 14 years’ journey in mortgage financing, I have seen many property buyers who made wrong mortgage decisions which cost them huge sums of money. So how do you make sure that you will end up with the right type of property finance that will save you thousands in interest?

Here are the 10 biggest Home loan India Mistakes made by loan borrowers which I have gathered throughout my career in Mortgage Financing.

1. Understanding the Malaysian Mortgage Industry

For the past one year or so, we have seen many announcements being made by Bank Negara with regards to the changes in the mortgage financing climate. Many home buyers are still unaware and were caught off guard on the recent changes. Take for instance, recently when I sold one of my properties the buyer only knew that there is a 70% financing cap on third property after he paid the deposit and went to the bank to enquire about financing.

With the new announcement on 100% financing with properties costing between RM100,000 to RM400,000 do take extra precaution on the loan approval by the banks. It’s rather rigid with many requirements that needed to be met. My advised for those who are going for this type of loan is to go to the bank and check the loan approval requirements before committing on the purchase.

For home buyers or investors who are buying new properties, do take the extra trouble to check on the latest changes before committing on your purchase.

2. Going for the lowest Interest Rates

One of the hottest topics when it comes to buying a property will be “which bank is offering the lowest rate in town”. My philosophy, “The Lowest Interest Rate does not necessary save you the most Interest”. Why is that so?

What might be seen as a good deal can sometimes come with strings attached whereby it costs more in certain situations or the loan offers less flexibility. Always remember to read (no need to have the word “between” because you do not need to read between the lines) the fine prints in your loan Letter of Offer before signing on the dotted lines.

Be very clear about your objectives for getting the loan and do your homework before you go to the Bank for your financing needs. With the objectives set, go and search for a home loan that suits your specific needs and objectives, and enables you to save the most interest.

3. Understanding The Bank’s Loan Packages

There are hundreds of different innovative types of loan packages out in the market. Borrowers are often spoilt for choice because there are too many to choose from. Many borrowers do not do research on the loan packages and at the end of the day take packages that are not suitable for their specific needs and goals, costing them to lose large amounts of money in interest payments to the banks.

4. Pre-Qualifying Your Loan Approval

This is the most common mistake that many home buyers make. Many home buyers thought that they have no problem in getting their loans approved and often time ignorance can lead to losing tens of thousands paid as deposits. I have seen this happen many times.

The right approach is to go to the Bank before buying a property and check your credit standing. The loan officer can help to pre-qualify your loan. At least, when you pay the house deposit, you pay with confidence.

5. How Banks Determine Credit Approval?

Sometimes it will work towards your advantage if you know how the Banks approve a loan. Banks use, Debt to Income Ratio (DTI) to determine whether you qualify for the loan. For example, if your income is RM3,000 and your total debt is RM1,500 your DTI works like this:-

Different Banks use different ratio to determine their credit approval. Normally, banks approve loans with DTI ratio of between 33% to 70%. The recent announcement by Bank Negara on using Nett instead of Gross income when it comes to loan approval will greatly affect the DTI ratio.

Please be mindful that debt also includes your other borrowing such as car loans, credit cards and personal loans.

6. Be a Guarantor for someone else’s Loan

According to Banking Info (by Bank Negara Malaysia), a guarantor will sign a legal contract which binds the guarantor to pay the debt of the borrower if the borrower is unable to service the loan.

 

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