There are so many home loans in the market that borrowers are spoilt for choice. Since buying a property is one of the most expensive purchases that you will ever make, it is essential that you as a borrower are fully aware of your options and what it entails to get a home loan.

A home loan is funds that a buyer borrows usually from a bank or financial institutions to purchase a property. It requires you to pledge your home as security to the lender for your loan repayment and where the lender agrees to hold the title or deed to your property until you have paid back your loan plus interest.

Although a home loan is considered an informal name for mortgage and is used interchangeably with mortgage, there are differences between these two terminologies. A mortgage is not a loan or something which the lender gives you. It is a security collateral or document that you give to the lender to protect the lender’s interest in your property.

When you select a home loan package, you need to consider your financial capabilities, and the loan tenure as it will determine your repayment amount and total interest paid over the life of your loan.

The lender will be looking at scrutinising your personal finances as in how much you earn and how much you owe, among other things, before approving your loan. A good payment track record is vital. Your record can be accessed from the Central Credit Reference Information System by both you and the lending financial institutions.

Besides approaching banks for your home loans, you can also go to insurance companies like ING Insurance Berhad, which offer banking services and fixed rate home loans as well.

In a fixed rate home loan, the interest rate is fixed at a certain rate throughout the loan tenure while a variable rate home loan is one where the interest rate changes on a periodic basis and is pegged against the base landing rate, which moves and down with the market interest rate.

A penalty fee is imposed by some banks. It depends on the type of home loan that you have taken and when you redeem your loan. Financial institutions like ING Insurance, however, do not impose any penalty for early settlement for home loans but do so for refinancing.

You can withdraw from your savings from The Employees’ Provident Fund (EPF) Account 2 to reduce or redeem the balance of your loan or that of your spouse’s that is taken from a financial institution approved by the EPF for the purchase or construction of a house. Visit www.kwsp.gov.my for more details.

This depends on your income and other financial obligations. As a rule of thumb, most house buyers buy houses that cost 1.5 and 2.5 times their annual income. For example, a house buyer earning RM40,000 a year would buy a house between RM60,000 and RM100,000. Furthermore, the monthly loan repayment should not exceed about a third of your gross monthly income. In assessing your repayment capability, the financial institution would also take into account your other debt repayments such as car loan, personal loan and credit cards.

This will depend on the value of your property, your income and your repayment capability. Margin of financing can go as high as 95%, inclusive of Mortgage Reducing Term Assurance (MRTA). The higher the margin, the higher you will have to pay per installment. Also, at a given rate, a shorter tenure will require you to pay higher installment.

It usually takes about one to two weeks for your loan application to be approved from the time you supply full documentation. You should ask the financial institution for the checklist of documents required for the application to avoid any delay.

Under conventional financing, your outstanding loan consists of principal plus the interest charged on you. The interest is actually the financial institution's cost in obtaining the funds. Islamic financing works on the concept of buying and selling where the financial institution buys the property and subsequently sells it to you above the purchase price.

A valuation is required if you are buying a completed property. The financial institution requires a valuation to ascertain whether the property provides sufficient security for the loan given. It also provides an indication that the property is worth what you are paying for.

Yes. You need to appoint a lawyer to draw up your loan documentation. Normally, the financial institution will provide a panel of lawyers who are familiar with their documentation requirements for you to choose from. If you prefer to engage your own lawyer, you should discuss this with your financial institution.

Generally, legal fees are borne by the buyer. However, certain developers and financial institutions may offer to pay the legal fees on the legal documentation as part of their marketing package. In addition, some financial institutions also extend financing for the loan documentation fees.

If this happens, you should contact your financial institution to discuss a reasonable repayment programme, which could include extending the tenure of the loan.

Normally there will be penalty charges for early loan settlement. Depending on the financial institution, penalty charges will range between 2% and 5% of the outstanding amount. The charges that are made will depend on the type of product you have chosen and when you decide to redeem your loan. Note that in some loan packages, there are certain minimum periods you need to observe before full settlement is allowed.

Any waiver of penalty fee is strictly at the discretion of the financial institution.

During the early years of the loan, a significant amount of your repayments will go towards the payment of interest. So if you make partial repayments to repay the principal sum outstanding, you make substantial savings in your interest payments and thus shorten your loan tenure.

This depends on the terms and conditions stated in your loan agreement. By paying in extra money each month or making an extra payment at the end of the year, you can speed up the process of paying off the loan. When you pay extra money, be sure to indicate that the excess payment is to be applied to the principal. However, if you make a lump sum payment or partial repayments to your principal loan, you must give notice to your financial institution. The notice period ranges from one to three months.

This is at the financial institution's discretion and depends on the credit standing of the borrower.

The financial institution's power to impose charges on your account is normally indicated in the Terms and Conditions of the loan.

Generally, the financial institution gives a grace period of seven to 14 days for you to repay your installment payment. Any payment received after the grace period will be subjected to late payment charges.

For houses under construction, the financial institution will release the progressive payment to the developer based on the claim made upon completion of each construction stage as certified by the Architect's Certificate. For completed properties, the loan will be released upon completion of legal documentation or when all relevant approvals, such as the approval of the state government have been obtained.

The financial institution will consider such applications on the merits of each case, under the following circumstances: The co-owners are related as husband and wife, and one party is not working and the other party is solely responsible for the loan The co-owners are related as father/mother and children, the parents are old and not working and the children will be responsible for the loan However, the above is at the financial institution's discretion and they may also consider other circumstances.

Yes. You are still obliged to service your loan based on the loan agreement signed between you and the financial institution. However, since the financial institution has vested interest in the property, you could discuss a repayment plan with your financial institution. You should also report the matter to the Ministry of Housing and Local Government.

When the loan is fully settled, the financial institution through its solicitors, will release its charge on the property. The financial institution (chargor) will uplift his claim on the property and the title to the property will be transferred to you.

The deceased's survivor or next of kin can claim through the court the rights of the deceased's property. The person will have an option to either proceed to service the loan or redeem it. However, most financial institutions make it compulsory to insure MRTA against such an event.

If you fail to make three consecutive payments, the financial institution will take the necessary actions to recall the loan. In the worst case scenario, the financial institution will foreclose the property and sell it to settle the loan. The borrower would still be liable to pay the difference between the auction price and the loan amount outstanding.

Financial institutions offer a wide range of services to make banking easier for you. Some of the alternative ways of servicing a loan include: Open a savings or current account and arrange for standing instructions with minimal charges. If you maintain deposit and loan accounts with the same bank, the charges may be waived. Through an ATM transfer Internet Banking Telephone banking service Deposit your cheque at the deposit machine or send your cheques direct to your financial institution

The main consideration in refinancing would be the costs involved. As you are clearly aware, you have incurred a substantial amount to pay for the necessary fees to obtain your first loan. For example, processing fees, legal fees, stamping and transfer fees. Refinancing means you would have to incur the same charges again. Before you decide to refinance, you should ensure that the savings from the lower interest rate is enough to compensate all the costs incurred associated with refinancing, including penalty charges, if any.