My First Property Part 2: Loan

11:07 PM

<Read Part 1: Purchase>

So I decided to buy an apartment in Shah Alam for RM 170,000 (read here). Where do I get the money? I don't have RM 170,000 in my bank account (I still don't after working 4 years). I am forced to use 'other people's money'...the bank. All my life, I have never heard of BLR, DBR, CCRIS, lock in period, CTOS etc. These were all foreign to me. (I have mentioned a bit regarding CCRIS in my other blog; PTPTN and CCRIS).

I initially thought that ALL banks ONLY provide 90% financing margin ALL the time. But I was wrong. You can (I think not anymore) try and get 95% financing if you have a good credit history. Furthermore if you play around here and there (such as mark up loan) you can theoretically get 100% financing. And then there is the government loan where you can get 100% loan. But a financing margin (how much the bank loans you) of 90% only applies to the FIRST TWO houses you buy, subsequently it is 70% downwards.

But can any Abu, Ali and Ahmad (Tom, Dick and Harry) apply for a housing loan and get it approved? This is where CCRIS comes in; the Central Credit Reference Information System (details here). What is this abomination? Its a reference system a bank uses to screen through all applicants. The banks can know how much you owe other banks and whether you have been a good paymaster or not.

CCRIS




This is how it looks like. It lists down all the loans that you have and the outstanding amount. The columns on the right indicate whether you have missed any payments or not. 0 means good, all other numbers would mean there is something wrong...you have been defaulting too much on your loans. Do remember that these outstanding loan are INCLUSIVE of your credit card debts. You can obtain a copy of your CCRIS at Bank Negara using their computers (like the ones at EPF). Do remember to bring along your MyKAD and a functional thumb for verification.

That's not all, you also need to have a good DBR; Debt - Burden Ratio. The last time I heard, you need a DBR of less than 70% to fulfill the criteria. DBR measures how much your total debt is to your net income. The higher it is, the more you are in danger of going bankrupt.

Example:

Net income: RM 3600 (minus EPF and tax etc.)

Car installment: RM 1000
Personal loan: RM 1000
Other loans: RM 500

DBR = (1000 + 1000 + 500) / 3600
         = 69%

I did not bother with all the above then. Fortunately, my credit history was clean.No problems with the banks at all...or so I thought! I wasn't really sure which bank to go for. Back then, I didn't have anything like iMoney's home loan calculator to compare my loan rates.

iMoney's Home Loan Calculator
Back then, BLR (base lending rate) was 6.6%. But since the middle of this year Bank Negara Malaysia announced an increased Overnight Policy Rate (OPR). Subsequently the BLR at 6.85%. You can read an article about it on iMoney. So, if the bank states that the interest rate is BLR - 2.4%, the effective interest rate is 6.85 - 2.4 = 4.45%. As for the other calculations, just let the banks handle them.

It is important though to remind yourself to NOT SIGN the Sales and Purchase Agreement (SPA) until you get an OFFER LETTER from the bank. A letter offer is a document stating that the bank has agreed in principal to finance your purchase at the agreed rate. It is up to you to sign the document at the stipulated time. If you sign the SPA first and NOT get a bank to finance your purchase, YOU ARE ON YOUR OWN. Cari la duit sendiri sampai botak kepala!

ANALYSIS

I didn't have trouble getting a loan because my credit history was clean. But let's summarize and analyze what I should have improved on.

1. Credit worthiness

If you don't think you can commit to the monthly payments or have a strong holding power, you are NOT READY yet. If there are too many calit in your CCRIS, focus on managing your finances first. DBR can be calculated by yourself. Do include the estimated monthly installments if you commit to the loan you are applying for.

2. Shop around for the best offer

You can try and apply for more than one bank and sign up for the offer with the best rates and also flexibility. A term loan is quite different from a flexi loan. Both has its pros and cons. A low interest rate may not be everything. You need to consider the other services offered as well. Another thing to consider is the lock in period. If you intend to sell it within 3 years, don't sign up for the one with a lock in period. If you decide to sell or refinance the loan, a penalty has to be paid.

3. Read the letter offer and other related documents

The loan agreement is REALLY THICK and there is tonnes to sign. Each page needs initials and it is really taxing on the wrist. Despite your urge to just sign and get things over with, do take extra effort to understand what all those fine prints are. I did NOT know there was a lock in period until time I wanted to sell the property...to late then!

4. Sign the Offer Letter BEFORE the SPA

Sabar....don't be too kalut. VERY IMPORTANT this part.

MOfrust

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