Wednesday, June 18, 2014

5 Common HomeLoan Mistakes to Avoid

Taking a home loan? Here are 5 common home loan mistakes that people make especially when they’re applying for it for the very first time. Read on so you can avoid these pitfalls too.

Diving in when you’re not qualified

Banks, by nature, are generally eager to offer home loans to qualified homebuyers. The keyword, though, is “Qualified”. In Malaysia, a qualified home loan applicant generally refers to one with the appropriate Debt Service Ratio (DSR) and has no red marks on the Central Credit Reference Information System (CCRIS) report collated by Bank Negara. If you don’t fit the criteria, they’ll have no problem rejecting your application. So before you apply you’ll want to make sure you’ve done the necessary preparations and are not fighting a lost cause right from the start.
Tips on DSR and CCRIS
  • You can easily check your DSR by dividing your total monthly debt / loan commitment (including the loan you plan to take) against your monthly income. Say the bank has a DSR requirement of 50% and your monthly income is RM10,000; you’re considered a qualified candidate if your total loan / debt commitment is RM5,000 or less.
  • You can make sure your CCRIS is clean simply by servicing all your existing loans, debts and credit card bills on time.

Going straight for the lowest interest rate and nothing else

You’re going to borrow a big sum of money. Obviously, you’ll sign up with whoever that offers you the lowest interest rate. Right? To a certain extent, it is. Your priority should definitely lies with getting the lowest possible interest rate, but you shouldn’t forget about things like margin of financing, lock-in period, and simple stuffs like making sure a branch is within your vicinity.

Applying with just one bank and telling them so

In Malaysia, it has become a general practice for seasoned homebuyers to “shop around” for the best home loan deals before you commit (NOTE: to find out how, read our guest post with renowned Malaysian property guru Jeffery Lam).  Apply with only one bank, and what you’re really doing is giving yourselves no other options even if the terms offered to you are appallingly bad.
The even worse mistake you could be making is telling a loan officer that “they are the only bank you’re applying with”. It’s pretty much the same as giving them the licence to give you the worst possible rate, because they’d know you have no where else to turn to as the 2-or-3-week deadline you’re usually given by the housing developers runs down.

Not factoring in your home loan costs

Home loan involves fees, charges and even home insurances that may come as a surprise for the inexperienced homebuyers. Some banks absorb part of these charges, whilst others may not. Most homebuyers have limited funds (and hence the need to take a loan), so it is imperative that you understand these charges involved before you commit.
To understand the major fees and charges associated with buying a property through a home loan, please refer to our article “Are You Financially Ready to Buy a House in Malaysia” written for The Star Property.

Not reading the terms & conditions

At iMoney, we’ve always emphasised on the need to read all the fine prints for anything that involves money. This goes for your home loan agreement as well. If you don’t have the capacity to do so, make sure you get the loan officer to point out all the things that matter (such as loan amount, interest rate, instalment amount, loan period, margin of finance, lock-in period, early settlement penalty and fees & charges).
The general rule: if it doesn’t appear in your agreement, it doesn’t take effect. Period. So if your home loan shows a lock-in period of 3 years whilst your officer is telling you it’s 1 year, the former wins. All the time.

Good sharing from Very useful tips and guidance, worth a read...

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