Chapter 6
Know Your Terms
- Appraisal
- During your home loan application process in Malaysia, you will need to get a property appraisal to determine the market value of the property. Banks will approve a loan based on the appraisal value of the property they want to buy.
- Base Rate (BR)
- Base Rate is the main reference rate for new retail floating rate loans, banks in Malaysia can determine their interest rate based on a formula set by the central bank. Base Rate replaced Base Lending Rate (BLR) in 2015.
- Central Credit Reference Information System
- (CCRIS) – In Malaysia, Bank Negara Malaysia (BNM) maintains CCRIS, a computerised database of credit reports which contains credit scores. CCRIS receives credit updates from various financial institutions and generates individual credit reports, which are made available to financial institutions, individuals and even companies upon request. Find out how this can affect your loan application.
- Debt Service Ratio (DSR)
- DSR is calculated, as per all your monthly debt repayment obligations divided by your monthly take-home income. Bank Negara recommends that Malaysians do not exceed a Debt Service Ratio (DSR) of 60% (but some banks may allow up to 70%).
- Exit penalty
- A penalty of 2% to 5% of the original loan amount incurred for full settlement of the home loan within the lock-in period.
- Guarantor
- A party who agrees to be responsible for the payment of a borrower’s debts should that borrower default/fail to repay their loan. Guarantors are legally obligated to bear the debt of the borrower in the event he or she defaults on the loan.
Homeowner insurance- A form of property insurance that reimburses the policy holder in the event of damage to the home and its contents. Homeowners insurance also provides liability coverage against accidents that happen in and around the insured home or on the property.
- Individual/Strata title
- An individual title is given to land holders of landed property, such as terrace houses, bungalows and semi-detached houses. However, landed property with shared facilities such as condominiums, flats, apartments and townhouses are usually initially held under a master title, before strata titles are drawn up and distributed to its owners
- Loan principal
- The home loan principal refers to the amount you actually borrow, not taking into account the interest. At the beginning of your loan repayment, interest accounts for a higher percentage of your monthly repayment. As the loan repayment progresses you pay less interest and more goes toward the principle.
- Loan tenure
- This means “period” or “number of years” it will take to repay your home loan in full.
- Lock-in period
- A period of time usually between three to five years in which an exit penalty will be imposed on the borrower for full settlement of the loan. Find out why you should pay attention to lock-in period.
- Margin of finance
- The margin of finance refers to the loan amount borrowed based on a percentage of the property’s value. For example, the typical margin of finance approved by banks is 90%, thus requiring borrowers to first pay a down payment of at least 10% of the property’s value.
Refinancing- Home loan refinancing is the act of taking up a new home loan offering better terms to fully pay off an existing home loan. This is usually done when the value of the home has appreciated, and after the lock-in and RPGT periods have ended.
- Stamp duty
- Stamp duty is a tax on loan documentations that requires a stamp to be purchased and attached to the documents. Stamp duty must be paid before the documents are legalised.
- Sinking fund
- To be used for major replacements of parts of common property. The fund should not be confused with service charges meant for the general maintenance and management of the common property and for the other services the developer has agreed to provide.
