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| Step 2. Finding the
“Right” home loan. |
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| Clearly what is “right” is very subjective to the
individual, and factors to take into considerations are your age, your
employment (employed or self employed; salary or commission), whether the
property is for your own occupation or to be rented out, if this is your first
home loan, the length of time you plan to keep the loan/property; your spending
pattern, your short/medium/long term plans for the property and your future
financial needs. |
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| For instance, if you have an irregular income, you may
be better off to select a loan with flexible repayment terms to better manage
your cash flow. |
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| A loan with free prepayment and “re-draw” facilities
will suit people with “spare” cash that they can pay into the loan now to save
interest (most loans today calculate interest on a daily basis) without denying
themselves the right to re-use the sums that was “prepaid”, at a future date. |
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| If buying land with the view of building on that land,
be sure that the Lender you choose is not adverse to providing you with an
additional loan for the construction of the property, and at a suitable margin
for the construction loan.
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| For property investors, be careful not to
select a loan with a long “lock-in” period or high penalties for early
discharge, which may well eat into your profit margin.
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| Common
Mistakes |
| The most common mistake that first home
buyers make is not to anticipate future expenses such as costs associated with
having children and elderly parents to look after. Whilst the monthly repayment
on the loan may be comfortable now, do make allowance for your overall expenses
to go up. |
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| Another grave mistake is not to realize
that your loan repayments may go up. Most if not all loan borrowers fail to ask
themselves if they may still comfortably afford to make the loan repayments
if/when interest rates go up 1%, 2%, 5%? Loans with interest rates pegged to
Base Lending Rate (BLR) are called floating
rate loans which means that as BLR goes up, you will have to pay more towards
the loan. Historically, BLR has gone up beyond 12% per annum. In the past, rate
hikes have coincided with market downturns and increase in cost of living. Be
sure to do your homework here as Lenders will not asses your future financial
needs. |
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| If you find that you cannot afford any
increases in loan repayments, don’t despair as there are Fixed Rate Loans
available in the market usually offered by Islamic Banks and Insurance
Companies. |
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| Also, determine how much you deposit you
can spare taking into consideration all the costs and fees associated with
purchasing a property and taking a housing loan. Once done, decide the margin
of finance you want be it 70%, 80% or 90% of the purchase price. Do not forget
“ Entry Costs” i.e the fee for the Sales & Purchase Agreement, Loan
Agreement Fee, Valuation Fee, Stamp Duties and charges for the Memorandum Of
Transfer.[see
Acquisition Cost Calculator]
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| If you are a bit low on cash, you may
decide to opt for a loan with
Zero Entry Cost (ZEC) where the Lender
pays for all or part of the Loan Documentation Fee (lawyer’s fee),
Disbursement, Stamp Duty, and Valuation Fee. You will note that these loans
attract a higher interest rate. |
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| Insurance
Coverage |
| Finally determine if you wish to have Life
Insurance Coverage/Mortgage Reducing Term Assurance (
MRTA) to cover the loan redemption in the
event of untimely death of the borrower. This is especially important if the
servicing of the loan depends on the joint incomes of all borrowers. Note that
not all loan providers make MRTA compulsory although some do offer better rates
if the borrower is insured. |
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| A number of Lenders offer loans up to 95%
margin on the understanding that the sum equivalent to 5% of the purchase price
is utilized to purchase life cover. |
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| Read
on: |
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Making The Application |
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