In Malaysia, the majority of the first loan that a new graduate commits to is a car loan. According to a 2024 survey, about 73% of Malaysians own a car. Therefore, it concludes that car loan procedures are not foreign to Malaysians. A car loan or a hire purchase is a loan that you take from a financial institution to purchase the car with a tied interest for a certain period of time.

But today’s topic is not about cars since the majority of the people in Malaysia are familiar with owning a car. Let's use that as an example to mirror the home/housing loan for better understanding. Now, Think of getting a home loan like buying a car and getting a car loan since 73% of you are more or less familiar with it.

Types of Home Loan ?

Let's learn the types of home loans as starters

Term Loan (similar to Traditional Car Loan): This is like a regular car loan where you pay the same amount each month for a fixed period (e.g. 20 years for a home loan). You know exactly what you’ll pay each month and when the car (or house) will be fully paid off. Simple and straightforward.

Flexi Loan (similar to Flexible Car Financing): It’s like a flexible loan that lets you pay more when you can (like a bonus payment) or take a break from payments when money is tight. Similar to a home loan that lets you pay extra, or withdraw payments if you need funds (great for people with fluctuating income).

Semi-Flexi Loan (Part-Time Flexible Financing): Imagine a home loan where you can make some changes to your payments, but it’s not as flexible as the Flexi loan. You can add extra payments but can’t withdraw funds.

Next, how much will the bank provide to you? The financial term to this is called the Margin of Financing (MOF). When buying a car, you usually need to pay a down payment. The bank will then cover the rest of the cost through the loan, but the down payment amount depends on your financial situation. Banks will grant the loans based on the percentage of financing. 

80% Margin of Financing: If you’re buying a car for RM50,000, the bank might finance RM40,000 (80%), leaving you to pay RM10,000 (20%) as a down payment. In home loans, this works the same. If the bank offers an 80% margin of financing, it means they will lend you 80% of the house price, and you’ll need to come up with the remaining 20%.

90% Margin of Financing: Some people qualify for a higher margin of financing, like 90%, meaning the bank covers 90% of the cost of your car or home. In this case, you only need a smaller down payment (10%).

Interest Rates?

Similarly with car loans, all loans come with an interest rate. 

How does the financial institution determine the final interest rate to their customers? There is a benchmark determined by the Bank Negara Malaysia, and it's called OPR (Overnight Policy Rate). So to the banks there is a base rate (BR) and it is pegged to the OPR. Base Rate (BR) works as a reference for the bank after determining the bank's cost of funds and profits to come out with a final interest rate to apply to your home loans.

Malaysia offers both fixed-rate and floating-rate loans, with rates ranging between 3-6% per annum, depending on the bank and market conditions for home loans.

Car tenures are lower ranging from 5-9 years. Whereas home Loan tenure typically ranges from 10 to 35 years, with the maximum age limit at 65-70 years upon loan maturity/

A friendly advice is to take your time to compare interest rates and consult multiple banks before committing to a housing loan. Rates vary based on individual eligibility, loan terms, and tenure.

If you're unsure, consider speaking with a mortgage consultant or contact our PropNex real estate agent, as they often are in contact with the banks and have recommendations to help you make the best decision!