In general, a lot of work goes into buying a house. An experienced and competent mortgage broker will be able to take you through the lengthy and confusing paperwork, while finding the right home loan with the best terms and rate.
A mortgage broker is a middleman who is paid a commission to find the right match between borrower and lender (banks). However, many people, especially first-time homebuyers are only vaguely aware of what they really do. Worse, they are often mistaken for loan lenders or BFFs you can call on anytime.
Here are a few things that your mortgage broker wish you knew (and should stop harassing them about).
Mortgage brokers do not work for a bank and cannot approve your loan.
For those unacquainted with the trade, the primary role of a mortgage broker is to advise you on the best loan, get your hefty paperwork together, and ensure that they meet the loan programmes guidelines and conditions that are offered by the banks.
It is the bank’s loan officer who will ultimately decide whether or not you qualify for the loan. So, if you have been rejected the bank, it’s really not your broker’s fault.
For many brokers who work on a 100% commission basis, time is money, and it is certainly not very cost-effective to work with people who are not serious about buying a place in the immediate future.
To avoid going on a wild goose chase, many brokers will ask you upfront for the property price and your income to ensure that you are eligible for a loan of that size.
Qualified clients who can put down and understand a healthy debt-to-income ratio will obviously make the top of their list.
If it doesn’t look like you’re serious, they won’t be too motivated to do much for you either.
Depending on their lending policy, banks may finance anything between 80% and 90% of the value of the property you want to buy as long as your income and other factors meet their criteria for loan eligibility. This means that a buyer will have to fund at least 10% by cash.
The problem typically arises with transactions involving sub-sale properties, when a disparity occurs between the seller’s asking price and the actual market value of the property. For example, the selling price of a house might be set at RM600,000, but the actual market value of the house could hover at just above RM500,000.
When this occurs, the buyer will have to fork out significantly more for the down payment, and a mortgage broker cannot help to increase the amount of financing a buyer can get.
Some of the benefits from refinancing your property include lower monthly payments, debt consolidation and the ability to utilise the existing equity in your home.
Many people who are refinancing expect to get their cash in a week or two. In reality, the back-end and legal work that entails the refinancing process could take up to four months.
The duration it takes the bank to disburse the cash will depend on several factors, including the type of loan, the day of the week the loan closes, and whether the borrower refinanced with the lender who approved the original mortgage.
At the end of the day, perhaps the most important thing that borrowers should know about mortgage brokers is that they can only do so much for you. If you walk in with a rock-bottom credit rating and a trail of unpaid bills, no broker will be able to convince the banks to give you a good mortgage rate reserved for a low-risk client.
This article is contributed by iMoney.my, Malaysia's leading financial comparison website.
1Malaysia People’s Housing (PR1MA)
What does it do?
• To plan, develop, construct and maintain high-quality housing with lifestyle concepts for middle-income households in major urban centres throughout Malaysia.
• Households with a monthly income between RM2,500 and RM10,000.
• Between RM150,000 to RM400,000
First Home Deposit Scheme
This scheme aims to help affordable home buyers with their down-payments on their first house purchase. If households have their down-payment covered for, it will be easier for them to obtain a bank loan.
Private Affordable Ownership Housing Scheme (MyHome)
What does it do?
• Provides a subsidy of up to RM30,000 per low-cost house
• For first-time buyers with a monthly household income of RM3,000
Program Perumahan Rakyat (PPR) Homes
PPR allows purchase of new low cost houses, limited to low-income earners of RM2,500 per month and below. Under this scheme, a 650 sq. ft. home is priced at RM35, 000 per unit.
Rent-to-Own (RTO) scheme for PR1MA homes
A deferred home ownership scheme especially for successfully balloted applicants of PR1MA homes whose loans were rejected by PR1MA’s panel banks.
Under the RTO scheme, you are eligible to rent the PR1MA home for up to 10 years before deciding to buy it at the end of the fifth or tenth year at a pre-determined price.
Households can choose between: PR1MA Basic RTO or PR1MA Zero RTO.
PR1MA Basic RTO
Monthly payments: Rental + Buyer’s Savings Account (BSA)
• Payment of your monthly rent includes a savings amount. The savings is accumulated towards payment of your house value. If you decide to exit the scheme without purchasing the house, the savings amount will be refunded after deduction of charges owed to PR1MA.
PR1MA Zero RTO
Monthly payment: Rental
• Payment is only for your monthly rent. Rental rates under Zero RTO will be less than that of Basic RTO.
Youth Housing Scheme (YHS)
What is it?
• A first-time home ownership scheme
• Married youth aged between 25 and 40 years with household income not exceeding RM 10,000 per month.
• BSN will provide loan up to RM500,000 with a financing tenure up to 35 years or up to age 65, whichever is earlier to the eligible borrower.
• Limited to the first 20,000 buyers only
• 50% of stamp duty exemption on the instrument of transfer and loan agreements
• Financial aid of RM200 per month will be given for a period of two years from the date of first disbursement to the developer to aid with loan repayment
HDB Loan Eligibility
Flat buyers who would like to obtain an HDB loan to buy a new flat must have a valid HLE letter before purchasing their flat.
The HLE letter considers the buyer’s age, income, and other financial commitments to calculate the maximum loan amount eligible and expected monthly instalments to ensure they are not financially overstretched.
Home Protection Scheme (HPS)
HPS helps to ensure that dependants of the flat owners would not lose their homes if they are unable to finance their loan in the event of death or permanent incapacity of the sole breadwinner.
Choose to buy a new or a sub-sale flat.
Eligible sub-sale flat buyers can utilise their CPF Housing Grant to make the initial payment or to reduce the mortgage loan.
These housing grants ease the financial burden of low and middle-income households to afford their first flat.
• CPF Housing Grants
• Additional CPF Housing Grant (AHG)
• Special CPF Housing Grant (SHG)
Couples with children
Several schemes are in place for married couples with children, or couples who are expecting children to buy their first flat.
• Parenthood Priority Scheme (PPS)
Under the PPS, a percentage of the flats under the Build-To-Order (BTO) and the Sale of Balance Flats (SBF) exercises are set aside for first-time buyer families with at least one child who is a Singapore Citizen (SC) under 16 years old. This scheme applies to divorced parent and widowed parent.
• While waiting for their new flats to be completed, they could get temporary housing under the Parenthood Provisional Housing Scheme (PPHS). The scheme benefits married couples, engaged couples, divorced parent and widowed parent.
Couples with married children
Under the Married Child Priority Scheme (MCPS), up to 30% of the flats have been set aside for MCPS first-timer families and up to 15% for second-timer families.
Within the MCPS quota, first priority is given to two groups of applicants, namely:
• Parents and married children who apply for a flat to live together under one roof
• Parents who own a flat in a mature estate and apply for a BTO flat in a non-mature estate to live near their married child
• Second-timers can now buy a new 2- or 3-room BTO flat in non-mature estates. The BTO flat distribution quota for second-timers has been doubled to 30%. Of the 30% quota, 5% has been set aside for second-timers who are divorced or widowed with children below 16 under the Assistance Scheme for Second-Timers.
Step-Up CPF Housing Grant
Help families in non-mature estates upgrade from subsidised 2-room flats to 3-room standard flats. Each party in a divorce could apply for a subsidised flat within three years from the date of divorce.
Under the Multi-Generation Priority Scheme (MGPS), priority allocation is given to parents and their married children who submit a joint application to buy 3-generation (3Gen)’ flats.
Parents can apply for a Studio Apartment or a 2-/ 3-room flat while the married child can apply for a 2-room or bigger flat.
Under the Single Singapore Citizen (SSC) Scheme or the Joint Singles Scheme (JSS), eligible singles can buy a new or a sub-sale flat from the open market.
Up to 30% of the 2-room BTO flats offered in non-mature estates are allocated to singles.
Like other flat buyers, eligible singles can enjoy CPF Housing Grants when buying a BTO or resale flat.
For senior citizens who would like to age in a familiar environment, there’s a quota-based Studio Apartment Priority Scheme (SAPS).
Studio Apartments were launched to provide another housing option for those aged 55 and above. These apartments, equipped with elderly-friendly and other safety features, are customised for independent and elderly living.
The National Partnership Agreement on homelessness provides A$1.1 billion to help fund new social housing dwellings and specialist homelessness projects across the country.
The Agreement includes a specially targeted initiative which will create more than 600 new dwellings across Australia for homeless families and individuals.
Low income families
A$5.6 billion is provided to provide accommodation for people who are homeless or at risk of homelessness.
The Agreement is funding around 20,000 additional public and community housing to meet priority social housing needs.
Also, there have been repairs to existing public housing stock (around 80,000 units have undergone repairs and maintenance).
The National Partnership Agreement on Social Housing provided A$400 million of Commonwealth funding to build almost 2,000 social housing.
Remote indigenous communities
Over A$5 billion was allocated to build up to 4,200 new homes and upgrades to around 4,800 existing homes.
This will assist in reducing homelessness and overcrowding and will improve poor housing conditions.
Affordable rental housing
The A$4.5 billion National Rental Affordability Scheme (NRAS) is committed to stimulating the construction of 50,000 high quality homes and apartments, providing affordable private rental properties for Australians and their families.
The Scheme aims to address the shortage of affordable rental housing by offering financial incentives to the business sector and community organisations to build and rent dwellings to low and moderate income households at a rate that is at least 20% below the prevailing market rates.
The National Housing Supply Council monitors housing demand, supply and affordability.
Commonwealth, State and Territory land audits, to identify surplus land that could be developed to provide additional housing.
COAG endorsed a housing supply and affordability reform agenda to build on current initiatives and provide new reform options to decrease the time it takes to bring housing to the market, and to reform government policies that artificially stimulate demand or act as barriers to supply.
Home Ownership Scheme (HOS)
HOS estates are subsidised-sale public housing estates for low-income residents, usually built adjacent to or within Public Rental Housing and nearly identical in construction.
They are earmarked for sale to low-income qualifiers at prices which are heavily discounted from market value, and the land value is similarly subsidised.
The mortgage and resale of these units in the second-hand market are likewise restricted to eligible low-income residents. Some blocks are restricted for rental only while some are earmarked for sale.
Tenants Purchase Scheme (TPS)
TPS allows existing tenants in the rented public housing estates to purchase their flats. Similar to the HOS, the sale prices are set much lower than the market prices of private flats due to subsidies and restriction on selling.
Flat-for-Sale Scheme is a housing development scheme where flats under the scheme are for sale at concessionary price.
Sandwich Class Housing Scheme (SCHS)
SCHS estates were built for sale to lower-middle and middle-income residents, known as the sandwich class, who did not qualify for low-income public housing under HOS but still had trouble affording private housing.
The quality and market positioning of Sandwich Class Housing were significantly higher than public housing estates and comparable to some middle-class private developments.
These units were sold at slightly below market value and comes with a five-year resale restriction.
Interim Housing (IH)
IH is temporary public rental housing for those who are awaiting placement into public housing estates or are not immediately eligible for flats in public housing estates.
IH accommodates residents who have been displaced by disaster, fire, redevelopment or other reasons.
Some of the housing reuse old blocks in public housing estates while others use pre-fabricated building components.
Written by Fiona Ho
Buying a home is the biggest single financial commitment that most of us will ever make. In Malaysia, it will take the average homeowner up to 35 years to fully repay their mortgage.
Providing a roof over the heads of our loved ones is one of the most basic things we can do to protect and support them. However, if something bad does happen to you (touch wood!) and results in your inability to settle the mortgage in full, a home can end up being a financial burden for your nearest and dearest.
This is where Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA) come in.
Both MRTA and MLTA serve as a form of protection for borrowers by helping them settle their outstanding mortgage should something unfortunate occur. Simply put, it is insurance for your mortgage.
MRTA is often seen as a more convenient option, as it is typically packaged as an option together with your home loan.
Meanwhile, MLTA is closer to nature to traditional life insurance policies and must be taken up separately with third party insurance providers. Premiums are higher than MRTAs, and are paid on a monthly, quarterly, half-yearly, or yearly basis.
Given the nature of these products, it is only appropriate that bankers will promote MRTA while insurance agents advocate MLTA. No prizes for guessing who gets commission for which product.
Despite these distinct differences, there are still a number of misconceptions surrounding these two products. Here are 6 myths about MRTA and MLTA that aren’t true at all.
Despite this popular notion and your banker’s insistence, MRTA is not compulsory. Bank Negara does not state this.
However, home buyers are strongly encouraged to have some form of protection for financial planning. Most banks also tend to offer a better loan package if you purchase a MRTA with them.
At the end of the day, mortgage insurance is simply bought as a coverage so that if anything bad happens (and you can never see them coming), you and your loved ones will not be burdened with mortgage payments.
Can MRTA be transferred? The answer is actually yes – you can transfer your MRTA to the next property that you buy. But this can quickly get tricky.
For example, you purchase MRTA for Property A, worth RM500,000. You pay a one-time premium of RM11,500 for the MRTA. Five years later, your coverage reduces to RM400,000 (your MRTA coverage reduces over time, hence the term “reducing term”).
Later on, you decide to move into a smaller property unit – let’s call it Property B and it is valued at RM350,000. If you choose to sell Property A, you have the option of transferring your existing MRTA to Property B, since the remaining MRTA coverage is about RM400,000, and is hence sufficient to cover Property B.
However, if you choose to buy a higher valued Property C, which will cost RM600,000 – your existing MRTA coverage will not be sufficient to cover for the risks. In this case, you have the option of topping up for the remaining RM200,000 coverage (unless you like to live dangerously).
In some cases, it might make more financial sense to purchase a new policy rather than topping up an existing one. Transferring MRTA from one bank to another is also complicated. Terms and conditions also vary from bank to bank. Check with your local bankers to find out which option is best for your situation.
Most MLTA is term assurance. However, there are cases where MLTA come with whole life plans or investment-linked insurance plans.
It still fulfils the main purpose of covering your mortgage in the event of death or TPD, but you pay a higher premium for it due to the longer protection duration.
It is best that you first consider the protection you require and plan accordingly. For instance, if you are planning to pay off your mortgage within a few years, then an MRTA or MLTA may not be at the top of your priority list. However, if you are planning to service it for the next 30 to 35 years, it will be best if you are protected.
Basic MRTA and MLTA plans do not cover critical illness. However, most MLTA do come with the option of including a medical rider for critical illnesses. MRTA does not.
In a gist, MRTA would be more suitable for those who already have adequate medical insurance, and do not have many (or any) financial dependents. This type of insurance will take care solely of your home loan if it is not fully repaid in the event of TPD or death. In an MRTA plan, the beneficiary is the bank and your family members will not get a single cent should the worst happen, but they will get the property.
Meanwhile, if you have more than one financial dependents and require extra protection, then you might want to consider MLTA, as it also has a cash value at the end of the policy.
Statistically, most people will go through a critical disease at one point of their lives. The National Cancer Society of Malaysia estimates that one in four Malaysians will develop cancer by the age of 75.
When you think about it, purchasing a home is a commitment that spans at least three decades for most, so you need to consider all these risks and really put some serious thought into getting a sufficient coverage plan.
The conception that MLTA offers “free” protection is derived from the MLTA proponent that offers a guaranteed cash value back at the end of the tenure. But do keep in mind that the guaranteed portion will differ from policy to policy.
Also, before you jump to purchase a MLTA plan, do consider that it will cost roughly 10x more than MRTA. Also look at factors like inflation, which could eat into your cash value over the long term. To counteract this, some MLTA plans incorporate an investment portion to it.
Meanwhile, with MRTA, the cash value basically goes down to zero at the end of the loan tenure. However, if the mortgage is settled early, the MRTA can be surrendered for cash value.
This is true only if your MRTA covers the full home loan amount and the full loan tenure.
When home loans were still based on the Base Lending Rate (BLR), MRTA was not really affected because historically the BLR did not fluctuate much. However, the new base rate (BR) was designed to allow individual banks to adjust their rates, hence more fluctuations are expected.
Generally, fluctuations in base rate (BR) will only affect your MRTA if your coverage is below your loan amount. If you purchase coverage for the full loan amount, your MRTA is not likely to be affected because the interest rate used to calculate MRTA is usually higher than your home loan interest rate.
However, if you are a property investor, or are already sufficiently protected via life and medical insurance, you will most probably opt for a shorter or lower coverage amount for MRTA, if you decide to buy any. If that is the case, your MRTA will most like be affected by fluctuations in the base rate.
So, should you get a MRTA or MLTA for your mortgage? Well, as clichéd as this sounds, this depends on a number of factors that include your financial objectives (whether you are buying a property for investment or for your own accommodation), overall insurance protection, number of financial dependents, and of course, your budget.
Either way, it is best that you get some form of coverage to safeguard your mortgage because you never know when you might just need it.
Looking to set some cash aside for your down payment? You can save money while you spend by using a credit card that complements your lifestyle.
This article is contributed by iMoney.my, Malaysia's leading financial comparison website.