Different Types of Interest Rates: A Guide for Malaysia's First Time Home Buyers

For home buyers, one very important consideration you would need to know about is the type of interest you would be paying on your mortgage or home loan.  Most first-time buyers in Malaysia usually rely on housing loans to buy property. In essence, this means that the bank that grants you a loan that will be paying for the house and you, in turn, would be paying the bank back on an instalment basis – with interest. Home loans usually take many years to pay back so you would want to get the best interest rate on your Malaysia housing loans.

The interest you pay would depend on your home loan, which could either be:

• A traditional term loan; or
• A flexible home loan (flexi-loan)

Loan officers would often say that “all loan rates are the same” – and let me warn you now, never fall for it! The slightest difference in interest rate percentage could spell ten thousands of ringgit in savings for you in the long term. There are two primary types of interest rates that banks may charge on your housing loan:

Fixed interest rate

Fixed interest rates are fixed throughout the duration of the loan tenure. In Malaysia, most home loans are calculated based on a base lending rate (BLR) as regulated by Bank Negara Malaysia.

As you may already know, interest rates have a way of fluctuating because it is hinged upon various economic factors. A fixed monthly interest stays the same regardless of whether interest rates go up or down. This type of interest makes it easier for buyers to manage their home loan payments.

Variable interest rate

Now if your home loan is payable on a floating or variable interest rate, the amount of your payments would depend on the BLR at the time of payments. In a nutshell, the higher the interest rates the higher the amount you pay. You could see why some people would opt for this type of home loan. It can bring savings on your payments when the benchmark rates go down. However, it comes with certain risks so unless you are pretty knowledgeable about the market, you might want study this option further before making a decision.

Daily rest vs monthly rest computation

Generally, the agreed interest rate would be paid on top of the total loan amount on your first payment. And then, the agreed rate would be paid on the outstanding balance on your loan the next month and for every month following. The idea is that the amount would be less and less everytime you make a repayment.

For this reason, you might want to also check whether your housing loan interest is calculated on a “daily rest” or “monthly rest” basis. Daily rest calculation will more often than not be a better option than the monthly rest calculation as it allows you to save up to interest charges if for instance, you pay a large instalment in the middle of the month or anytime before your loan payment is due.

Get the best home loan interest rates

So you think you are finally ready to apply for a housing loan and buy your very own home? Are you getting overwhelmed because this is, after all, the first time  you would be making such a huge investment on real estate. It is normal to feel a little worried because a decision like this will have a lasting impact in your life. Still, this is definitely an exciting time for you so don’t let fear take over, and instead, equip yourself with information about the market and be empowered to make the right decision for your future.

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This article is exclusively written for WikiSabah.Blogspot.com by CompareHero.my. The Malaysia’s  leading comparison portal for housing loans which helps consumers in making informed choices and getting