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How much loan should I apply for my new house?

Updated: Mar 6, 2023

Not all home loans are created equal. They all have different advantages. Some may have similar features, but the best ones will meet your specific financial needs. Some common questions are:

  • How much money can I borrow for a house?

  • How much housing loan am I eligible for based on my income?

  • How do I use a home loan calculator?

Buying property can be your largest investment, so choose one that will provide you with the most returns. Here are two questions for you to think about.

What fees and charges should be considered when applying for a home loan?

a) Interest rates

The interest rate determines how much a bank charges you to use its money. It is calculated as a percentage of the total loan amount, which is commonly referred to as the principle.

Naturally, you'll want the lowest possible interest rate — even a small percentage difference can save you thousands of Ringgit when working with a large loan amount. So, take the time to compare various loan packages from various banks and select the one with the best rates. There's also the question of whether you should get a fixed-rate loan or a variable-rate loan.

As the name implies, a fixed interest rate is an interest rate that does not change over the life of your loan. If your annual interest rate is 4.2 percent, that is the rate you will pay for the remainder of the loan term. Variable interest rates, on the other hand, are determined by the Base Lending Rate (BLR), which is set by Bank Negara Malaysia (BNM). For instance, if the current BLR is 6.5 percent per year, the bank may offer you 2.2 percent per year. This means that your mortgage has a 4.3 percent interest rate (6.5 percent - 2.2 percent). So, if the BLR rises, you'll pay more interest, and less if it falls!

Although there is no definitive method for determining which interest rate is preferable, variable interest loans have lower interest rates than fixed interest loans. A fixed interest loan is your best bet if you don't want to deal with interest rate volatility. This is because monthly payments do not vary based on a fixed interest rate, providing home loan services makes long-term financial planning easier.

b) Types of loans

A term loan is a loan with a predetermined payback period. The amount you pay per monthly instalment is fixed for the term of the loan with this type of loan. In most cases, you won't be able to minimise your loan interest by making advance payments on this form of loan. Prepayments for future instalments are recognised as additional payments. You can write to the bank to make a specific request, but it will be granted at the bank's discretion, and there's no assurance it will be fulfilled. If you make extra payments without first consulting with your bank, the funds will remain in your account and you will be unable to withdraw them. It neither earns interest as a deposit nor saves you money on loan interest.

The second type of loan is the semi-flexi loan. Any payments you make in addition to your semi-flexi loan monthly payments will be applied directly to your principal, reducing the amount of interest paid. Unlike traditional loans, there is no need to haggle with the bank. You are free to withdraw any additional funds you have paid, but your bank will charge a processing fee. Before accepting a withdrawal, some banks may require you to fill out a note.

The third type of loan is the flexi loan, where your current account is linked to your home loan account. Monthly payments are deducted automatically from your current account. Excess funds in the current account are used to reduce the loan principal and the outstanding balance. You can also withdraw more money at any time! A monthly current account maintenance fee is charged by the majority of banks.

c) Legal fees and stamp duty

When you take out a home loan in Malaysia, you must account for legal fees and stamp duty charges. Among these fees and charges are: Legal fees for the loan agreement are as follows: 1% for the first RM500,000 of the loan, 0.8 % for the next RM500,000, and 0.5 – 0.7 % for subsequent amounts. The loan agreement is subject to a stamp duty of 0.5 percent of the loan amount. Facilities Agreement (FA) legal disbursement fee is typically a few hundred Ringgit. All legal fees and stamp duties for a typical home loan can add up to a few thousand Ringgit! If this seems a little out of reach, look for housing loan packages where the bank will cover some, or all, of the fees and charges.

What factors go into determining your final loan amount?

a) Gross income

This is the amount a potential home buyer earns before taxes and other debts are deducted. Part-time income, self-employment, social security benefits, disability, alimony and alimony are all included in your base salary and bonus income.

b) The mortgage-to-income ratio

How do you get a home loan if you have a low income? The mortgage-to-income ratio is strongly influenced by gross income. This figure is a percentage of your total annual income that is available each month to pay off your mortgage. PITI is an acronym that stands for Principal, Interest, Tax, and Insurance, and it represents the four components of your monthly mortgage payments (both property insurance and personal mortgage insurance if your mortgage requires it).

The PITI-based front-end percentage should not exceed 28 percent of gross income in general. Many lenders, however, allow borrowers to borrow more than 30%, and some even allow borrowers to borrow more than 40%.

c) Credit score

Mortgage lenders have devised a method for calculating a prospective homebuyer's risk level, called the mortgage loan calculator. The formula differs, although it is usually based on the applicant's credit score. Applicants with a low credit score should expect to pay a higher interest rate on their loan, which is also known as an annual percentage rate (APR). Pay attention to your credit reports if you plan to buy a house soon. It will take time to remove any incorrect entries, and you don't want to miss out on your dream home because of anything that isn't your fault. Different banks and lenders use different types of credit score, but in general, a good credit score ranges between 650 to 750. Having a credit score of between 751 to 850 (the highest score) is considered exceptionally good to most banks and lenders.

If your credit score is not within the above mentioned range, it’s never too late to change your financial habits you boost your credit score. You can start by making your bill payments on time and pay down your debt as soon as you can. If you have a credit card, keep a close watch on your credit card balances and avoid maxing it out as it may hurt your credit score


Purchasing a home is a long-term commitment and potentially one of the largest investments we will make in our lives. As a result, deciding on the best home financing option for your financial capabilities and needs is a major decision. Proper planning and considerations will assist you in making the best decision.

Browse our website right now to ask any Seri Pajam Development agent for advice on loan application and calculation. Own your dream home today.

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