How to make your home loan more affordable

Heavy home loan repayments can take a serious toll on your finances in the long run! But thankfully, there are ways to make your home loan more affordable! With the (re)introduction of the SST, the government is expecting prices of new homes to be lower. So if you are in the market for a new abode, you should start thinking about how you can save some moolah!

Here are seven tips to pay less and save more on home financing:

1. Place a larger deposit

With a bigger deposit i.e. 20% to 30% of the purchase price, you are borrowing less and thereby also paying less in interest costs overall. However, finding a big deposit is no easy feat. So what can you do (apart from saving) to access more cash for less?

Well, those with EPF accounts may withdraw a portion to use as a down payment.

Also, if you have a life insurance policy with a cash value built up; consider the possibility of pulling out the excess for your down payment.

Even a zero-interest loan from your employer or relatives should be considered, if the option is available.

2. Consider the repayment tenure

The repayment period for home loans in Malaysia is between 30 to 35 years or before the loan applicant reaches 65 to 70 years of age.

You can manipulate the repayment schedule to either pay smaller monthly instalments or pay less overall interests. How it works is that if you extend your repayments for longer or the maximum permitted, you can reduce your monthly repayment amount, as you stretch the instalment.

However, this will increase overall interest costs, which rise with longer loan terms. Still, for people who need to keep instalments low and affordable; extending repayments is one way to go about it.

But if you prefer to pay less in interests and can afford a larger monthly instalment, then you should opt for a shorter loan term.

Paying off your loan faster can save you thousands of Ringgit!

3. Negotiate rates

If you aren’t satisfied with the rates offered by your bank, consider negotiating for a better package.

Most people assume that their rates are set in stone, but if there is wiggle room on the advertised rates; do yourself a favour and ask for better ones.

But first, do apply to more than one bank and see what rates are being offered.

Now even if you receive roughly the same rates, be sure to take these offers to your bank of choice and see if they are willing to go lower.

While it may not always work, it is certainly worth a try. Another way to get better rates is to check with your loan officer how you can support your application for a lower rate.

For instance, providing another guarantor, opening an FD account with the bank, opting for a joint loan or even pledging collateral could improve your rates.

Note that even a tiny reduction in your interest rates could trickle into thousands of Ringgit, especially on a 30-year loan.

4. Pay your instalments on time

If you have trouble keeping up with recurring payments, know that being late with housing loan instalments can be costly.

Late payments are subject to penalty fees and moreover, not paying your instalments for a few months could lead to your home being repossessed.

Thus, it’s best to set up a standing instruction for instalments to be deducted every month, so that you don’t have to worry about repayments.However, if it is not forgetfulness but rather money troubles that have been causing you to make late payments or miss them altogether, you’ll need to get proactive.

Call your bank early on and inform them of your difficulties. Ask for an extension or to rejig your repayments.

Banks will likely be more lenient if you give them a heads up about your situation, though this is not always the case.

Alternatively, if you are struggling with overwhelming debt, consider contacting the Credit Counselling and Debt Management Agency to seek help with debt.

5. Pay the insurance or Takaful upfront, if possible

When buying a house with a bank loan, you will be asked to buy insurance or Takaful for protection.

A Mortgage Reducing Term Assurance or Takaful (MRTA/MRTT) or similar product will ensure that your loan is repaid in the unfortunate event of your death.

The coverage also applies in case you suffer a total permanent disability. You will have the option to either pay the insurance premium/Takaful contribution upfront or for it to be included in your loan.

To save more on interests, it is better to pay off the insurance/Takaful in cash, if you have the money.

Putting it into your loan will mean that you are paying interests on the insurance and raking up more costs.

6. Refinance

Know that you can still improve your rates even after you have accepted your loan, with a refinance.

For instance, if you find that another bank is offering lower rates or attractive financing packages, you can opt to refinance your loan. A refinance is essentially taking out a whole new loan to pay off the previous loan.

Ideally, this new loan should offer lower rates and better terms to help you save on interests and enjoy greater flexibility.