When you buy a home, chances are you will need some financial help to secure your desired residential property. So, here is what you need to know.
Making a property purchase has several layers – one of which are home loans. When you buy a home, chances are you will need some financial help to secure your desired residential property. This is where home loans enter the picture as banks can lend you the money, which you will then repay back over a period of time.
It might sound pretty straightforward, but the bank has certain terms you must understand before you enter this financial partnership. So, here is what you need to know.
There are three main types of home loans, each with their own conditions – term, semi-flexi and flexi loans. Term loans are fixed, which means you will have a set instalment amount that you strictly follow every month.
Semi-flexi loans allows you to make your instalment payments in advanced to lower the interest rates. However, this is subject to the bank's terms and conditions. Meanwhile, flexi loans are linked to a current account and are automatically deducted on a monthly basis. Borrowers can deposit or withdraw additional amounts above the instalment value without bank approval.
Additionally, you can co-own a home with your spouse or a family member where the bank will lump your financial standing together. This can increase your chances in securing a home loan home above your individual borrowing limit.
As with every loan, interest rates come to play because essentially, the bank needs to make money to lend you money. These interest rates are charged on the principal amount and are taken into account when deciding the monthly repayment sum for the loan. There are two types of interests rates:
Islamic home financing options are not interest-based. The Bai' Bithaman Ajil (BBA) uses a buy-and-sell concept where the bank purchases the property first based on the current market price, and then sells it to the buyer at a marked up price. The agreement is then based on the agreed price and no interest is imposed on the instalment.
Another alternative is Musharakah Mutanaqisah (MM), which is when the customer and the bank buy, as well as own the home together. The bank will then lease its share of the property to the customer. The customer has to pay rental to the bank and part of the sum is used to purchase the bank's share of the property.