Currently, the country’s national household debt to gross domestic product (GDP) ratio in 2015 stood at 89.1%, and 56.2% of the debt is due to purchase of residential and nonresidential real estate.
By allowing developers to issue loans for residential properties at a much higher interest rate may drive household indebtedness even higher. As a knock-on effect, nonperforming loans in the country will grow in tandem.
Now, there are many reasons why a property buyer does not get approval for housing loan, such as bad credit health, high debt-to-service ratio, insufficient income, to name a few. However, if your home loan is rejected and you are thinking of getting a loan from the developers, you are looking an extremely high monthly repayment due to the higher interest rate and also shorter tenure.
*Assuming the mortgage interest rate remains the same throughout the 35-year tenure.
Mortgages work on a reducing interest mechanism where you will continuously pay off your principal to reduce your interest payments as you progress. It’s likely that these loans from money lenders will work on a flat rate basis. That is, your interest is calculated up front and spread across the tenure resulting in a MUCH higher repayment. One that you can’t do anything about – unlike flexi payment options provided by banks where you can reduce your principal further.
However, the scheme can also be used to cover the shortfall, for those who failed to secure maximum margin of finance, which is 90% of the property purchase price. Here’s how it works:
This is a huge amount. The amount you will be paying every month takes up about 52.98% of your income, if your takehome pay is RM7,000.
In the event that you are a property investor and you are on to your third property, and as such will not be eligible for 90% loan from a commercial bank anymore. Getting the top-up loan from the developers may not be your best idea.
Here’s how much you can probably save if you opt for a personal loan instead:
However, it is important to note that by getting a personal loan, your loan will be listed in your CCRIS report, which will affect your overall debt-to-service ratio when you apply for another credit facilities in the future.