Home Loan / Mortgage Loan

To put it simply, a home loan is a loan used to purchase property. Home loans are also commonly referred to as 'mortgages'. In Malaysia, home loans are available from banks, building societies or specialist mortgage lenders such as insurance companies. If you already have an existing home loan and want to change to another product or lender without moving home, it is known as a “refinancing”.

When you take out a home loan in Malaysia, you enter into an agreement with the lender (usually a bank) and promise to repay your loan over an agreed length of time (also known as the “loan tenure”). Interest rates for home loans in Malaysia are usually quoted as a percentage below the Base Lending Rate (BLR). For example, if the current BLR is 6.85%, the interest rate on a “BLR - 2.20%” loan would be 4.65%.

In line with Bank Negara Malaysia (BNM) new reference rate guideline, effective 2 January 2015, Base Rate (BR) will replace the Base Lending Rate (BLR) / Base Financing Rate (BFR) as the reference rate for all NEW home loans / financing applied by individual customers.

The BR is applicable to new home loan / financing applications by individuals received from 2 January 2015 onwards. Existing home loans / financing facilities currently pegged to BLR / BFR will continue as is, until full loan / financing settlement or up to renewal, respectively.

For illustration purpose:

	Before 2 Jan 2015	From 2 Jan 2015
Reference Rate	BLR = 6.85%	BR = 3.67%
Interest Rate	BLR - 2.20%	BR + 1.00%
Effective Lending Rate	4.65%	4.67%
Monthly instalment (RM)	1,804.73	1,808.93

Note: Effective Lending Rate may vary if BLR or BR changes.

In a typical Malaysian home loan, you make monthly payments for an agreed period (i.e. the loan tenure) until you’ve fully repaid both the principal of the loan and the interest. During the early years of the home loan, the majority of your monthly repayments are used to repay interest on the loan, however, as time passes, a larger proportion of your repayments will go into paying down the loan principle. You opt for either a variable or fixed rate; single tier or multi-tier rates for purchasing of residential property.

Because your home loan interest is calculated based on what you owe on your home loan each month, by paying a little bit extra each month, the interest on your loan in subsequent months will be lower.

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