What Is Low Interest Rate Housing Loan?
In order to understand what a low interest rate housing loan is, we have to look at a few things. When a bank in Malaysia decided to give you a housing loan with a low interest rate, then they’ve decided you meet certain criteria. Here’s a short list:
- The bank has taken a good look at your credit history and other important financial aspects concerning you. If they determine you checkout well, then your overall credit profile is low. You’ll be offered a lower rate of interest.
- Your income is high enough in order for the bank to feel like you won’t struggle to make payments in the future. You have a margin of safety, which means things don’t have to be perfect in order for you to continue making payments on a loan.
- You’re purchasing a house that has a lot of value, even if you don’t know it at the moment. The house might be undervalued and as a result the bank is more than willing to not only take the risk, but offer lower interest on the loan.
- In some cases if you have someone else who is going to sign on with a housing loan for you, then this lowers your risk as well. Any bank in Malaysia is going to be more than willing to consider a lower rate of interest with two people on a housing loan versus just one.
A low interest rate housing loan is simply a loan where the rate of interest is fairly low. What does this mean to you as a potential borrower? Well it means that the loan is more affordable overall. You won’t get consumed by the interest rate you’re paying for a loan and you’ll be able to have an easier time paying down the principle.
Why would you want a low interest rate housing loan, doesn’t this mean it’s going to take longer to payoff then if you paid higher interest?
A low interest rate housing loan in Malaysia is beneficial because it comes with a certain degree of risk protection included. Think about it, if you were paying a higher rate of interest and then the value of your home went down what would happen? Now if your initial interest rate is fairly low and the value of the home goes down, then this doesn’t hurt you as much.
What you would want to stay away from were home loan packages that didn’t come with stability. This would be loans where the interest rate wasn’t locked in to a certain degree. A loan that has a fixed rate of interest for example (as long as it’s low) would be beneficial.
A loan that has an adjustable rate of interest could be problematic, unless the goal was to make pre-payments in order to get it down. In this case you’d need to be sure you could do this before agreeing to a loan. What you don’t want is a loan where the interest rate was going to go up significantly and was out of your control.
Also be aware that the length of your housing loan is going to have an impact on the rate of interest you pay. If the loan period if shorter than average (usually less than 30 years), then you should qualify for a lower rate of interest. If it’s longer then this means more risk on the part of the bank. So you’ll end up paying higher interest on a housing loan as a result. Loans that are shorter in period usually work best for people with higher incomes that are stable long term.