Read here to understand what is a home mortgage and other frequently asked questions about taking out a loan for a house.

Getting a mortgage might be the first step for those who are planning to buy a home but haven’t saved enough personal cash to make a downpayment. If you are new to property buying, we break down the basics of what you need to know when taking out a home loan—what is a home mortgage, its elements, and how to secure your first home loan.

What is a home mortgage?

A home mortgage is a type of loan taken from a bank or any financial institution to buy or finance a residential property—whether it’s for a primary residence or an investment property. As the borrower, you agree to pay the lender in a series of regular payments (known as “amortization”) over a specific period. 

How do you pay your home mortgage?

The mortgage payment is divided into two: principal and interest. 

Principal refers to the amount that you borrowed from a lender to buy a property. For example, if you borrowed RM 500,000 to finance a home, the principal you owe is RM 500,000.

The interest (a.k.a interest rate) is the percentage that the lender charges you to borrow the principal. It is simply the fee you pay for borrowing money. Your monthly interest payment is usually calculated by multiplying your remaining loan balance by your monthly interest rate.

Interest payment = Total amount of the principal loan including interest/fees ✖ interest rate

The cost of your mortgage will depend on the type of loan you apply for, the mortgage term, and the interest rate.

How long do you have to pay a home mortgage?

Your mortgage term is the length of time (usually in years) that your mortgage agreement is legally in effect. To fully own your home, you need to abide by the mortgage conditions and pay your mortgage (both principal and interest) within the agreed mortgage term. 

Mortgage terms can be as short as 5 years or as long as 40 years. The most common types of mortgages are fixed-rate mortgages with 30- or 15-year terms.

What are the types of home mortgages?

Mortgage types may vary between countries. In Malaysia, for example, there are three common types of home loans: basic loan term, semi-flexi loan, and full-flexi loan.

The basic loan term is the simplest type of home loan among the three. It has a fixed repayment schedule, where the lender pays a fixed monthly loan installment throughout the mortgage term. For example, if your monthly loan installment is RM 1,500 for a 30-year mortgage term, you will pay the same amount per month over the next 30 years. A downside of this type of loan is that it’s not flexible and you cannot reduce the outstanding balance by making advance payments.

The semi-flexible loan is the most popular type of loan in Malaysia. This is a kind of mortgage that allows you to make advance payments, giving the lender more flexibility compared to the basic term loan. While it still has a fixed repayment schedule throughout the mortgage term, making advance payments on your home loan can reduce your interest rate as the principal amount is decreased. This will eventually save you money over time. However, semi-flexi loans can have higher interest rates compared to the basic loan term.

A full-flexi loan is an enhanced semi-flexi loan that allows you to make advance payments without extra charges and other fees. With full-flexi loans, you will need a linked current account where your installment payment will be automatically deducted every month. A great benefit of this kind of loan is that you can deposit additional funds in advance, thereby reducing your interest rates or profit charges over time. However, full-flexi loans may have higher interest rates and may not be available in most banks.

What are the basic mortgage loan requirements?

Mortgage loan requirements may vary by bank. In most lending companies, the basic loan requirements include a debt-service ratio (DSR), credit score, and collateral.

The debt-service ratio refers to your ability to repay the loan. Your DSR is often based on your income and is used by banks to determine how much money you can borrow.

A credit score is an appraisal that predicts how likely you are able to pay back a loan on time. Your lender may look into your payment history, credit mix, loan amounts owed, length of credit history, and legal track record to determine your credit score. The higher your credit score, the better your chances are of getting a favorable loan.

Collateral is an asset you pledge as security for repayment of a loan. The collateral can be forfeited by your lender if you fail to repay the loan within the agreed terms. In the case of a home mortgage, the house you buy usually becomes the collateral.

How can you get a home mortgage?

The process of applying for a mortgage may vary by country and lending company. Here are some of the steps you can take before applying for a home loan:

  1. Prepare your financial paperwork, such as a property booking form, identification documents, salary slips, bank and credit statements, income tax receipt/tax form
  2. Select which mortgage type is right for you
  3. Research and compare mortgage lenders that can give you the best mortgage terms and low-interest rates
  4. Find out the basic mortgage loan requirements
  5. Fill out a mortgage application

Bottom Line

Applying for a home mortgage can be tedious and overwhelming, especially for first-time homebuyers. Even after your mortgage loan is approved, this is just the beginning of your entire homebuying journey. To make this process more manageable, it’s important to understand basic homebuying and mortgage terms. You can also consult a financial adviser or a real estate professional to help you secure a home mortgage that suits your financial goals.

Are you looking for your dream home? Check out Ziba Property.

About Ziba Property

Ziba Property is a global property management app that connects property buyers and tenants to real estate agents, property owners, and property managers in one easy-to-use platform. Whether you’re looking for your future residence or an investment property, you can search for homes for sale or rent in your dream neighborhood. 

Aside from searching homes and units near you, the app also allows you to search nearby shops, establishments, and other lifestyle amenities in your community.
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