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What income level is necessary to comfortably manage a housing loan?


Understanding the aspirations of Malaysians towards property ownership amidst economic challenges is crucial. Despite reports indicating a slowdown in property price growth due to economic downturns and market saturation, many millennials harbor concerns about their ability to purchase a home today.

To assist individuals in assessing their affordability based on income levels, a comprehensive table has been devised. This table outlines property prices, potential loan amounts (up to 90% of the property value), and estimated monthly installments to service the loan, all categorized by varying monthly earnings.

It is important to note that these calculations assume an absence of existing commitments such as credit card debts, personal loans, or other forms of credit facilities, which may influence one's debt-service ratio (DSR). The DSR, a crucial factor in mortgage loan applications, should ideally remain below 50% after considering existing debts. Therefore, it is advisable to calculate net income (after deducting total debts) to determine the likelihood of a successful mortgage application.

By providing this information, individuals can make informed decisions regarding their property ownership goals, taking into account their financial capabilities and the prevailing economic conditions.


Property Prices Versus Income Level

Analyzing the table reveals a crucial guideline: monthly installments for each income category around 33-35% of total income. This prudent measure ensures individuals have ample disposable income to address other financial needs such as savings, investments, car loans, and retirement planning.

Considering the prevailing market interest rates of 4.0% to 4.7% per annum for standard mortgage loans, acquiring a 90% loan for an RM400,000 house would necessitate monthly payments of at least RM1,718 over a 30-year period.

However, despite the universal aspiration for homeownership, the reality is stark. Lifestyle inflation and sluggish salary increments impede the realization of this dream. Approximately one in two employed graduates in Malaysia earns less than RM2,000 monthly, with youth unemployment soaring to 11%, three times higher than the global average.

Acknowledging these challenges, Bank Negara's 2016 Annual Report sheds light on the practicalities of homeownership in Malaysia. It indicates that individuals earning RM3,000 monthly could feasibly finance a home priced up to RM176,000; those earning RM5,000, up to RM283,000; and those earning RM10,000, up to RM515,000.

Unfortunately, the report underscores a stark reality: only 35% of newly offered homes are genuinely affordable, with the majority exceeding the RM500,000 mark. This underscores the pressing need for comprehensive strategies to address housing affordability issues in Malaysia.


How Much Do You Need For Down Payment?

For first-time homebuyers, preparing for the purchase entails more than just covering the down payment, as outlined in the provided details. Alongside the sale purchase agreement, loan agreement, and stamp duty costs, there are additional expenses to consider:

1. Mortgage Reducing Term Insurance: Allocating a budget of at least RM1,000 or more towards mortgage reducing term insurance is advisable. This insurance serves as a protective measure, ensuring that in unforeseen circumstances, the outstanding loan amount decreases over time.

2. Renovation Costs: Anticipating renovation expenses is vital, with a minimum budget of RM20,000 recommended. Renovation costs vary based on individual preferences and the condition of the property, but allocating a reasonable sum ensures that the home can be tailored to personal needs and preferences.

While some developers may offer to cover stamp duty costs, it's prudent to conduct thorough comparisons of mortgage loans before making any decisions. Securing the best deal is paramount, as even a slight percentage difference can translate into significant savings when purchasing a property.

By accounting for these additional expenses and exercising due diligence in loan comparison, prospective homebuyers can navigate the process with greater financial preparedness and confidence.


Best Ways to Fund Down Payment

For individuals who believe they've found their ideal property but lack sufficient savings for the down payment, there exist alternative avenues to support their homeownership aspirations. Here are some options to consider:


1. Low-Interest Rate Personal Loan: With a solid credit history, individuals possess the leverage to negotiate for a personal loan with favorable terms, including lower interest rates. The process is expedited if applying for a loan from a bank where an existing account is held. By agreeing upon tenure periods, interest rates, and monthly installments, borrowers can aim to clear their personal loan obligations before commencing mortgage payments within a span of two to three years. Additionally, securing a personal loan from a bank that permits early settlement at zero costs can further streamline the repayment process.

These alternatives offer viable pathways for individuals to bridge the financial gap and realize their dream of homeownership without being deterred by insufficient savings for the down payment.


2. EPF Account 2 Withdrawal: Another avenue to explore is withdrawing from your Employee Provident Fund (EPF) Account 2 to bolster your property acquisition endeavors. This option is available under specific conditions:

- The property being purchased is a residential house.

- Your financing option has received approval from the bank.

- A Sale and Purchase Agreement (SPA) has been executed, with no more than three years having elapsed since its signing.

- Previous withdrawals from your EPF Account 2 have not been made for house purchases.

By tapping into your EPF Account 2, you can access additional funds to supplement your down payment or cover other property-related expenses. This option provides a viable resource for individuals looking to secure their desired home without solely relying on conventional financing methods.


3. 0% Easy Payment Plan (Credit Cards): An alternative avenue to consider is leveraging the 0% Easy Payment Plan offered by credit card issuers. If you have available credit limit or prefer to utilize cash on hand, you can contact your bank to inquire about this installment option.

For instance, suppose you find yourself RM6,000 short of covering the total down payment and associated expenses. In such a scenario, you can simply use a credit card that offers the 0% Easy Payment Plan feature or apply for a 0% balance transfer with select credit cards.

This strategy enables you to bridge the financial gap seamlessly while enjoying the benefit of spreading payments over installments without incurring any interest charges. It provides flexibility and convenience in managing your property purchase expenses, empowering you to move forward with confidence towards homeownership.



Here are some key strategies to acquire property without straining your finances:

1. Explore First-Time Home Buyers Schemes: Government initiatives like the My First Home Scheme (SRP) and PR1MA are tailored to assist young Malaysians in purchasing homes. Here's a breakdown of their offerings:

- My First Home Scheme provides:

- 100% financing, eliminating the need for a 10% down payment.

- Single borrower gross income not exceeding RM5,000 per month, or joint borrowers gross income not exceeding RM10,000 per month.

- Property value ranging between RM100,000 and RM500,000.

- Requirement to occupy the property upon purchase.

- Financing tenure not exceeding 35 years, or until the borrower reaches 65 years old.

- Installments payable via monthly salary deduction.

- Compulsory fire insurance/Takaful.

- Amortizing facility only, without redrawable features.

- PR1MA offers:

- Eligibility for Malaysian citizens (individuals or families) with an average monthly household income between RM2,500 and RM7,500.

- Ownership of no more than one property.

- Allocation of PR1MA homes through an open balloting process.

- Imposition of a 10-year moratorium, during which the property cannot be sold or transferred without prior approval from PR1MA.

- Requirement to occupy the property upon purchase.

2. Exercise Caution with EPF Withdrawals: Avoid tapping into your EPF account unless absolutely necessary. It's prudent to leave your retirement savings untouched to benefit from the average 5% to 6% dividend from EPF. If possible, aim to save enough cash to cover your down payment without resorting to EPF withdrawals, thus avoiding unnecessary costs.

3. Leverage Your Credit Card: Possessing a credit card and maintaining a clear spending record can be advantageous. Banks typically offer lower interest rates to individuals with credit cards and a favorable credit history, considering them as lower risk due to their transparent payment patterns. By demonstrating responsible credit card usage, you can enhance your credibility as a borrower and potentially secure more favorable loan terms.

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