Purchasing property is usually one of the most important financial decisions to make in your life. Compared to other assets and investments, they generally cost much more. Thankfully, here in Malaysia, choices in terms of financing are in abundance.
Other than conventional home loans, Islamic mortgage financing are also attractive options for you to choose from. This is especially true since our country is a pioneer in the latter.
But both these financing concepts can be broken down into three major categories. Choosing the one which benefits you the most is also an important decision to make.
What are the categories of home loans available to me?
Whether it is a conventional home loan or an Islamic financing alternative, both can be divided into three categories:
- Non-Flexi – Also known as a Term Loan or Basic Term Loan. Comes with a fixed repayment schedule. The monthly instalment you pay is the same throughout your entire loan period.
- Semi- Flexi — Enables borrowers to make advance payments. This is to lower their loan interest without the need to make any formal request to the bank.
- Flexi – Enables borrowers to make advance payments to lower their property loan interest AND withdraw the additional payments they’ve made whenever they like.
In what conditions should I choose a non-flexi loan?
A non-flexi loan is an old-school loan; most of the home loans back in the day were this type. As mentioned earlier, this type of loan does not allow you to make any advance payment to reduce your loan interest. Any additional payment you make is treated as pre-payment for future instalments. It also does not affect the total interest you’re paying on the loan itself.
With a lack of flexibility, it doesn’t sound that attractive, does it? So why would anyone choose this type of loan and not the other two categories?
Well, compared to the other two categories, the interest rates for a non-flexi loan is much lower. Therefore, is you are a person with a tight budget or not the type to have extra money every month, then the non-flexi loan suits you. Your repayments should also be slightly lower due to the low-interest rate.
A more important decision to take: choose or convert to Islamic financing
To comply with Shariah principles, An Islamic home financing must comply with Shariah principles. Therefore, they will follow one of the following concepts:
- Al Bai Bithaman Ajil (BBA)
- Musharakah
- Musharakah Mutanaqisah
- Ijarah contract.
Compared to conventional home loans, the Islamic financing option has a few advantages. Among them are:
- Cost of stamp duty lower by 20%. Stamp duty is also waived for the redeemed amount when refinancing from a conventional loan to an Islamic home finance.
- When refinancing from a conventional mortgage to an Islamic one, there is a 100% stamp duty waiver on the existing refinancing loan balance
- Penalty fee for property disposal within the lock-in period can be potentially lower than conventional financing.
- Uses Base Financing Rate (BFR) as compared to Base Lending Rate (BLR) which used by conventional financing. This allows banks to adjust based on prevailing market conditions.
- Has lower late penalty fees. Unlike conventional loans which apply the concept of compounding interest, late penalty fees in Islamic finance are only charged on the amount of remaining principal debt.
Get today’s best Islamic financing offers in Malaysia
There comes a time when we would want to apply for a personal loan. The reasons could be for debt consolidation, business, travel, marriage, home renovation, etc. That’s where Islamic finance comes into the picture. It has several advantages over conventional financing such as:
- Fairness and protection from high risks
- Safe from crisis
- Fixed and clear fees
- Lower penalties
- Takaful coverage
AsSidq.com is your one-stop platform for Islamic financial products. We help match you with the best shariah-compliant financial offers from our banking and financial partners, based on your requirements and needs.
We keep your financing completely free from unethical elements including riba (usury), gharar (deceit), maysir (gambling) and zulm (immoral practices).
The service is provided free, simple to use and you will be matched instantly. Apply now and get approved in no time!