Buying a house for the first time will be a bit confusing for those who are not familiar with all the process with signing the Sale and Purchase agreement, dealing with solicitors, legal fees and stamp duty. Moreover, buyers need to well known with the type of housing loans they want to choose or it will burden them in the future. Certain housing loans will have penalties if buyers pay late for the monthly installments.

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What is a Housing Loan?

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A housing loan, also known as a mortgage loan, is the sum of money given to you by a financial institution to buy a property. In exchange for this sum of money, the financial institution will have security in the form of their legal entitlement to keep your property's deed until your housing loan has been paid the bank in full.

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The Four Factors that Defined Housing Loan:

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• The Principal – The amount is typically the purchase price minus your down payment, minus closing costs and other related fees.

• The Interest Rate – The annual amount you need to pay the lender to borrow the money, shown as a percentage of the current principal balance.

• The Term – how long you have to repay the entire loan. The term housing loan can range from 5 to 30 years.

• The Repayment Frequency – how often you make payments. Borrowers usually pay back their mortgages on a monthly or weekly basis.

 

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Type of Housing Loans:

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1. Basic Term Loan​​​

• Most basic and conventional type.

• Pay a fixed amount of installment throughout the loan term, without having the flexibility to reduce the loan interest at any point in time.

• Early payment does not affect the total interest you are paying on the loan itself.

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2. Semi-Flexi Loan

• More flexible in terms of reducing loans

• If you have extra cash and wish to dump it into your housing loan’s down payment portion, you are able to do so to reduce the loan interest.

• Can saving money in the long run.

• Limitation: Cannot to withdraw the advance money paid for emergency uses without any ramification.

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3. Full-Flexi Loan

• The same character with a semi-Flexi loan but can withdraw the advance payments with no extra charges or penalty.

• You will be provided with a cheque book and a linked current account so you can withdraw money anytime at your convenience(in case you need to use it for emergency).

• Be aware that upon withdrawal, the interest will be charged back.

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4. Islamic Loan

• Works on the basis of the interest-free transaction.

• Uses the Murabahah concept (not an interest-bearing loan but is an acceptable form of credit sale under Islamic law).

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5. Fixed-Rate Loan

• The loan’s interest rate is fixed for the whole tenure; banks usually offer this package under Islamic loans.

• Suitable for those who are concerned over fluctuating interest rates.