What is an Upfront Cost?
An upfront cost is the initial payment required by a borrower to repay a housing loan taken from a financial institution to purchase a property in Malaysia. It includes the total amount needed to cover the down payment, legal fees, stamp duty, and loan processing fees.
These repayments are usually made over a fixed period known as the loan tenure, which can vary depending on the loan terms.These costs are crucial in the property purchase process as they determine the financial commitment required at the start.
How to Calculate Upfront Costs in Malaysia
When purchasing property in Malaysia, it's important to calculate the upfront costs accurately to understand your total financial obligation. For most homeowners, these calculations form the foundation of a long-term financial strategy.
With tools like Property Genie's upfront cost calculator, you can simplify the process and gain clarity on your monthly payments.
Components of Property Upfront Costs
Down Payment (10% to 20%)
- The down payment is a standard requirement in Malaysia for property purchases which is the initial cash deposit you need to pay upfront, typically ranging from 10% to 20% of the property price.
- This payment is made to secure the property before you can proceed with the loan application process.
- First-time homebuyers often need a 10% down payment, while subsequent buyers or those purchasing high-value properties may face higher down payments (up to 20%).
Legal Fees (SPA - Sale and Purchase Agreement)
- Legal fees cover the costs for the Sale and Purchase Agreement (SPA) and are based on the property price.
- The legal fees are typically calculated as:
- 1% on the first RM150,000.
- 0.7% on the next RM850,000.
- 0.5% for any amount above RM1,000,000.
- This legal fee structure is standard in Malaysia.
Stamp Duty (MOT - Memorandum of Transfer)
- Stamp duty charged on the property's transaction value (property transfers) that governed by the Stamp Duty Act 1949.
- The stamp duty calculation is as follows:
- 1% on the first RM100,000.
- 2% on the next RM400,000.
- 3% for values exceeding RM500,000.
Stamp Duty (Loan Agreement)
- Stamp duty on the loan agreement is 0.5% of the loan amount, which is the standard rate used in Malaysia for home loans.
- This fee is also applicable when taking out a mortgage loan to purchase property.
Loan Processing Fees
- Loan processing fees are charged by banks in Malaysia for processing home loan applications. These fees generally range from RM1,000 to RM2,000, depending on the bank.
- Some banks may charge more, while others may waive this fee, so it's advisable to check the specific terms of the loan agreement.
Latest Stamp Duty Exemptions in Malaysia
Stamp Duty Exemption for First-Time Homebuyers
- First-time homebuyers purchasing homes valued at RM500,000 and below can enjoy a full stamp duty exemption until the end of 2025.
- This full exemption applies to properties for both the transfer and loan agreement instruments.
Stamp Duty Exemption on Abandoned Housing Projects
- Exemption for rescuing contractors or developers working on abandoned housing projects from 1 January 2013 to 31 December 2025.
- Applies to stamp duty exemptions on both the loan agreement and the transfer instruments for properties revived under abandoned housing projects.
Stamp Duty Exemption for Transfers Between Loved Ones
- Full stamp duty exemption for property transfers between:
- Parents and children
- Grandparents and grandchildren
- This exemption applies to properties valued up to RM1 million.
- For properties valued over RM1 million, the exemption applies to the first RM1 million, and the remaining value is subject to a 50% remission on stamp duty.
Factors that Affect Home Loan Repayments
Interest Rate:
The interest rate determines the cost of borrowing. A higher interest rate increases your monthly repayment amount. For instance:- A loan with a 3% annual interest rate will have lower repayments than one with a 5% rate.
- Interest rates can be fixed or variable, impacting how repayments are structured.
Loan Tenure (Years):
The loan tenure refers to the period over which you agree to repay the loan.- Shorter Tenure:Higher monthly repayments but less total interest paid.
- Longer Tenure: Lower monthly repayments but higher total interest paid over time.
Principle Loan Amount:
The principle loan amount is the actual sum borrowed. Larger loans result in higher monthly repayments, as they involve more interest and a larger balance to pay off.Down Payment:
In Malaysia, most home loans, including conventional loans, require a minimum down payment of 10% of the property's purchase price. However, certain financing schemes, such as those offered by PR1MA or government housing initiatives, may allow for lower down payment requirements. A higher down payment reduces your monthly installment, and paying at least 20% can help you avoid additional fees, such as Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA), depending on the lender's requirements.
How to Calculate Late Payment for Home Loan Malaysia?
Late payment charges for home loans in Malaysia are typically calculated as a percentage of the overdue amount, commonly ranging between 1% and 3% per annum, as stipulated in your loan agreement.
The formula to calculate Late payment for home loans
Late Payment Charge = Overdue Amount × Late Payment Rate × (Overdue Days ÷ 365)
Additional charges, such as administrative fees or legal costs, may apply depending on your lender's terms. Always refer to your loan agreement for specific details, and ensure your bank adheres to Bank Negara Malaysia's guidelines on fair and transparent late payment practices.