Hidden Costs to Watch Out for When Applying for a House Loan in Malaysia

Beyond Interest Rates: The Real Cost of House Loans in Malaysia

When considering house loans in Malaysia, many borrowers focus solely on securing the lowest interest rates. While this is understandable, overlooking the additional costs associated with home financing can lead to unexpected financial burdens.

Understanding the full scope of charges tied to mortgage loan applications is essential for making informed decisions and managing your property investment effectively.

Common Fees and Charges in Mortgage Loan Applications

Securing a house loan in Malaysia involves more than just the principal and interest. Several fees and charges are typically incurred during the application and approval process. These include:

Legal Fees for Loan Agreement

Legal documentation is a mandatory part of any property loan transaction. Legal fees cover the preparation and execution of the loan agreement and other related documents. According to the Solicitors’ Remuneration Order 2023 (effective 15 July 2023), the legal fees for loan documentation are charged on a tiered scale: 1.25% for the first RM500,000 (with a minimum of RM500), 1.0% for the next RM7,000,000, and any excess above RM7,500,000 is negotiable but capped at 1%.

Additionally, for Housing Development Act transactions, such as developer purchases or associated loans, discounted rates are applied. A flat RM500 fee for amounts up to RM50,000, then scaled discounts of 75%, 70%, 65%, and 50% depending on the loan sum.

Stamp Duty

This government-imposed charge applies to both the transfer of property ownership and the loan agreement. In the First Schedule of the Stamp Act 1949, Item 27 specifically addresses the stamp duty applicable to loan, advance, or credit facility agreements. The stamp duty rate for these documents is 0.5% of the loan amount. This rate applies to both conventional and Islamic financing agreements.

Valuation Fees

Before approving a mortgage loan, banks require a professional valuation of the property to determine its market value. The valuation fee is generally borne by the borrower and is based on a sliding scale according to the property’s worth.

Disbursement Fees

Disbursement fees are miscellaneous costs incurred by solicitors for administrative tasks in property conveyancing and loan agreements, including land searches, photocopying, registration, courier services, and other necessary administrative attendances.

Under the Solicitors’ Remuneration Order 2023 (SRO 2023) and Malaysian Bar Ruling 16.01, these fees are generally itemised separately from legal fees in the bill of costs. However, under Paragraph 3(1)(k) of the SRO 2023, miscellaneous expenses not exceeding the RM100 may be charged as a lump sum without itemisation. Any amount exceeding this threshold must be itemised and supported by receipts.

Mortgage Insurance (MRTA & MLTA)

Most house loan agreements in Malaysia require borrowers to take up either Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA). According to the Persatuan Penilai, Pentaksir, Ejen Harta Tanah dan Pengurus Harta Malaysia (PEPS), both MRTA and MLTA are designed to cover the outstanding loan in the event of death or total permanent disability.

MRTA provides coverage that decreases in line with the loan balance, while MLTA offers level coverage throughout the loan tenure and may include additional benefits. The cost of this insurance should be considered as part of the total cost of securing a property loan.

Processing Fees

Some banks charge a processing fee for handling the house loan application. While some financial institutions may waive this fee as part of promotional campaigns, it is important to confirm with your lender.

How Additional Costs Impact Your Property Loan and Monthly Payments

The cumulative effect of these additional costs can be significant. For example, legal fees and stamp duty alone can amount to several thousand ringgit, depending on the property price and loan amount. These upfront expenses are often required before the loan is disbursed, which means borrowers must be financially prepared beyond the down payment. Initial expenses for buying a home in Malaysia include the down payment, legal fees, stamp duties, and possibly agent fees.

Moreover, some fees may be added to the total loan amount, increasing the principal and, consequently, the monthly repayments. Failing to account for these costs can result in cash flow challenges or even delays in completing the property purchase.

Understanding the Disbursement Waiting Period for House Loans

After a house loan is approved, there is typically a waiting period before the funds are fully disbursed to the seller. This period can range from several weeks to a few months, depending on factors such as the complexity of the transaction, the efficiency of the legal process, and the bank’s internal procedures. During this time, buyers may face temporary financial constraints, especially if they need to settle other obligations related to the property purchase.

How IBPO Supports Homebuyers with Professional Advisory and i-Bridge Financing Programme

IBPO understands the complexities Malaysian homebuyers face when dealing with property loan applications and the associated financial obligations. By combining financial expertise with AI-driven insights, IBPO delivers personalised loan advisory services and helps clients compare solutions from multiple banking partners to secure the most suitable mortgage for their needs.

For those experiencing cash flow gaps during the disbursement waiting period, IBPO’s i-Bridge Financing programme provides a short-term financing solution. This service allows buyers to get temporary funds, so they can make all the necessary payments on time while waiting for the official loan disbursement. By leveraging IBPO’s expertise and tailored financial solutions, borrowers can approach the home financing process with confidence and clarity.

Making Smart Choices in Home Financing in Malaysia

Navigating the hidden costs of house loans in Malaysia requires more than just comparing interest rates. By understanding the full range of additional expenses, you can plan your finances more effectively and avoid unexpected setbacks. With the right guidance, these complexities become manageable, ensuring a smoother path to homeownership.

At IBPO, our experienced team is committed to supporting you at every stage of your property financing journey. We combine industry expertise with advanced technology to provide clear, personalised advice tailored to your needs.

Contact us today to discover how our consultants can help you make informed decisions and optimise your financial strategy as a first-time homebuyer.

Citation and References

Solicitors Remuneration Order 2023. Malaysian Bar. 2023. Available at: https://www.malaysianbar.org.my/article/members/laws-bc-rulings-and-practice-directions/other-laws/solicitors-remuneration-order-2023/sro-2023
Fees and Disbursements under SRO 2023. Malaysian Bar. 2023. Available at: https://www.malaysianbar.org.my/article/members/laws-bc-rulings-and-practice-directions/bc-rules-and-rulings/16-01-fees-and-disbursements
Stamp Act 1949 Act 378. Inland Revenue Board of Malaysia. 2024. Available at: https://www.hasil.gov.my/media/hwdf2s3g/20240101-stamp-act-1949-act-378.pdf
Persatuan Penilai, Pentaksir, Ejen Harta Tanah dan Pengurus Harta Malaysia (PEPS). Understanding MLTA and MRTA: Essential Mortgage Protection in Malaysia. 2024. Available at: https://www.peps.org.my/understanding-mlta-and-mrta-essential-mortgage-protection-in-malaysia/