Getting the keys to your first property is a pretty big deal, no matter how old you are. For many people, owning a first property like a house is one of the most critical milestones in adulthood. Part of this is because moving into your own property is linked to goals like getting married, having kids and raising a family; all major life milestones. It’s also because buying a house these days is really expensive, so it becomes a status symbol showing the level of success you’ve reached. Unless you’re rich enough to buy a property with cash, you’ll probably need to get a loan in the form of a mortgage to pay for that property.

A mortgage is a type of loan used to buy a property. Its purpose is to help you purchase a piece of property without having to pay for all of it upfront with cash. Like all loans, it involves a monthly repayment on the capital amount as well as a certain percentage for the interest amount as well. What makes a mortgage different from something like a personal loan is that it involves something called a ‘lien’, or a legal claim on the property being bought. Even though you’re living in the house bought using the mortgage, the bank still has a legal claim on it. If you fail to pay your loan back, the bank could claim the home from you and sell it off to someone else. But, if you service the loan according to the terms you agreed to, you’ll be the proud owner of your own property!

Getting a mortgage is a serious, long-term commitment which you’ll carry for many years; up to as much as 35 years if that’s the mortgage you choose. So before you go all-in, here are four things that you should consider when looking around for the right mortgage.

1. Your Credit Score Matters!

First things first, you need to make sure that you’ll be able to pay back the mortgage consistently until the loan tenure is finished. No matter what mortgage you get or which bank/lender you go to, they need to make sure that you’ll be able to pay them back. To do this, they’ll usually refer to your credit score as a clear indicator. A credit score or rating is an indicator that shows lenders how good you are at managing and paying back credit of any kind. So, if you’re looking to get a mortgage, the first thing you should do is check your credit score. Take steps to improve your credit score, and that’ll increase the chances of getting your mortgage approved!

2. Mortgages Come in Different Forms

Mortgages in Malaysia come in a few different forms. Some have fixed interest rates, some with variable interest rates, and then there are Islamic mortgages as well.  Let’s take a quick look at the differences.

A fixed mortgage is quite straightforward: it’s a loan that has a fixed interest rate throughout the tenure of the loan. This means that your monthly repayments will go towards reducing your principal amount (the amount you owe for the mortgage) and the interest amount which is fixed.

A variable mortgage is slightly different. While your monthly repayments still go towards the principal, the interest rate, on the other hand, isn’t fixed. Two things can affect the interest that you pay on a mortgage with a variable interest rate. Firstly what the bank can charge you while staying competitive, and second, your credit rating (as mentioned earlier). Borrowers that are a higher risk when it comes to credit could be charged a higher interest rate.

An Islamic mortgage is one that follows the rules of Islamic financing. Basically, this means that the bank will actually buy the property on your behalf and then sells it back to you at a profit, instead of charging you interest. Instead of charging you interest, the agreement with the bank will include a clearly-defined profit rate which you’ll slowly pay back every month.

3. Get A Loan That You Can Afford

Whatever type of mortgage you pick, make sure that you get one that you can actually afford. When calculating what they can afford to pay each month, people tend to make the mistake of only thinking about the mortgage’s monthly repayment amount. Sometimes it’s easy to forget that there are many other costs to pay for when buying a house.

Think about it: when you buy a house, you won’t just be paying for the mortgage every month. You’ll also be paying for utility bills, maintenance and repairs, taxes, home insurance, and more each and every month. So, when it comes to figuring out how much you can afford to pay each month for your mortgage, take all these other costs into consideration.

Rule of Thumb: As a general rule of thumb for your personal finances, never use more than a third (1/3) of your net income on anything to do with the house you’re buying. Your net income is the money you have left after all the necessary deductions like taxes, EPF, and SOCSO. Your house costs will include your mortgage payments and things like utility bills, taxes, and repair or maintenance costs. Of course, always set aside some money for unexpected emergencies!

4. You Have to Do Your Research!

Banks and other lenders are very competitive when it comes to getting your business. This is a good thing because it translates to more benefits for you as the customer! Some lenders might offer you lower interest rates, while others may have more innovative mortgages that give you more flexibility or benefits. Because of this, it’s always a good idea to shop around different banks and lenders to compare mortgages and find one that benefits you the most. Remember: a mortgage is probably the most significant financial commitments you’ll ever take on. You have to invest time and effort in doing your own research, so don’t let anybody rush you into making a decision!

Finding the Right Mortgage

Instead of going to the websites of each bank and lender to compare mortgages, CTOS Credit Finder makes it much easier for you. With it, you’ll be able to get a clear comparison of the best mortgages on the market and pick the right one for yourself. Check it out now!