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Found your dream home, but not sure if you can afford it? Unless you’re a financial expert or a math whiz, computing the home price that is within your means can be a hassle. But worry no more as we have created a user-friendly housing loan calculator known as the Home Loan Eligibility and Affordability Calculator.
Not the one you’re looking for? Check out other free calculators we have:
Just input the required info, like your gross annual income, and you can determine the maximum amount you can borrow and your monthly repayments.
However, the maximum housing loan amount is not the sole basis that determines if a home is truly affordable. If you want to know more, continue reading.
When do we consider a home as affordable?
According to the Demographia International Housing Affordability Survey, a residential property is considered affordable if its price is only equivalent up to three times your annual household income.
However, this multiple is far too ideal, as home prices in major cities and urban areas across Malaysia are higher than that. For instance, average home prices in Kuala Lumpur in 2019 was 6.88 times the median household income. The multiples in Penang (6.32), Selangor (5.10), and Johor (4.51) were also elevated. Please note that multiples of 4.1 to 5.0 are considered as “Seriously Unaffordable”, while 5.1 and above are deemed “Severely Unaffordable”.
But for each specific family, a better way of determining whether you can afford a home is to use a household income ratio. According to Bank Negara Malaysia (BNM), a residential property is within your means if the monthly repayment for your housing loan doesn’t exceed 30% of your gross monthly income. This calculation is based from the central bank’s Housing Cost Burden Approach that assumes a loan tenure of 35 years.
Also, if not more than 30% of your monthly household income will be used to service the monthly housing loan instalment, banks will likely approve your loan application.
However, financial experts are urging people to first set aside a contingency fund worth six months of your income. The purpose of this is for emergencies like sickness or accidents. This fund can also pay for your monthly housing loan instalments in the event you find yourself jobless. Otherwise, you would have to default on your housing loan, and then the bank will have the right to foreclose your property, leaving you homeless.
Homebuyers are also advised to save money for the downpayment for the home, typically about 10% to 20% of the property’s value. This is because financial institutions will only lend you 80% to 90% of the home’s price (loan-to-value), hence you need to pay this in cash.
The Home Loan Eligibility and Affordability Calculator estimates the maximum housing loan amount you can borrow based on your annual income and ability to service the loan.
This calculator is easy to use. You only need to enter these numbers:
Click ‘Calculate’ and you will see your Calculation Result.
To determine what is affordable for you and your family, determine first the maximum monthly mortgage payment and maximum loan amount you can comfortably pay. Again, to make it easier for you, just use our Home Loan Eligibility and Affordability Calculator.
You only need to input data, like your gross annual income. If you’re employed by the government or a company and are receiving a fixed monthly income, the bank will take into account your full annual income. But if your monthly income varies due to the nature of your work (i.e. odd-job worker, freelancer, commission-based income), the bank will reduce your annual income due to fluctuations and uncertainty.
For example, pretend you’re a property agent who earned RM100,000 in 2018 from commissions. If you want to take out a housing loan, the lender (banks or financial institutions) may apply 30% reduction on your income and your loan amount will only be based on RM70,000
In our Home Loan Eligibility and Affordability Calculator, you also need to input the loan term or tenure (how long you will be repaying the loan) and interest rate. As of July 2019, the Base Rate (BR) of housing loans in Malaysia were hovering around 3% - 4%.
You also need to set the maximum percentage of your income that will go to repaying the housing loan. Typically, financial institutions in Malaysia will only lend to you if the monthly loan instalment doesn’t exceed 30% of your household income per month.
So assuming you want to loan RM500,000 with an interest rate of 5% that is payable in 35 years. For that loan, the monthly loan instalment amounts to RM2,525. Given the 30% rule, your monthly gross household income should be RM8,417 (RM101,000 annual income).
However, this scenario doesn’t yet take into account your existing monthly financial obligations, which the lender will ask you to disclose, such as car loans, personal debt, credit cards, and student loans.
Nonetheless, as long as your monthly debt obligations and all other household expenses (excluding home loan repayment) doesn’t exceed 70% and the remaining 30% can be used to service the housing loan, then there’s a good chance to obtain a loan from a bank.
Overall, if you meet the below three requirements, then that home is affordable for you:
