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:
10 to 20% cash down payment based on property price
30% monthly mortgage servicing ratio
Zero, low or manageable monthly debt obligations