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CHAPTER 4:

CHAPTER 4:. HOUSING PLANNING. CHAPTER OUTLINE. Introduction Objectives of buying a house Types of house Factors to consider before buying a house Acquisition costs Types of housing loans Types of titles. INTRODUCTION. 20% - 30% of individual income was spent for buying house

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CHAPTER 4:

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  1. CHAPTER 4: HOUSING PLANNING ROSELIZA HAMID/UITM KELANTAN/2010

  2. ROSELIZA HAMID/UITM KELANTAN/2010 CHAPTER OUTLINE • Introduction • Objectives of buying a house • Types of house • Factors to consider before buying a house • Acquisition costs • Types of housing loans • Types of titles

  3. ROSELIZA HAMID/UITM KELANTAN/2010 INTRODUCTION • 20% - 30% of individual income was spent for buying house • Residential home ranges from flat, condominium, apartment, penthouse, bungalow, semi-detached or terrace house. • BUY or RENT???

  4. ROSELIZA HAMID/UITM KELANTAN/2010 RENT Advantages: • Mobility • No acquisition cost • Can avoid falling house prices • Better cash flow

  5. ROSELIZA HAMID/UITM KELANTAN/2010 TIPS OF SMART BUYING • Take advantage of sales • Compare prices • Be aware of extra charges • Ask for refund policy. • Read the contract before signing it • Walk out or hand on high-pressure sales tactics • DO NOT do business over the phone with stranger.

  6. ROSELIZA HAMID/UITM KELANTAN/2010 OBJECTIVES OF BUYING HOUSE • Long-term capital growth • Reasonable income yield • Real return above inflation rate

  7. ROSELIZA HAMID/UITM KELANTAN/2010 TYPES OF HOUSE • House • Bungalow • Semi-detached • Terrace • Condominium • Apartment

  8. ROSELIZA HAMID/UITM KELANTAN/2010 FACTORS TO CONSIDER Before buying a house: • Financial factor • Loan installment, tenure, down payment • Geographical factor • Location • Architectural factor • Design, layout, size, physical condition • Personal factor • Privacy, leisure activity

  9. ROSELIZA HAMID/UITM KELANTAN/2010 ACQUISITION COSTS • Monthly installment • Fixed/ Conventional rates • Down payment • Stamp duty • Legal fees

  10. ROSELIZA HAMID/UITM KELANTAN/2010 HOUSE FINANCING • House as a symbol of stability and security • Decide where to live, how close to working place, availability to basic amenities, transportation accessibility, resale value • Installment < 1/3 of the gross salary • Booking fees.

  11. ROSELIZA HAMID/UITM KELANTAN/2010 TYPES OF HOUSING LOAN • Fixed term, overdraft or a combination? • Margin of financing • 80% - 90% of loan amount • Loan period (20 – 30 years or up to age of 60) • House owner Insurance and Mortgage Rate Term Assurance (MRTA) • EPF Account 2 • Federal Treasury, M’sian Government • Loans from commercial banks

  12. ROSELIZA HAMID/UITM KELANTAN/2010 Federal Treasury • Objective: • To make sure govt. servant have their own house and to increase the comfortable life through Federal Treasury Housing Loan Scheme • Types: • Treasury Housing Loan Scheme (SPPP) • Islamic Housing Financing Scheme (SPPPI) • Accordance to Syariah principle of Bai’ Bithaman Ajil

  13. ROSELIZA HAMID/UITM KELANTAN/2010 Types of loan/financing • Buying a readymade house • Build a house in the borrower’s land • Buy a house that is still under construction • Buy land • Housing loan/financing settlement from bank/financial institution

  14. ROSELIZA HAMID/UITM KELANTAN/2010 • The property purchased is pledged to the government as a collateral to protect both parties. • Types of mortgage: • Charge: landed property that has separate possession and stratified property that has separate possession • Assignment: landed property that has no separate possession and stratified property that has no separate possession

  15. ROSELIZA HAMID/UITM KELANTAN/2010 Government Loan EligibilityEffective from September 2006

  16. ROSELIZA HAMID/UITM KELANTAN/2010 Commercial Banks Loan • Conventional loans • Variable interest rate • Interest charged based on BLR • Islamic loans • Deferred payment (Bai’ Bithaman Ajil) • Fixed interest, fixed installments • Offers stability against fluctuating cost • Based on profit margin • Financing include the properties, properties under construction, refinancing/redeeming housing loan from other banks and re-mortgage

  17. ROSELIZA HAMID/UITM KELANTAN/2010 Islamic vs. Conventional Financing

  18. ROSELIZA HAMID/UITM KELANTAN/2010 MORTGAGE TYPES • Fixed Rate Mortgage (FRM)/ BBA loan • Payment remain the same for the life of the loan • Tenor will be between 15 to 30 years • The rate is predictable • Housing cost remains unaffected by the changes of interest and inflation • Normally suits those who expect to remain in their homes for a number of years

  19. ROSELIZA HAMID/UITM KELANTAN/2010 MORTGAGE TYPES… Cont. • Adjusted Rate Mortgage (ARM)/Conventional Loan • Payment changes according to interest rate fluctuation • Balloon mortgage offers very low rate for initial period • Generally offers lower interest rates, monthly payment can be lowered • It may qualify the borrower with higher loan amount • Low start rates can reduce initial payments.

  20. ROSELIZA HAMID/UITM KELANTAN/2010 EPF SCHEME EPF provides withdrawal schemes to pay for the house: • To buy the house • To build the house • To reduce housing loan

  21. ROSELIZA HAMID/UITM KELANTAN/2010 Purchasing a House This withdrawal allows you to • utilize your savings from Account 2 to partially finance your purchase of a house individually OR jointly with your spouse or close family members namely parents or siblings. • buy a house from a developer or an individual or through a public auction. • purchase a second house is allowed after the first house purchased utilizing EPF has been sold or disposal of ownership of property has taken place., abandoned housing project or cancellation of purchase'.

  22. ROSELIZA HAMID/UITM KELANTAN/2010 Withdrawal Eligibility HOUSE PURCHASE FROM AN INDIVIDUAL • The difference between the house price and the loan amount plus an additional 10% of the house price OR • All your savings in Account 2 (Whichever is lower but not less than RM500.00) JOINT PURCHASE WITH SPOUSE OR OTHER INDIVIDUAL • The difference between the house price and the loan amount plus an additional 10% of the house price OR • All the savings in each purchaser’s Account 2 subject to maximum amount eligible for withdrawal (Whichever is lower but not less than RM500.00)

  23. ROSELIZA HAMID/UITM KELANTAN/2010 100% HOUSING LOAN • 10% of the house priceOR • All your savings in Account 2 (Whichever is lower but not less than RM500.00) CASH PURCHASE • Price of the house with an additional 10% of the house priceOR • All your savings in Account 2 (Whichever is lower but not less than RM500.00)

  24. ROSELIZA HAMID/UITM KELANTAN/2010 Building a House • This withdrawal allows you to utilize your Account 2 to partially finance the building of a house either individually OR  jointly with your spouse and family member(s). Proof of kinship is required to validate your joint purchase. • EPF withdrawal to purchase a second house is allowed after the first house purchased utilizing EPF withdrawal has been sold or disposal of ownership of property has taken place.

  25. ROSELIZA HAMID/UITM KELANTAN/2010 Withdrawal Eligibility HOUSE BUILD BY AN INDIVIDUAL • The difference between the cost of building the house and the loan plus 10% of the actual cost to build the house OR • All your savings in Account 2 (Whichever is lower but not less than RM500.00) JOINTLY BUILD WITH SPOUSE OR OTHER INDIVIDUAL • The difference between the cost of building the house and the loan plus 10% from the actual cost to build the house OR • All the savings in each purchaser’s Account 2 subject to maximum amount eligible for withdrawal  (whichever is lower but not less than RM500.00)

  26. ROSELIZA HAMID/UITM KELANTAN/2010 100% HOUSING LOAN • 10% from the actual cost to build the house OR • All your savings in Account 2  (Whichever is lower but not less than RM500.00) BUILD HOUSE WITH CASH • Actual cost to build the house plus 10 % from the actual cost to build the house OR • All your savings in Account 2 (Whichever is lower but not less than RM500.00)

  27. ROSELIZA HAMID/UITM KELANTAN/2010 Reducing/Redeem Housing Loan • This withdrawal allows you to utilize your savings from Account 2 to reduce or redeem the balance of your’s or your spouse’s housing loan taken from a financial institution approved by the EPF for the following mode of purchase or construction of a house: • Individual purchase; OR • Joint purchase with spouse, family members or other individuals; OR • Withdrawal to reduce / redeem the balance of housing loan of the second house is allowed after the first house purchased utilizing EPF withdrawal has been sold or disposal of ownership of property has taken place.

  28. ROSELIZA HAMID/UITM KELANTAN/2010 Withdrawal Eligibility WITHDRAWAL FOR INDIVIDUAL OR TO ASSIST SPOUSE • Housing loan balance OR • All your savings in Account 2 (Whichever is lower but not less than RM500.00) JOINT WITHDRAWAL BY HUSBAND / WIFE, FAMILY MEMBER(S) OR OTHER INDIVIDUAL(S) • Housing loan balance OR • All savings in your Account 2 subject to the housing loan balance (Whichever is lower but not less than RM500.00)

  29. ROSELIZA HAMID/UITM KELANTAN/2010 Withdrawal Eligibility Calculations Example 1: Individual WithdrawalYou have purchased a house costing RM250,000.00 in 2003 and you have taken a housing loan of RM200,000.00 from Bank ‘A’. Now, you wish to apply to withdraw your EPF savings to reduce the outstanding housing loan of RM160,000.00. Your monthly instalment payment to Bank ‘A’ is RM1,500.00. Your savings in Account 2 is RM100,000.00. The amount you can withdraw would be:

  30. ROSELIZA HAMID/UITM KELANTAN/2010

  31. ROSELIZA HAMID/UITM KELANTAN/2010 Example 2: Joint Withdrawal With SpouseYou and your spouse have purchased a house costing RM350,000.00 in 2005. Both of you have taken a housing loan with a combined total of RM300,000.00 from Bank ‘Y’. Both of you wish to withdraw from your EPF savings to reduce the outstanding housing loan amount of RM280,000.00. The monthly instalment payment to the bank is RM2,500.00. Your and your spouse have savings in Account 2  which is RM150,000.00 and RM100,000.00, respectively. The amount you and your spouse can withdraw would be:

  32. ROSELIZA HAMID/UITM KELANTAN/2010

  33. ROSELIZA HAMID/UITM KELANTAN/2010 Example 3: Withdrawal With Refinancing You have purchased a house costing RM200,000.00 in 1995 and you have obtained a loan of RM180,000.00 from Bank ‘A’. In 1999, you have refinanced the outstanding loan amount of RM50,000.00 from Bank ‘A’ with Bank ‘B’ for RM200,000.00. You wish to withdraw your EPF savings to reduce your outstanding housing loan amount of RM160,000.00. You have RM170,000.00 in your Account 2. The amount you can withdraw would be:

  34. ROSELIZA HAMID/UITM KELANTAN/2010

  35. ROSELIZA HAMID/UITM KELANTAN/2010 REFINANCING • To take advantage of lower interest rates • Major benefits: lower monthly installment payment and shorten the tenure of loan. • Things to consider before refinancing: • Interest rate you have paid • Current interest rate • Make comparison of both rates • How long you are going to stay in your home? • Penalty for early settlement of existing loan • Other needs for cash.

  36. ROSELIZA HAMID/UITM KELANTAN/2010 TYPES OF TITLE • Freehold • Gives the owner the perpetual ownership • Leasehold • Gives the owner to stay in possession for specified time period for e.g. 99 years. • AT maturity the ownership will be given back to the authority for e.g. MPKBBI

  37. ROSELIZA HAMID/UITM KELANTAN/2010 Next Chapter: INSURANCE PLANNING

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