What is Mortgage Lending?
A mortgage is established when an owner pledges his or her interest or right to the property as security or collateral for a loan. Mortgage lending is an important lending mechanism used in Malaysia to finance private ownership of residential, industrial and commercial property. Mortgage Loans are generally offered as long term loans; normally over a period of ten (10) to thirty (30) years and the duration of time until maturity is call loan period or tenure. The basic arrangement would required a fixed monthly payment over the loan period. Over this period the Principal Component of the loan would be slowly paid down through amortisation. Lenders or Banks provide funds against property to earn interest income, and generally borrow these funds themselves from the market (for example by taking deposits or issuing bonds). The cost at which the lenders borrow money would therefore determine the interest rate offer. The major risk in mortgage lending is the consideration that the loans will be repaid. If they are not repaid the Lenders will be able to foreclose or file actions against the borrower and/or guarantor to recoup some or all of its original capital.
Types of Mortgage Loan
There are many type of loans offer by the Banks in Malaysia. Although each type of loans differ in many ways but they do share some of the common features. All Mortgage loan bear interest rates and are fully amortising. The typical margin of financing ranges from 80% to 90% of the property’s price. This margin is applicable to most residential mortgages. They all have average loan tenure if 25 – 30 years although 35 years of maturities are sometimes also offered.The loans normally required for payments in equal monthly instalments. The monthly repayments include both interest and principal portions. Sometimes the borrowers are allow to make prepayments at any time with or without certain conditions. Floating Rate Loans Fixed Rate Loans Flexi Loans Islamic Loan Until April 2004, floating interest rate loans had been commonly used by the banks to offer to the borrowers.