Are you looking to purchase a property? Why not broaden your financing options by considering Islamic home loans? We’ve rounded up the best Islamic home loans in Malaysia for you to read below!
How Does Islamic Home Financing Work?
An Islamic home loan must first and foremost ensure that it is Shariah compliant. This means that there are no interest-based (riba) transactions, speculation (gharar) and there are no haram (unlawful) transactions involved. The essential key to Islamic finance is also the notion that money itself has no intrinsic value, so money is not allowed to create more money. Therefore, Islamic banks must provide services or products in order for them to earn profits.
With Islamic home financing, banks usually provide either buy and sell (Murabahah) or leasing services (Ijarah). With the Murabahah concept, you choose a property and through an Islamic home financing, you and the bank will then enter into a contract where the bank buys the property for you. The bank will then re-sell the property to you at a higher price in the form of instalments over a fixed period of time.
As for the Ijarah concept, it is based on a transfer of property ownership at the end of leasing. The bank will buy the property for you, and you will buy back the property by making installment payments. This concept allows you to buy out a property from the bank while paying for “rent”.
Advantages of Islamic Home Financing
- Customers receive Ibra (rebate) from some Islamic banks when you make early settlement on your home financing.
- Under Budget 2016, all Islamic home financing will receive 20% off stamp duty exemption as part of the government’s effort to boost Islamic financing.
See also: The Best Islamic Credit Cards in Malaysia
Find out more about the best Islamic Home Financing in Malaysia below!
Maybank Islamic Commodity Murabahah Home Financing-i
This is a cost + profit (Murabahah) loan, which translate to a buy and sell contract between the bank and the customer. A Shariah compliant commodity will be identified (such as crude palm oil) and it will be used as the underlying asset for the sale and purchase transaction between the customer and the bank. This underlying asset is for meant to raise funds to finance the property.
This loan offers financing eligibility of up to 70% of your gross income (subject to the bank’s approval). You can choose from fixed, tiered or variable profit rate with this loan, and the effective profit rate will be determined by Maybank upon the approval of the loan. There is no locked in period penalty for this loan and customers will be granted Ibra (rebate) for early loan settlement. This loan is suitable for both completed or under construction properties.
Requirement
Minimum income: RM24,000 annually
Age: 21 years old and above
Financing tenure: 30 years or age 60 (whichever comes first) / 35 years or age 70 for professionals and graduates.
Alliance Islamic Bank i-Wish Home Financing
Based on the concept of deferred payment sale (Bai Bithaman Ajil) this is another option for those looking for Shariah compliant home financing.
This loan is suitable for completed and under construction properties as well as for those looking to refinance their property. The profit rate is up to the BR rate of +0.55%. (the current base rate for Alliance bank is 3.97%) So as of now, the profit rate for this loan would be 3.97% + 0.55% = 4.52%.
You can also opt to take Takaful coverage with this loan, so you can have a peace of mind without worrying about burdening your family or loved ones with debt should anything happens to you during the loan tenure. You are also eligible for Ibra for an early loan settlement, so it pays to settle your loan early.
Requirement
Minimum income: RM24,000 annually
Age: 21 years old and above
Financing tenure: 35 years or age 75 (whichever comes first).
HSBC Amanah Home Smart-i
Based on the diminishing Musyarakah concept, this means that the bank and the customer will be in a partnership to buy a property. The bank’s share of the property will then diminish over time during the loan tenure while the customer’s share increases from the result of the monthly payments made to the bank.
The profit rate charged for this loan per annum is BR+1.10%. The current base rate for HSBC is 3.75% so the effective financing rate per annum would be 4.85%. It is important to take note that the monthly payment and total amount to be paid will vary if there are any changes made to the BR. This loan also has a monthly service fee of RM10 plus 6% throughout the tenure of the loan. Financing margin is up to 90% of the current market value of the property but this is subject to the bank’s approval.
Customers also have an option to take up the Takaful Reducing Term Cover for Home Financing to protect their family from the burden of home financing should anything unexpected happen.
Requirement
Minimum income: RM24,000 annually
Age: 18 years old and above
Financing tenure: 35 years or age 65 (whichever comes first).
CIMB Islamic Ijarah Property Financing-i
Based on the Ijarah Muntahiyah Bittamik concept, this loan offers transfer of property ownership from bank to customer. At the end of the lease through paying a nominal amount to the bank throughout the loan tenure, the ownership of the property will then be transferred from the bank to the customer.
This loan offers high margin of financing, however the effective profit rate is not clearly stated. That being said, it is capped at competitive profit rate of 10.75% per annum which is quite high compared to others in the market. The exact rate will be determined by the bank upon the approval of the loan. The downside of this loan is that it is limited to the financing of completed residential or business properties only.
Requirement
Minimum income: RM24,000 annually
Age: 18 years old and above
Financing tenure: 35 years or age 70 (whichever comes first).
As a friendly reminder, it is recommended that your debt to income ratio does not exceed 40% of your gross monthly income. To calculate your debt to income ratio:
Monthly loan repayments
______________________ X 100
Net monthly income
Looking for more Shariah compliant financing? Compare Islamic credit cards and Islamic personal loans for free on CompareHero.my!
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