Mortgage Hidden Cost

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Owning a property is a very painful process. One had to go through various location and a lot of other consideration (e.g. potential return) before choosing the much desired assets. Generally there are 2 types of buyers; the owner and the investors. Having said that, at the end of the day a property would become the largest single investment in our lives.

After selecting the location, we need to agree on the price. These days, it is a sellers market rather than the buyer's. Being a firm believer of love at first sight, I did not bargain much from the seller to ensure I get what I wish for. Generally a booking fee of 2% needs to be paid before signing the SPA (Sale & Purchase Agreement). The buyer has 14 days to settle the remaining 8% after signing the S&P. However, these conditions are always open to negotiation. Being an individual who is highly leveraged, I found it very troublesome to cone up with the 10% down payment. Luckily I managed to sweet-talked the seller to allow me to pay only 5% of the purchase price. So you thought that's the end of story? Not really...

Before committing to any S&P, it is advisable to get a pre-approved loans from the banks. One should know the maximum loan a bank can grant before signing the S&P. In this competitive market, banks will treat buyers as kings. You just need to make a few calls and the sales guys will be knocking on your doors for the relevant documentations. Most of the banks are offering a maximum margin of financing up to 90% of the purchase price, although some banks do offer 95% depending on location. Depending on the valuation, we can purposely hike up the price in the S&P (subject to seller's agreement) to get a higher margin of financing. For example a house costing 700k would received a maximum financing of 630k (90%) If you managed to agree with the seller on putting the selling price at 750k in the S&P, the loan amount can be increased to 675k. After taking into account the 70k paid (10% of 700k), the total amount paid to the seller is 675k+70k = 745k. Considering the actual price is 700k, you are now blessed with an additional 45k which can be utilized for further renovation or moving in costs. One word of caution - the lawyer must safeguard your interest by preparing the relevant undertaking letter to ensure the balances from the disbursement are paid to you.

There are a few hidden costs that we need to be aware of when purchasing any property. First of all there is a legal fee payable to the S&P lawyer. Nowadays, if a property is purchased directly from the developer, the S&P fee is normally waived. However for the secondary market the fees are set at 1% for the first 150k and 0.7% for the next 850k. For example if the house cost 750k the S&P fees would be a cool 1500 + 4200 = 5700. Try to negotiate with the S&P lawyer to get some discount on this. Although legally they are prohibited to give discount, they still do in this very competitive market. For my case I managed to get a 40% discount on the S&P fees. That's a saving of RM2500.

Apart from the S&P fees there is another humongous fee that we need to pay to our beloved government. This evil creature is called stamp duty on transfers. The current rate is 1% on the first 100k, 2% on the next 400k and 3% for the balances exceeding 500k. In my example the stamp duty on 750k price would be 1000+8000+7500 = RM16,500!
So the S&P + stamp duty alone would cost about RM20k. It took about a month for the stamp duty to be payable, so you can delay this payment for a max. of 1 month. Most of the lawyers will insist on upfront payment, but this is up to your negotiation skill to defer the payment if time value of money is your priority.

I'll write on the second part of the hidden cost later. That is the cost of legal agreement between you and the bank as well as the MRTA cost. Happy hunting guys.


Signing of at 11.50 p.m.