All lovebirds need a nest. With the the rising cost of living and the pay cheque that stagnates, Malaysians are looking for ways to establish passive income through investment. One of the more popular investments is investing in the property market.
For couples who are looking to establish their retirement savings or their child’s education fund through property investment, here are a few things they should consider:
Joint loan limits your margin of finance
Couples generally apply for a joint loan because by showcasing higher income and repayment capacity, it will be easier to qualify for a larger loan.
However, by doing so, you limit your margin of finance for property investment in the long run.
Bank Negara Malaysia (BNM) implemented a new rule saying that each individual gets 90% financing for the first two residential properties. For individuals currently having two outstanding mortgage loans and intend to take on the third loan, they will only qualify for 70% financing on the third residential property.
If you and your partner are planning to expand your property investment by buying more units, taking up a joint loan may limit your loan amount in the future.
By taking up individual loan, you and your spouse can potentially get up to four 90% home loans for residential properties, compared to only two 90% joint home loans. Your third residential property financing will drop to 70%, which means now you will need to fork out 30% of down payment, instead of the usual 10%.
So, what can you do to obtain 90% financing on your third property? You can choose to refinance the first two loans under your name and apply for the third loan under your spouse.
Your individual financial rating affects your spouse too
When you take up a joint loan with your spouse, you are essentially linking your credit score to theirs. If you have good credit history, but your spouse doesn’t, the chances of qualifying for a mortgage loan jointly increase when you apply as a couple.
However, it can also work the other way, where your spouse’s bad credit score affects your ability to secure the loan needed to buy your desired property.
In that case, having only the spouse with good credit score to apply for a loan might be a good option. However, your individual income may lower the loan amount from what your two incomes could otherwise qualify for. Or another option is to wait to purchase the property until the spouse with bad credit has time to boost their financial score (here’s how you can improve your credit score).
Lose out on RPGT exemption benefits
Announced in Budget 2014, the real estate property gains tax (RPGT) has been increased to 30% for the first three years, followed by 20% and 15% for the fourth and fifth year respectively when one disposes a property. Property owners can dispose of their property tax-free from the sixth year onward.
Each individual will be given a once in a lifetime exemption on any chargeable gain arising from the disposal of their first residential property.
By combining the property investment, you both are entitled to only one exemption. If you both had separately invested in properties individually, both the properties would have qualified for this exemption, amounting to two exemptions.
Applying for joint home loans can be beneficial if you are trying to increase your eligibility for a higher loan amount. However, if you are looking to invest in more properties in the future, and your income qualifies you for the home loan amount that you need, getting individual loans may make more financial sense. Whichever option you choose to take with your partner, make sure you understand how the decision can affect you financially in the long run.