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Is It Worth It To ‘Markup’ Your Housing Loan In Malaysia?

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Before you agree to a markup on your housing loan in Malaysia, be sure to understand how it works, how it can impact you financially, and whether it is legal to begin with. Keep reading, for tips on protecting yourself, and advice from financial and legal experts.

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It’s always prudent to have a good understanding of all loan terms and conditions before signing on the dotted line. This is no different for markup loans. The practice of marking up loans is still largely prevalent among property purchasers. 

What is loan markup?

Essentially, this practice refers to marking up the selling price of a property, which then enables the borrower to obtain a higher loan. Of course, this is assuming that both the buyer and seller agree to such an agreement. 

The seller gets the sum (minus costs) that he/she wishes to sell the property at, while the buyer, then applies for a housing loan based on the marked up price and then gets to “cash out” once the bank releases the marked up sum to the seller. 

According to mortgage specialist from Smart Choice Solution Sdn Bhd, Matthew Chin, there are many property buyers and investors who are still looking into markup of loans.

Why do some property purchasers practise loan markup?

“The reason behind this is that first and second home buyer borrowers could essentially “borrow” a 100% loan and need not pay for the down payment of 10%. On the other hand, some property investors will look to markup loans to cash out from the bank for their own purposes,” Chin shared.

Is it easy to markup your loan?

However, Chin said that this practice is getting more difficult for subsale properties (secondary market) as many valuers are starting to avoid this “unethical” act, and the bank is playing smart by using alphabetical ways to avoid markup loans. Chin also mentioned that it would be easier when applying this method to under-construction or new launch properties as the price is already based on future value. 

Matthew Chin, SCS Mortgage Specialist

When asked about the alphabetical ways, Chin explained, “These days, banks will follow the alphabetical method, based on the client’s name to get market value. For example, for a Mr. Lau Fatt Fatt, the banker will get a valuer who’s in the L category. If the client’s name is En. Zulklifri, then the banker will only use a valuer in the Z category. By doing so, the valuer might not be the same in between these two categories.”

Assigning the valuer this way avoids favouritism, as the borrower isn’t able to choose the valuer he or she wants or has a special agreement with to mark up the property’s value. Some financial institutions even require two valuers to submit their valuation report, which then lowers the probability of a markup loan for a secondary market property.

Marking up of Loans for Properties in the Primary Market

According to Marilyn Teh, senior associate at MahWengKwai & Associates, markup of loans can be done for all property types even if it is for a property under construction. 

Teh explained, “For a new launch property, some developers offer rebates to purchasers and these rebates are usually not reflected in the Sale and Purchase Agreement. The Purchaser will then apply for a housing loan based on the purchase price stated in the Sale and Purchase Agreement (SPA). Upon completion of the project, the developer will then refund the excess sum paid to the purchaser.” 

Marilyn Teh, MahWengKwai & Associates

Chin also pointed out that property buyers will sign a separate agreement document that shows the developer’s offer, be it partly furnished, fully furnished, cashback or rebate. This is an agreement between the buyer and the developer. 

“The end financier, which is the bank, will already know the property’s price and whether there’s a cashback or rebate offer. Thus, the bank will adjust the margin of finance accordingly,” Chin added.

Marking up of Loans for Properties in the Secondary Market

Both the seller and buyer need to agree to the terms. It usually starts when either the property agent or potential buyer brings up the topic of a markup loan. Most purchasers markup loans to use the cash for renovations, fund other purchases and so on. 

“The common practice involves the property agent collecting a booking fee to secure  interest, and when the loan is approved, the booking fee is returned to the buyer. In some instances, a 100% loan could apply where the seller agrees not to collect a 10% down payment,” Chin explained. 

He also said that desperate owners might sell at a lower price, and that bodes well for the buyer, as he/she can get the loan based on market value, instead of an inflated value. 

Chin shared the process, “The property agent will work with the banker or mortgage consultants to check on the purchaser’s loan eligibility. Once that’s done, the banker or mortgage consultant will check with the valuers whether the property needs to mark up to a certain value. After the valuer confirms the property’s value, the banker or mortgage consultant will submit the housing loan application. The process will proceed as a normal mortgage loan application.” 

Note: In general, valuers aren’t supposed to markup value of a property. However, some valuers are still willing to take the risk.

Chin also pointed out, “The entire process for properties under construction is faster because no valuer is involved. However, if the banker or the end financier for the under-construction property finds out about a cash rebate for the property, they’ll slash the margin of finance for those who apply for a mortgage loan.” 

With regards to agreements, Teh explained, “Besides the normal sale and purchase agreement, the parties will usually execute a supplementary agreement or letter to state the actual purchase price, some crucial obligation of the parties (mainly purchaser) and some other terms to cover the scenario of termination.”

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Potential Risks and Complications of Markup Loans

One of the key considerations for the subsale market when it comes to markup is Real Property Gains Tax (RPGT)

In the subsale market, RPGT applies for properties that are disposed of within the first five years of purchase. So, if the seller disposes of the property within five years of purchase, he/she would have to pay RPGT based on the marked up amount.

Other issues that could arise from markup loans in the subsale market include:

  • Seller not going through with the agreed terms, which could then lead to a legal case.
  • The lawyer doesn’t release the sum due to you, which then becomes another matter to solve.
  • Banks could void the loan application or slash the margin of finance (MOF) if they find out about the marked up arrangement.
  • Banks might require proof of a 10% down payment if they suspect a markup loan scenario.

According to Teh, “If the bank finds out about the markup, the bank is entitled to cancel the loan and pursue action against the purchaser. 

“Parties should be aware of the fact that there will usually be a crucial term in the Letter of Offer granted by the banks to state that the valuation of the property must be either the same or higher than the purchase price stated in the Sale and Purchase Agreement. 

“In the event if the property is valued to be at a lower price than the purchase price, the banks have the right to cancel the facility or to amend the financing offered to match the market value of the property.” 

What are the additional costs when you markup a loan?

According to Jean Yinn, a legal associate at Patrick Yeoh & Company, this practice is commonly seen in subsale purchases. As for under construction or direct purchase from developers, it’s very rare because normally developers will put a fixed price for the properties.

When asked about legal costs, Yinn shared, “Buyers will have to pay a higher stamp duty for MOT and loan agreements. For sellers, they might need to pay a higher RPGT.

“Markup loans affect the SPA in terms of the purchase price of the property. Generally, SPA with markup loans will have a higher purchase price than the agreed price by the parties. Hence, with the higher purchase price, the stamp duty, legal fees and RPGT will be higher. Thus, parties have to come to a consensus as to who will bear the higher expenses.”

Teh pointed out that the markup is requested by the purchaser in most scenarios. When that happens, the cost incurred is usually borne by the purchaser. Besides the costs that need to be paid, the purchaser will also need to service interest on the markup sum. 

Jean Yinn, Patrick Yeoh & Company

Does it make sense to markup your loan?

Many people think that marking up loans is a way to beat the banking system. What many may not realise is that markup of loans provides short-term relief. Borrowers will end up paying much more due to interest payments in the longer term.

Two Examples of Costs for Markup Loans 

Here we share 2 examples to showcase this scenario:

Scenario 1: Subsale property with markup that covers 10% down payment and at the same time, has cash-out value.
(assuming that it’s one first-time home buyer, and the property is about 10 years old)

 NormalMarkupDifference
Property PriceRM500,000RM500,000
MarkupRM150,000 (30%)
Margin90%(Down payment: RM50,000)90%
(Down payment: RM65,000)
Total Loan AmountRM450,000RM585,000RM135,000
Tenure30 years30 years
Interest4.2%4.2%
Monthly InstalmentsRM2,200.58RM2,860.75RM660.17
Total Interest PaidRM342,208.80RM 444,870.17RM102,661.37
Entry cost
SPA Legal FeeRM5,000RM6,500RM1,500
SPA Stamp DutyRM9,000RM13,500RM4,500
DisbursementRM2,300RM2,300
Loan Legal FeeRM4,500RM6,000RM2,500
Loan Stamp DutyRM2,250RM2,925RM675
DisbursementRM2,300RM2,300
Valuation FeeRM1,600RM1,900RM300
Extra Cost for Agreement (POA, Mutual Agreement)RM1,000RM1,000
Total Entry Cost RM26,950RM36,425RM9,475

Cash Out Value = RM135,000 – (RM102,661 + RM9,475) =RM22,864

Note: Example provided is an estimate by Smart Choice Solution Sdn Bhd. Use the iProperty Loan Care to find out your home loan eligibility with up to 17 banks.

Scenario 2: Subsale property with lower markup that covers part of the 10% down payment.
(assuming that it’s one first-time home buyer, and the property is about 10 years old)

 NormalMarkupDifference
Property PriceRM500,000RM500,000
Mark UpRM56,000 (11%)
Margin90%(Down payment: RM50,000)90%
(Down payment: RM55,600)
Total Loan AmountRM450,000RM500,400RM50,400
Tenure30 years30 years
Interest4.2%4.2%
Monthly InstalmentsRM2,200.58RM2,447.04RM246.46
Total Interest paidRM342,207.82RM 380,535.10RM38,327.28
Entry cost
SPA Legal FeeRM5,000RM 5,500RM500
SPA Stamp DutyRM9,000RM10,680RM1,680
DisbursementRM2,300RM2,300
Loan Legal FeeRM4,500RM5,000RM500
Loan Stamp DutyRM2,250RM2,502RM252
DisbursementRM2,300RM2,300
Valuation FeeRM1,600RM1,700RM100
Total Entry CostRM26,950RM29,928RM2,978

Cash Out Value = RM50,400 – (RM38,327.28 + 2,978) = RM9,094.72 

Note: Example provided is an estimate by Smart Choice Solution Sdn Bhd. Use the iProperty Loan Care to find out your home loan eligibility with up to 17 banks.

All said, one very important question remains. 

Is the practice of markup loan legal? 

According to both Teh and Yinn, it isn’t legal and you should proceed at your own risk. 

Teh shared, “Marking up of loans is actually an illegal act. The action of marking up a loan is usually made in favour of the purchaser for the purchaser to obtain a higher amount of loan. The parties to the transaction may be punishable for the offence of cheating, fraud or abetment under the Penal Code (Act 574) if they are proven to be guilty.” 

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To Markup or Not To MarkUp?

Teh’s advice to purchasers is to not pursue markups as it is a very risky move, and the cost incurred on the purchaser might even end up being higher than the markup amount.

Chin concurred with that perspective. He said, “Property purchasers need to be aware of all the costs before making any decision. Do not just blindly follow trends and listen to some friends that it works well.

“In general, a markup loan has a very high potential of costing more than usual in the long run. There are other considerations, such as the increase of OPR which will affect the mortgage loan interest rate as well.”

Example of how an OPR increase affects a RM500,000 loan with 30 years tenure

Interest Rate 3%If interest rate increases 1%If interest rate increases 1.5%
Monthly InstalmentsRM2,108Pay an extra RM279/mthPay an extra RM425/mth 
Total Interest over 30 yearsRM258,887Pay additional RM100,460Pay additional RM153,147

Note: Example provided by Smart Choice Solution Sdn Bhd. Use the iProperty Loan Care to find out your home loan eligibility with up to 17 banks.

Instead of considering risky measures such as a loan markup, aspiring homebuyers should equip themselves with the necessary home financing knowledge to help them make better decisions. Find out more on Debt Service Ratio (DSR) and discover How much home loan can I get from my salary in Malaysia?

Disclaimer: The information is provided for general information only. iProperty.com Malaysia Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

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