110% Loan: 3 Risks First-Time Buyers Often Overlook

Introduction: The Appeal of “Zero Downpayment”

“No downpayment” sounds like a dream for a first-time buyer. But what if the biggest cost of a 110% loan comes after you get the keys?

Higher financing can make homeownership easier to enter by reducing the cash needed upfront. But borrowing more than the property price does not make the home cheaper—it means taking on a larger financial commitment, potentially affecting your monthly repayments and total financing cost for years to come.

Before you see a 110% loan as a shortcut to getting your first home, here are 3 risks first-time buyers often overlook.

Risk #1: The Negative Equity Trap

One of the biggest risks of higher financing is having a smaller equity buffer when property values fall. Equity is broadly the difference between the property's current market value and the amount still owed on the loan. A buyer who puts down a larger deposit starts with more equity, while a buyer who finances a higher percentage of the purchase price has less of a cushion against a decline in value.

For example, if a property is purchased for RM500,000 with a 90% loan, the buyer initially contributes RM50,000 towards the purchase price. With 110% financing, assuming the full amount is financed, the loan exposure could be RM550,000 instead. If the property's market value subsequently falls, the gap between what the property is worth and what remains outstanding on the loan can become significant.

This is where negative equity can become a concern. It occurs when the outstanding loan balance is higher than the property's current market value. The exact position will depend on factors such as the loan amount, repayments already made, interest or profit charged, and the property's actual market value at that time.

The problem becomes more apparent when the owner needs to sell the property. If the property can only be sold for less than the amount needed to settle the outstanding loan and associated selling costs, the owner may need to find additional money to cover the shortfall. This can make an unexpected relocation or a decision to sell much more financially difficult. Refinancing can also be affected because lenders assess the property and the outstanding financing when determining the available loan amount.

What Does the Additional 10% Actually Cover?

The term “110% financing” does not necessarily mean the buyer receives an extra 10% of the property's price as cash in hand. Under schemes such as SJKP, the additional financing may be permitted for certain related costs, subject to the specific scheme's limits and the participating lender's approval. Depending on the applicable financing arrangement, these may include items such as mortgage-related costs, legal fees, valuation fees or other eligible expenses.

For instance, on a RM500,000 property, 110% financing would represent RM550,000 of financing exposure. That does not automatically mean the buyer receives RM50,000 in cash to spend freely. What can actually be financed, how much is approved and how the funds are disbursed depend on the applicable scheme and lender's terms.

This distinction matters because additional financing is still financing. Any amount added to the loan increases the amount that must ultimately be repaid, together with the applicable interest or profit charges. Buyers should therefore look beyond the attraction of paying little or no upfront deposit and consider how much they could still owe if the property's value falls after purchase.

Risk #2: The Higher Monthly Commitment

A “zero downpayment” purchase does not mean there is no financial cost. It mainly changes when and how much cash the buyer needs to put into the purchase upfront. If a larger portion of the property and eligible related costs is financed, the buyer generally takes on a larger loan balance, which can translate into higher monthly repayments and more financing costs over the life of the loan.

Consider a simplified example using a RM500,000 property. A 90% loan would mean RM450,000 is financed, while 110% financing would represent RM550,000 of financing. Using an illustrative 4.5% interest rate over 35 years, the estimated monthly instalment would be about RM2,130 for the RM450,000 loan versus about RM2,603 for the RM550,000 loan. Over the full 35-year tenure, the difference in total interest would also be substantial.

The difference does not stop at the monthly instalment. Based on the same illustrative assumptions, the 90% loan would result in approximately RM444,000 of interest over 35 years, compared with approximately RM543,000 for the 110% loan. The actual figure will depend on the financing rate, tenure, repayment structure and whether the rate changes. SJKP states that the interest or profit rate is determined by the participating financial institution, while its financing calculator uses the rate and tenure entered by the applicant to estimate monthly installments.

Buyers should also avoid looking at the home loan in isolation. Owning a property can involve maintenance charges, sinking fund contributions, utilities, insurance or takaful, assessment and quit rent where applicable, repairs, and other household expenses. For a condominium or serviced residence, recurring maintenance and sinking fund payments can become a meaningful part of the monthly housing budget.

The bigger concern is becoming “house poor”—where too much of the household's available income is committed to housing, leaving little room for savings, emergencies, daily expenses or other financial goals. A loan may be technically affordable based on a lender's assessment but still feel restrictive in day-to-day life. SJKP's eligibility criteria, for example, state that total repayment of an applicant's loans should not exceed 65% of gross monthly income, but buyers should still consider their own broader monthly budget rather than treating the maximum eligibility level as a target.

For first-time buyers, the important comparison is therefore not simply “How much deposit can I avoid paying?” but “How much of my monthly income will this home continue to consume after I move in?” A smaller upfront payment can preserve cash savings, but taking on a larger loan can create a higher recurring commitment for many years.

Risk #3: The Loan Terms You Might Overlook

The financing percentage is only one part of a home loan. Two packages may both offer high financing, but their lock-in periods, fees, repayment conditions and early-settlement rules can differ. These details may seem minor when the priority is getting enough financing to buy the property, but they can become important if the buyer's circumstances change later.

A lock-in period is particularly relevant if the buyer expects to sell the property or refinance within the early years of the loan. Depending on the loan agreement, settling the financing or refinancing during the lock-in period may result in an early-settlement or prepayment charge. Other costs may also apply, such as legal, valuation or administrative fees, depending on the transaction and financing arrangement. Buyers should check the specific offer letter and loan agreement rather than assuming that all 110% financing packages have the same conditions.

Refinancing can also be less straightforward than it appears. A homeowner may want to refinance later to obtain a different rate, change the financing structure or access a more suitable repayment arrangement. However, the new lender will assess the property and the borrower's financial position at that time. If the property's market value has fallen significantly, the available refinancing amount may not be sufficient to fully replace the existing loan. This can limit the owner's options or require additional cash to cover a shortfall.

This is why buyers should look beyond the headline “110% financing” figure. Before committing, they should understand the applicable interest or profit rate, financing tenure, lock-in period, early-settlement conditions, fees, monthly repayment and any other terms that could affect the cost of the loan. For SJKP-backed financing, for example, the actual interest or profit rate is determined by the participating financial institution, so the scheme's financing coverage should not be treated as the complete description of the loan.

Ultimately, the comparison should be about overall cost and flexibility, not simply how little cash is required upfront. A package with higher financing may reduce the initial cash burden, but buyers should consider what they are committing to over the entire loan period and how easily they could respond if their income, plans or the property's value changes. Reading the full financing terms before signing can help prevent an attractive headline percentage from overshadowing conditions that matter later.

When Can 110% Financing Make Sense?

Higher financing may make sense for a buyer who has a stable and sufficient income to manage the monthly repayments but does not have enough upfront cash for a conventional deposit and other eligible purchase costs. In this situation, the main challenge may be liquidity rather than the ability to service the loan. However, the buyer still needs to demonstrate that the property remains affordable after accounting for all recurring ownership expenses.

It may also be relevant to self-employed individuals and gig workers who have difficulty qualifying for conventional home financing because their income can be less straightforward to document. SJKP specifically caters to eligible applicants who are self-employed or earn income from non-fixed sources, subject to the scheme's requirements and the participating financial institution's assessment. This can include individuals such as small business owners, freelancers and gig workers.

However, having access to higher financing does not mean buyers should borrow the maximum amount available. A healthier approach is to retain an emergency buffer after completing the purchase. Homeowners may face unexpected expenses such as repairs, temporary income disruption, higher household costs or other financial commitments. Using every available ringgit towards the property can leave little room to absorb these situations.

Buyers should also stress-test their affordability before committing. Instead of calculating the budget only using the current expected installment, consider what would happen if financing costs increased, income temporarily fell, or an unexpected expense occurred. The purpose is not to predict that these events will happen, but to determine whether the household could still manage the loan if circumstances became less favourable.

Ultimately, 110% financing is more suitable when the buyer is using it to manage an upfront cash constraint, rather than using it to stretch into a property that would otherwise be unaffordable. The key is to make sure that the monthly commitment remains manageable while keeping enough financial flexibility for life after the purchase.

Conclusion: Don't Buy Based on the 110% Number

110% financing can reduce the upfront barrier to buying a home, particularly for eligible buyers with sufficient income but limited savings. However, a lower upfront payment does not mean lower financial risk. Taking on a larger loan still means committing to repayments and financing costs over many years.

Before deciding, buyers should look beyond the headline “110%” and consider the monthly repayment, total interest or profit charges, financing tenure and ongoing ownership costs such as maintenance, insurance, utilities and repairs. SJKP can help eligible buyers access financing, but it does not remove the risks of owning a property or protect against changes in income, unexpected expenses or changes in property value.

The more important question is therefore not simply “Can I get 110% financing?” but “Can I comfortably afford this commitment if things don't go according to plan?” If the answer is still yes after accounting for repayments, ownership costs, emergency savings and unexpected circumstances, then the financing structure can be considered as part of the buyer's overall financial position—not simply because it requires less cash upfront.