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Is "Zero Entry Cost Loan" the Best Option for the First Time Property Owner?

BY Team Loanstreet

Updated 15 Jun 2021

These days finding the right home loan can be much easier when using home loan comparison tools and comparisons, but trying to understand the terms and conditions and how these affect your loan can be stomach-churning.

Many home loan providers are becoming more creative and so different conditions are often applied to different packages. Each one caters to a different set of customers, which may often confuse the customer in the process.

One such confusion is Zero Entry Cost (ZEC). Have you ever wondered what ZEC means? How does it affect your costs and total loan payment?

Before we answer these questions, let us first introduce you to the different entry costs incurred when choosing a home loan, based on the current government’s rate.

What's covered in this article?

What are the entry costs?

The entry costs, as implied, are costs that you are obliged to pay upfront for the purchase of a property. For example, legal fees and stamp duty for both sale and purchase agreement (S&P) and loan agreement, and down payment. The tables below show how much you pay in entry costs. The initial down payment is excluded but this is usually 10%.

Costs related to Sale and Purchase (S&P) Agreement

1) Legal fees


2) Stamp duty


Costs related to Loan Agreement

1) Legal fees

The legal fee percentage and structure for loan agreement is similar to the S&P legal fee structure (refer to the table in 1 above). However, it will be based on the loan amount (unlike S&P that is based on the purchase price).

2) Stamp duty


Zero Entry Cost (ZEC) loan

With “ZEC” loans the banks cover the entry costs for the customer in return for applying a higher interest rate to the loan. However, it must not be mistaken that the down payment is also waived. In fact, the maximum margin of finance is 90% (some banks may offer up to 95%) and thereby the down payment is at least 10%.

So, the costs you will save are in legal fees and stamp duty for both S&P agreement and loan agreement.

While most of the time banks absorb the legal fees in ZEC loans, some banks may include the entry costs in your loan amount. That said, you essentially do not waive entry cost payment and more so you have to pay extra interest for the inclusion of entry costs in your loan amount.

What is the benefit of ZEC loan?

Apparently, ZEC loans are good when you do not have enough cash to fork out the one-off entry costs. Besides, suppose that you are buying several properties at the same time, you may want to take a ZEC loan to cut down the huge entry costs involved.

So, is ZEC loan better than Non-Zero Entry Cost (non-ZEC) Loan?

Non-ZEC loan is a loan which, as opposed to ZEC loan, you have to pay for all entry costs. The answer for this question is “Not necessarily”. Remember that banks charge you a higher interest rate (usually at least 0.2% higher) for home loan with ZEC. Depending on your individual need, ZEC loan may benefit you but it may not be in your favour when it comes to total interest payment. So, here is everybody’s question, do you really save more on Zero Entry Cost loan?

To understand more about home loan interest rates, read our previous article “New Reference Rate In Malaysia Effective 2nd January 2015: Base Rate (BR)”.  

Let’s look at a scenario here. You intend to purchase a property worth RM500,000 and you are looking at a non-ZEC loan, with the details shown in the table below.


Now, look at how much you would need to pay for the entry costs:


When you compare the Non-ZEC Loan with a ZEC Loan the only difference is that the ZEC loan has a higher interest rate.


So how are the payments different? How much more interest do you need to pay if you take up a ZEC loan?


Note: You can save time calculating these by using our home loan calculator!

If you opt for ZEC loan, you save RM20,750 initially but you will end up paying RM48,723.36 more in interest payment. That would compute to a difference of RM27,973.36. Furthermore, you can expect the difference to be bigger when the loan amount or the interest rates’ difference is larger.


Therefore, the conclusion is obvious: the zero entry cost loan may not necessarily be better than non-zero entry cost loan, in terms of total interest payment and the opportunity cost you would lose. However, if you are a finance person and you want to discount every future payment to its present value, the outcome may be different.   

Nevertheless, if the value of the entry cost savings, in your own perspective, worths more than the value of interest payment savings, you can always go for the ZEC loans. Sometimes, banks do offer incentives such as cashback on ZEC loans to counterbalance the effect of higher interest rate.

Alternatively, you can actually find some entry cost subsidies given by our government. Read our previous article “How Much Is Really Needed To Buy Affordable Housing” to know more.  


Home loans are designed to cater to different needs from the consumers. Certain features of the loan may benefit some people but they may not make your life better. So, learn the terms and conditions of the loan carefully to avoid any unwanted features. You can also compare home loans and their features through our website.

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About the Author

Team Loanstreet

Run by a professional human-sized team, get resourceful tips & guides from our very own library of financial articles that can help improve your financial lifestyle & make a well-informed money decision. We strive to provide you with the best service in helping you to get the most out of that DUIT!


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