As competition is heating up amongst the commercial banks for banking on home loans, more new home loan promotions and competitive refinancing packages are available in the market to entice homeowners to refinance their existing loans. Following the latest cut of interest rates by Malaysia’s central bank, most commercial banks have already revised their base lending rates (BLR) from 6.75% to 5.75-6.0%. With interest rates trending lower, it is a good time to review, restructure and refinance your existing loans. There are several good reasons that home owners would benefit from switching their loans to a new loan with lower interest rates;
- Lower your monthly installment payment
- Debt Consolidation
- Using the Existing Equity in the Home
- Shorten the term of your home loan
- Combine a first and second mortgage
- Reduce the interest you pay over the life of the loan
- Switch from conventional housing loan with variable rate to a fixed rate loan or Islamic loan (or vice versa)
- Eliminate MRTA mortgage insurance
Before opting to refinance, it is important for home owners and property investors to consider the savings or benefits of refinancing vis-a –vis the costs of refinancing. Do your own break-even analysis between long term savings and refinancing costs to determine whether the savings really outweigh the costs of refinancing or otherwise.
More at Making sense of mortgage refinancing and Should I refinance now?.
However, there are circumstances whereby refinancing might not give you the maximum savings such as when you have short remaining years to retire your loan etc. Refer Why say no to refinancing.
For Malaysia home owner as well as property investors who are uncertain of holding the property for long term or you have plans to sell off the property in the near term, not all refinancing packages will provide you the best refinancing benefits. Refinancing packages with features of “Zero-Entry Cost” or “Zero-Moving Cost” may not necessarily the best option, depending on your financial needs. Under such packages, although you are not required to pay any processing fee, legal fees, stamp duty, valuation fees upfront, the loans are subject to higher interest rates and imposition of exit fees or early redemption penalty up to 5% of the loan amount (vary from bank to bank) in the event that you choose to redeem your loan within the lock-in period of 5 years. Example if a house owner has to redeem his loan of RM200,000.00 within the lock-in period, he has to pay 5% of exit fees ie RM10,000.00!!!
We have come across property sellers who were stuck with loans with lock-in period and only realized that if they decide to take up a good deal offered by interested buyer, they have to pay the exit fees for redeeming the loan prematurely. On the other hand, if they choose to wait until the expiry of lock-in years ie after 5 years to avoid payment of exit fees, they might lose the opportunity of capitalizing gains or losing the sale due to changing market conditions. For investment properties, the better alternative is to look for refinancing packages with no exit fees or shorter lock-in period which give you more flexibility in terms of selling / renting, though initially you may have to pay slightly higher interest rates and documentation costs, it is still better than paying exit fees which could end up diluting your capital gains.
Below is a simple checklist to guide you on home loan refinancing :-
1. Get information on the current mortgage
For the current mortgage, you should be able to get the following information from the bank:
- the outstanding balance or ringgit amount left on the mortgage;
- the remaining number of years on the mortgage; and
- the interest rate on the loan.
2. Get information on the new loan
For the new loan, you should get information on the following:
- the terms or the number of years of the new loan; and
- the interest rate on the new loan.( the latest interest rate can be as low as BLR – 2.4% )
3. Get the costs of refinancing
The costs you are likely to encounter when refinancing include:
- processing fee or application fee;
- credit check fee;
- legal fees;
- stamp duty;
- disbursements fee;
- valuation fees; and
- redemption fees (if applicable)
4. Shop for best refinancing loan packages that suit you.
- Find out the latest home loan promotions by various lenders in Malaysia :-
-Malaysia Home Loans – What’s New (January 2009)
-Conventional home loan packages
-Islamic Home Financing Packages
-other home loan packages offered by non-bank lenders; AIA, ING
This article is contributed by Sr Tan Chai Liang, a Valuer/Estate Agent/Auctioneer who blogs at www.intproperties.com.
{ 17 comments… read them below or add one }
Nice article on refinancing. I was wondering if I refinance my home loan and i’m out of the lock-in period. Will my previous bank still charge me any redemption fees if I refinance to another bank?
Bank shall not charge redemption fees when the lock-in period is over.
My outstanding in current bank is less than RM5000 , shall i direct do refinancing or settle off first the loan , thereafter only do refinancing. How much different of the legal fees charges. The apartment is still under master title.
It also depends on the lock-in penalty period of your current home loan.
When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home.
Hi KC,
Recently, i am reviewing some options for the possibility to either re-finance or get a top up loan option for my apartment unit which meant for investment purpose. Do i need to take MRTA insurance package or i should consider to get a general life insurance package. Appreciate for your advice and feedback. Thank you.
Hi KC,
I don’t understand much how loan repayment works and appreciate any guide you can give. I have been paying for a home loan (BSN girohome) for 10 years and have another 10 years to go. I consider to sell the home (its a piece of land actually) and ask the bank how much I would have to pay to settle the loan. They are telling me that it makes no different whether I want to settle the loan on a lump-sum basis now, or continue to pay monthly over the next ten years as planned – the total amount is still the same (or slightly less) . That doesn’t seem to make sense to me considering the time value of money. Thanks for your help.
Not sure where this is coming from. I mean the bank. Should you opt for early exit, there should be a reduction namely in interest mainly for instance is you are left with 50k to go and charge with interest of 4% then if multiply by 10years means an interest of (4%*50k)*10years = 20k of interest. then this should not be taken into accountable. I think BSN (mainly is just playing dumb). You should go to the HQ and make a hassle about it. Someone has to explain unless its written in the fineprint.
Hi KC,
I have outstanding balance for my home loan for RM130,000 with public bank. And i have to pay for another 5 years.
Recently i decided to do some restructuring and approach CIMB, who offered -BLR minus 2.2%. .
But with same installment amount, CIMB is worked out years to be paid is 7 years.
I’m confusing on refinancing .
Can you render some thoughts on how to do it.
Hi Balachandar,
It shouldn’t be that way if the rate offered by CIMB is lower, on the same amount of loan RM140,000 and paying the same amount of installment. It should be less than 5 years.
Or maybe there are hidden charges involved? Ask your mortgage officer to explain how can this be so?
Hi KC,
My current home loan outstanding is rm55000. BLR is 6.6 + 0.2%. I plan to refinancing the home loan, but most the bank minimum required borrow rm100000 above. is it worth to refinance? Can you advise me? Thank you
Then you may need to refinance for a higher amount. If that is not your intention, you may need to keep status quo.
Calvin,
It is possible to refinance your property of 55,000, but the rate is BLR – 1.9%. If you are interested, you may email me at jamestanel@gmail.com.
Cheers,
James
I don’t really get it. I heard that to refinance home, we will need to know the current value of our property. Is that true? what’s the use then?
Hi Jie,
If you know the current market value of your property, you will have an idea of how much money you can borrow from through mortgage by doing refinancing. The banks will need to evaluate your property anyway.
Hi KC,
Is it possible to refinance my home loan with the same bank or must it with another different bank? My current loan is with hongleong and I find that they’re one with the lowest rate.
Rgds
It can be the same bank. Depending on the banks, some do not offer great competitive package to existing customers. Shop around.
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