How to Refinance your Home Loans Smartly

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.

  1. Lower your monthly installment payment
  2. Debt Consolidation
  3. Using the Existing Equity in the Home
  4. Shorten the term of your home loan
  5. Combine a first and second mortgage
  6. Reduce the interest you pay over the life of the loan
  7. Switch from conventional housing loan with variable rate to a fixed rate loan or Islamic loan (or vice versa)
  8. Eliminate MRTA mortgage insurance

new-housing-scheme-by-s-p-setia-in-penang-island

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.

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.

Home Loan Refinancing Process infographic

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

Get the lowest interest rates when you refinance your home loan with iMoney’s calculator and comparison tool. Apply online and get professional assistance from their expert mortgage consultants. Sign up here to get a free home loan refinancing consultation ->>> http://www.imoney.my/home-loan-refinance

-other home loan packages offered by non-bank lenders; AIA, ING

  • icon

    You might need to “right-click” and “save-link-as” to download this PDF infographic to your computer.

This article is contributed by Sr Tan Chai Liang, a Valuer/Estate Agent/Auctioneer who blogs at www.intproperties.com.

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49 Comments

  • Alex

    Reply Reply May 26, 2010

    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?

    • KCLau

      Reply Reply May 31, 2010

      Bank shall not charge redemption fees when the lock-in period is over.

  • kim

    Reply Reply July 3, 2010

    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.

    • KCLau

      Reply Reply July 5, 2010

      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.

  • Kim

    Reply Reply October 4, 2010

    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.

  • shahrir

    Reply Reply February 8, 2011

    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.

    • micky

      Reply Reply April 22, 2011

      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.

  • Balachandar

    Reply Reply June 22, 2011

    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.

    • KCLau

      Reply Reply June 22, 2011

      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?

  • Calvin

    Reply Reply July 16, 2011

    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

    • KCLau

      Reply Reply July 19, 2011

      Then you may need to refinance for a higher amount. If that is not your intention, you may need to keep status quo.

    • James

      Reply Reply October 9, 2011

      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

  • jie

    Reply Reply August 17, 2011

    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?

    • KCLau

      Reply Reply August 18, 2011

      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.

  • Zzdin

    Reply Reply October 10, 2011

    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

    • KCLau

      Reply Reply October 11, 2011

      It can be the same bank. Depending on the banks, some do not offer great competitive package to existing customers. Shop around.

      • nurul

        Reply Reply March 14, 2012

        Hi KC,
        i would like to refinance my house but our developer is already bankrupt, what should i do?

  • Ann

    Reply Reply March 2, 2012

    Hi KC,

    Im seeking an advice on this below situation, pls advice, thanks in advanced..

    Situation:

    2 land tittle is charge in public bank for the amount of rm70k. (both land belong to Mr.A)
    As agreed Mr A get 1 land tittle
    And Mr B get 1 land tittle
    Due to Mr. A cannot service his loan.
    Mr. B intended to get the 1 land for his own refinancing with government loan/ commercial loan.
    The question is:
    1) Can Mr B, settle the outsanding land for the 1 tittle only and not the another 1 tittle.
    2) what will happen to the refinancing loan with public bank, will the bank lower the monthly payment or will they proposed to get another new loan. What is generally the terms and condition of public bank.
    3) when mr B wanted to get a fresh loan from government/ commercial loan should he make his own valuation on the land.

    • KCLau

      Reply Reply March 7, 2012

      Hi Ann, I think it is best to consult the banker regarding this scenario.

  • Ivan Sak

    Reply Reply March 17, 2012

    Hi KC,

    I have a refinance question to hope that can get your advice and info. I would like to refinance my house with the value at RM130K and aid to get 20k , the installment has been 5 years, if i prefer to do the re-financing with no EPF, will bank appoved on my application? What are the required documents that i have to submit to bank? Waiting for your kindly reply, thank you.

  • Dee

    Reply Reply April 10, 2012

    Hi KC,

    Chanced upon this and thought you site was very helpful. I have an outstanding amount of RM214,000 on my housing loan. Lock in period of 5 years completed. My interest repayment now is 5.45% (BLR – 1.15%). My current bank says I might get a BLR – 1.8% if I write in and they may waive the processing fee. I have another 25 years on my loan. I am thinking of refinancing. Is this a good idea?

    Thank you in advance & looking forward to hear from you.

  • James

    Reply Reply April 23, 2012

    Hi There,

    I would like to check related on refinance my apartment whereby my outstanding around RM106000 after check current value which is RM190000 from iproperty. how much i can go for? and if cics listed by bank negara can i do refinancing?

    Thanks

  • houseowner

    Reply Reply May 10, 2012

    Hi,
    Is there any possibility to refinance a house when the applicant failed the
    credit checking? Fyi, the intention is to settle all the finance related matters.

    Tq.

  • jafrizain omar

    Reply Reply July 24, 2012

    hi, i want top-up my housing loan around rm20,000.00 for renovation , currents balance rm4000.00, and current value house now around rm300,000.oo (terrace house) at batu caves

  • Deal

    Reply Reply August 11, 2012

    Hi KC,

    I have question in my mind which I have yet to find the proper answer. I really hope that you’ll be able to spend a moment to help me out.

    I read your post about understanding more about our current loan. I did. In fact I’ve gone through a couple of times the pages laden contract, though I must say most of the time I have not much clue of its content.

    Cut it short, I have an loan of Rm299000. My interest rate is BLR – 2.5%. So every month I am charged about 700-800 ringgit just for the interest. I have been very vigilant in trying to clear the amount, solely to cut down the interest. Now I’m down to 160000. But I was just wondering, with my lock in period of 5 years in the background, and if I did have the money to clear it off one time, what would be the best strategy be, minus the penalty of violating the lock in period? Even if I made it up to RM10000, I will still have too make sure that I am ‘able’ to pay the minimum amount per month, being careful not to overpay, thus violating the contract. Does this mean that no matter how much I pay of strategize, I will still have too pay interest every month, maybe smaller amount, but never small enough to be neglected, as there has to a minimum amount per month ‘owed’ times the amount of years left. Can’t I just pay the interest one lump sum and settle the principle at my own sweet time?

    Would be great if you could help.

    A thousand thanks

    BG

  • praba

    Reply Reply September 1, 2012

    i have 75k on loan and period over another 15yrs.my current payback was600 and 43 yrs old.can i have od for investment porpuse.yq.

  • Mrs Ravin

    Reply Reply March 27, 2013

    Dear KC,

    I took a loan with PBB RM220,000.00 and the current balance now is RM160,000, i need a top up of RM50.000 from the same bank, it was approved but RM40,000, with currently i have a loan at PBB with BLR-1.99, but the new top up loan is BLR – 1.30 for RM40,000.00, just iam not very happy, my question is whether i should go to another bank for better rate, what about the MRTA, my old loan we have taking the MRTA, can we claim back the money, do we have to take MRTA for the new loan at the new bank? please advice.

    regards,

    ravin

    Cut it short, I have an loan of Rm299000. My interest rate is BLR – 2.5%. So every month I am charged about 700-800 ringgit just for the interest. I have been very vigilant in trying to clear the amount, solely to cut down the interest. Now I’m down to 160000. But I was just wondering, with my lock in period of 5 years in the background, and if I did have the money to clear it off one time, what would be the best strategy be, minus the penalty of violating the lock in period? Even if I made it up to RM10000, I will still have too make sure that I am ‘able’ to pay the minimum amount per month, being careful not to overpay, thus violating the contract. Does this mean that no matter how much I pay of strategize, I will still have too pay interest every month, maybe smaller amount, but never small enough to be neglected, as there has to a minimum amount per month ‘owed’ times the amount of years left. Can’t I just pay the interest one lump sum and settle the principle at my own sweet tim

  • Visa

    Reply Reply March 27, 2013

    Dear KC,

    i need some help on the loan currently i have a loan of RM160,000 and BLR -1.99, the lock-up period if over and i need a top up loan from the same bank RM50,000, the loan have been approved and the top up loan is BLR – 1.3, shall i try a another bank, what about the MRTA, can i claim the MRTA is i go to another bank, do we need to have MRTA please advice.

    I have check with another bank and their can offer BLR-2.2 or 2.3 should i ask for better rate or the rate giving to me ok.

  • kelvin tan

    Reply Reply March 29, 2013

    i bought my house in 2011 however, the property price has increased 150k.
    i tot of refinancing my house to get some cash to clear debt etc.
    im still locked in my mortgage loan (5 yaers)

    what u think?

  • Ken

    Reply Reply May 18, 2013

    What do you think of those who refinance their property for cash and use them for investment? Is that recommended?

    • KCLau

      Reply Reply May 20, 2013

      @Ken, that is recommended as long as you can find investment that gives higher return than the interest you pay to bank.

  • Uthaya Chandran

    Reply Reply November 8, 2013

    Hi ,

    1) What is big differences between obtaining loan from Bank and taking government loan to purchase house ( assuming that the buyer is Public sector staff)?

    2) if currently the property is under Bank Loan scheme, can the owner ( Public Servant) refinance it under government loan ?

  • Sathiya Roopan

    Reply Reply December 26, 2013

    Hi KC,

    I purchased a house in 2010 in Puchong for RM 170,000. We payed a d/p of RM 70,000 and took a loan for RM 100,000 from PBB. Currently the property value has gone up close to RM 400,000. I’m in need of cash now to purchase another property. Would it be a wise choice for me to refinance my existing loan with PBB? I did some research and it seems like AIA is offering much better rates. Also will there be any tax which I need to pay, considering it has only been 3 yrs now?

    • KCLau

      Reply Reply December 27, 2013

      @Sathiya, you can refinance and cash out the equity. The problem is that there is a new ruling that when you refinance an existing homeloan, it can’t be longer than 10 years. So your installment will be a lot higher each month.
      AIA offer fixed rate for the whole term so you will feel more secured knowing that there won’t be increment on your installment if interest increases in the future.
      Tax is not required. But you will incur cost for the legal process of refinancing (stamp duty for loan agreement, legal fees, early redemption penalty etc)

  • anne

    Reply Reply January 13, 2014

    Hi KC.

    Need your advice on this.
    I plan to pay off my housing loan (remaining 70k, BLR -1.80) in 3 years. the monthly installment is rm535 for 25 years (now 19 years remaining).

    Therefore I plan to apply a personal loan of 70k , 2.36%/year (fixed rate) for 3 years, with monthly installment of rm2083. Is it a sound idea? Or should I just continue paying an extra 1500/month off the principal amount for the next 36 months?

    My plan actually is to avoid paying high interest on the house since the actual loan amount is only 90k. And I’m reluctant to use my savings to pay off the mortgage.

    Thank you in advance for your attention KC.

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