Refinancing your existing home loan can save you a lot of mortgage interest. In certain cases, you can easily save more than a hundred thousand ringgits if you borrow a substantial amount of money to buy your residential house.
The reason to refinance mortgage:
- to save interest cost with better home loan package offered by other banks
- to reduce monthly payment
- to reduce or prolong loan tenure
- to cash out the home equity for emergencies or other needs such as children education and business venture.
- maybe it’s just simply to enjoy better flexibility in managing cash flow
- to consolidate all other debt into one with the lowest interest charges
How much can you save by refinancing home loan?
For illustration purpose, I will use an example of an engineer to calculate how much he can save by doing refinancing
Home loan details:
- Start paying monthly installment on 1st January 2004
- loan tenure 30 years
- mortgage interest rate with his existing bank: first year 2.5%, 2nd year 7%, 3rd year 7.5%, 4th years onward 7.75%
Refer the schedule of payment below:
After the lock in period of three years with the existing bank, I adviced him to refinance his mortgage to OCBC bank on January 2007. There will be no penalty on early settlement after the lock in period of first three years. Currently OCBC is offering fixed rate package of
- 1st to 5th year 6.18%
- BLR – 1.55% thereafter ( BLR or base lending rate = 6.75%)
- moving fees is absorbed by bank
To compare apple to apple, I calculate using the remaining tenure of 27 years and only refinance the principle of RM191,204.55
The new schedule looks like below:
Before refinancing, he would have to pay RM1410/month installment.
After refinancing to OCBC bank, he only pays RM1214.67/month, providing him a positive cash flow of RM200/month.
Compare the total amount of installment paid after 30 years:
1. No refinancing: RM498,625.39
2. With refinancing on 4th years: RM408932.28
Total saving is RM89,693.11.
He can save even more by doing refinancing after serving OCBC mortgage loan installment for five years, which is the lock in period practiced by bank at this moment. It is a simple strategy to always refinance your home loan after the lock in period. This will definitely save you a lot of mortgage interest cost.
If you are interested to get an amortization table or loan schedule for your current mortgage, feel free to contact me.
Information needed to calculate cost savings for refinancing
- outstanding loan
- installment amount
- interest rate
- current loan tenure
- lock in period at existing bank (normally 3-5 years)
If you find it hard to get the information above, maybe you lost the offer letter or loan agreement, you can call your bank customer service center:
Customer Service Call Center of the Banks in Malaysia:
- AmBank 03-2178 8888
- AIA 03-2056 3207
- Alliance Bank 03-5516 9000
- CIMB Bank 1300 88 0900
- Citibank 03-2383 0000
- EON Bank 03-2148 8077
- HSBC 03-2050 7878
- Hong Leong Bank – 03-7626 8899
- Maybank 1300-88-6688
- OCBC 1300-88-5000
- Public Bank 03-2176 6000
- RHB Bank 1800-88-9922
- Standard Chartered Bank 03-7711 8888
- United Overseas Bank 03-2612 8121
Home Loan Calculators:
- Refinance calculator by YKConsultancy
- Loan Amortization Calculator by Malaysia Real Estate Portal
- Loan Calculators by Standard Chartered bank
- Loan Calculator by Maybank
- Mortgage calculators at Fiscal Wise
- Loan Calculator by OCBC
- Compare loan at EMYGHT
- Simple loan calculator by Meshio
Other relevant articles about buying house in Malaysia:
- Home loan FAQ by iProperty
- Home loan by Malaysian bank at Property Malaysia
- Mortgage category at My Home in Malaysia
- Buying a house at Alloexpat