Do you own a house in Malaysia? If you do, there is a high probability that you own a home loan too. If you are yet to clear your home loan and are struggling with the repayments, here is a good news! You can approach another bank to fetch a fresh home loan on the same property so that you can clear the existing loan from the money you receive from the new loan. You will also get some more cash in hand which can be judiciously used for your necessities.
Why Consider Refinancing a Home Loan?
- Interest Rates: Due to competition in the market, banks have been reducing the interest rates on home loan year-on-year. If you have borrowed your home loan quite some time ago, then it is the right time for you to talk to your bank officials regarding the interest rates. If they do not agree to offer you the market rate, then just switch the bank.
- Additional Cash: If you need some cash on hand for any reason, you might think of a personal loan. But, it isn’t practical to squeeze in the personal loan into your monthly expenses. So, the better way to deal with this situation is to refinance your home loan. That will give you about 90% of the property value. You can use the money to settle your current home loan and then use the remaining amount for your emergencies.
You can get a clear understanding of how refinancing works when you read this example. Consider that you bought a house for RM250,000 in 2009. You have borrowed RM225,000 from a bank. Say, the outstanding balance of your loan is RM160,000.
In 2018, the property value may have increased to RM400,000. Therefore, if you refinance your home loan now, you can borrow a sum of RM320,000 even if the margin of financing is 80% of the market value. You will pay off the previous loan with RM160,000. You still have another RM160,000 at hand.
- Change Bank/Product: You may not be satisfied with the service offered by the bank you have borrowed from. Or, you may have heard of a better housing loan product with better schemes. You can switch the bank/product and have better time repaying the loan.
Do take care that you do not miss out on any of these when you are looking for refinancing:
- Verify if the interest rate of your current home loan is greater by 0.75% or more on the interest rate offered in the current market. Only then does it make sense to refinance your home loan.
- Check if you have a good credit score.
- The loan-to-value ratio is the margin of financing you get for your property. Do not go for the offer with less than 70% margin.
- Visit a handful of banks to get quotes on refinancing.
- After refinancing, save the money you get in hand after you pay off the previous home loan.