what is refinancing?
Refinancing is a home mortgage that involve paying off an existing loan and replacing it with a new one or turning our existing home loan into a new home loan to gain the difference between the purchase price and current market prices.
Why do we need to refinance?
There are many reasons why homeowners choose to refinance but here are the 3 main reasons to look into:
1.) To obtain a lower Interest Rate. One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many banks/lenders say 1% savings is enough of an incentive to refinance.
2.) To reduce monthly loan repayment or shorten the loan tenure of the mortgage. By saving down the road, you are more financially stable.
3.) Allocate the cash out for further investments, funding for children’s education, house renovation, settle other debts and etc..
When to refinance?
We can consider refinancing on our mortgage loan once it has been paid for several years and the value of the property has appreciated.
How to refinance?
Wondering how’s the process of refinancing goes about? Here is some information you need to gather before going to the bank for refinancing:
- After identifying your purpose, find out how much cash do you need in order to achieve your goal. You can write it down in our checklist provided for a clearer picture.
- Find out how much is your home loan’s outstanding balance by calling up the bank to check or refer to your own latest home loan statement
- Check the expiry date of the lock-in period. Make sure the lock-in period with the bank is over or else you will need to find out how much is the penalty.
- Survey your property’s current market value through online property portals like iproperty.com, prepertyguru.com or others to check the selling price. You shall have the estimated market value by minus 20% from the price you checked. ( Example, RM500,000 – 20% = RM400,000) Be sure to get the actual bank given value once you are applying for it.
- Since you are running into a new mortgage, there are some “moving cost” which you ought to know and it is about 2-3% of your new loan amount. Check our checklist for more details of the cost.
- After homework is done and the decision is make, we can now proceed meeting up with the bankers and submit documents required.
- The approval of loan by banks is very much determined by a borrower’s CCRIS report, hence is very important to maintain a good credit history. The process for bank to approve our loan will normally take about 7 working days.
- Bank will call you to sign the letter of offer once your loan application is approved. And later on, you will need to sign the bank loan agreement with the lawyer assigned by the bank.
- During our waiting period, the bank will proceed with 1st Disbursement, which your new bank will settle the outstanding balance by paying it to existing bank. When come to Final Disbursement, your new bank will release the cash out portion into your bank account.
- Finally, you have yourself a new home mortgage. Enjoy your cash out and use it wisely!
All the best on your refinancing application!😊
PS: Lock-in period is a very common practice among Malaysia’s bank. It’s set by banks to prevent borrowers from selling off their property too early before the interest and principal portion is fully paid off. Most banks implement a 3 year lock-in period. There are some instances where the lock-in period is 5 years. A penalty of 2-5% (depending on the bank) will be charged on the bank loan amount if the property is sold off or refinanced within the said lock-in period.
