Updated: Apr 2, 2021
As mortgage applications plunged 72.1% year-on-year in April 2020, it is clear that Malaysians are not making big-ticket purchases amid economic uncertainties in the wake of the Covid-19 pandemic.
The latest data from Bank Negara Malaysia (BNM) show that borrowers are unwilling to get themselves involved with a housing loan in the near term following uncertainty in the economy as well as new waves of infections in the country despite movement restrictions. At this time of economic downturn, Malaysians could and should explore mortgage refinancing to obtain extra liquidity.
But what exactly is refinancing?
For the uninitiated, mortgage refinancing basically means borrowing money from the bank you have a home loan from (or from another bank) under a new loan to settle the debt you owe in your current home loan account.
When should you refinance your home loan?
Leveraging on property appreciation or current interest rates, one could successfully take out a new home loan to settle the outstanding home loan and end up with a cash gain (whether immediate due to capital appreciation or long term with lower monthly repayments).
Sounds great, but what’s the catch?
Banks generally have a lock in period to prevent borrowers from flipping or selling off their homes too fast before the interest and principal portion is paid off. Most banks implement a 3 to 5 year lock in period with a penalty of 2 to 5 per cent charged on the bank loan amount if the property is sold off or refinanced within the lock in period.
What else should I consider if I’m thinking of refinancing?
As the saying goes; more money, more problems. And as such, you can expect a good chunk of ‘hidden’ costs before you can get your chunk of change. The new mortgage is in essence a new loan agreement, so you will incur bank processing fees, legal fees, stamp duty, disbursement fees, as well as new sales and purchase agreement fees. Simply put, it’s the same knitty gritty costs that you already paid for when you applied for a home loan the first time around.
So I want to go ahead with it anyway, where do I start?
It is advisable to obtain your CCRIS report through Bank Negara or through the independent agency CTOS for RM26.50 per report. This report shows your current financial health including a list of your current bank loans, assets, and liabilities. It’s also worthy to note that there are various loan packages out there by various available banks. Take the time to go through each package in detail to determine which one suits your needs best.
Seems tedious? That’s because it can be.
The whole refinancing process can take up to 6 months. In order to save valuable time, it would be best to have all your supporting documents in order. In the case that you are lacking in credit score, or have a particular amount of liabilities, the bank may request additional documents to back up your financial health. To ease the process, however prepared you may feel to tackle this Herculean task alone, you should look into a financial advisor for further guidance.
At ASM Advisory, we strive to be your financial advisory provider of choice. Aiming to be a one stop solution for your needs, we provide a full service consultation from analysis of your financial health to application submission. And if you need help narrowing down your options, our consultants will even give you a hand in selecting the loan package that suits you best. Book a consultation today to find out more.
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