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A GUIDE TO HOME LOAN Refinancing How you could use it better for your personal financial? (as a homebuyer) What home What are the benefits? loan refinancing is? What is Home Loan Refinancing The act of replacing your existing home loan with a new home loan under different terms and conditions. ΒΑNKA BANK B Simply put, you "clear off" your home loan debt with one bank by borrowing from another! You can refinance to improve your personal finances But Why Would You Borrow From One Bank to Pay Off Another? PAY LESS INTEREST Say you took up a home loan for RM400,000 over a period of 30 years when BLR - 1.8% was considered a good deal; this would be your current home loan situation: After 10 years, you decide to refinance to a home loan package with a new rate of BLR - 2.4% for the remaining loan duration. In this case, your home loan situation would change to: Outstanding Loan Amount After 10 Years Actual Monthly Repayment - RM1,993.92 BLR Now = 6.6% Actual Interest Rate = 6.6 - 1.8 = 4.8% p.a. Monthly Repayment = RM2,098.66 Approx. RM323,389 rest Rate - 6.6 - 2.4- 4.2% p.a. RM104.74 less RM25,137 home loan payment every month total interest saving paid to the bank This is a very common scenario where home loan refinancing could save your money NOTE The above calculations are carried out via a home loan calculator as adopted by a major Malaysian bank, with the intention of illustrating the interest-reduction benefit of refinancing. They may not accurately represent all home loan products currently in the market. WAIT People Refinance for Other Reasons Too! And these are some of the more common ones. Change Loan Program Extend Loan Free Up Period More Cash HOW HOW HOW If you're currently on a variable rate home loan If you wish to reduce your monthly home loan repay- ments at the expense repay- (i.e. where the interest rate fluctuates along with market conditions), you can use refinancing to change a fixed rate home loan (i.e. where the interest rate is the same through- out the loan period). Or vice versa. If the value of your home has increased, refinancing allows you to take up a new home loan based on this higher valuation - part of the amount would be used to pay off your original home loan, whilst the remaining amount ment each month at the expense of incurring more interest over the long run, you could refinance to a home loan with a longer period. Gener- ally, the longer your loan period is, the less your monthly repayment becomes. could be used for other personal needs" WHAT FREE UP CASH And here's an example of how it works. Present Valuation of Your Amount You Still Owe in Your Original Home Value: Home Value: Your Original Home Loan: RM300,000 RM350,000 RM250,000 You "Over Borrow" by Carrying Out Refinancing for 90% of the Present Value of Your Home: The Amount of CASH You Free Up For Personal Use is RM315,000 - RM250,000 = RM65,000 RM315,000 COST Two Key Cost Considerations Before You Refinance Moving Cost Lock-In Period Moving cost refers to the money you'll need to spend on things like valuation, legal fees, disbursement and stamp duty when you initiate a refinance. t could come up to about 2-3% of your refinance amount! Many refinancing packages come with a lock-in period. If you choose to exit from your refinancing package within the lock-in period, expect to pay a hefty exit penalty which could be up to 5% of your refinanced loan amount! TIPS: Some banks offer "zero-moving cost" refinancing package which absorbs the moving cost but usually at the expense of higher loan interest. Do the math before you commit! LOAN, How Do You Go About Refinancing a Home Loan The answer is: with great prudence. Like anything that involves lots of money, refinancing your home loan is an endeavour that requires time and commitment on your part. Here are some recommendations on how you could go about doing it with greater efficiency. 1: Determine Your Objectives Are you refinancing to reduce the interest or free up some cash? Make sure you're 100% certain right from the start. 2: Double Check Agreement 3: Make Initial Comparisons Retrieve your current home loan agreement. Look up "lock-in C period" or "early settlement penalty". Use online tools like www.imoney.my/refinance to look for refinacing deals. Shortlist a few good ones. 6: Negotiate Negotiate with the banks for better rates and terms 5: Evaluate the Offers Evaluate Letters of Offers you 2 received from banks. Make sure the terms are favourable with relation to your objectives. 4: Approach the Banks Approach short-listed banks individually or apply online for free on www.imoney.my/refinance 7: Read the Details Read the fine prints before you sign. Pay special attention to "Moving Cost" and "Early Settlement Penalty". 8: Sign Up You've done the comparison, the evaluation and the calculation. Now feel free to sign up and enjoy the benefits! Still Need More Information? Simply log on to www.imoney.my/articles to read up on all the basic information you'll need to survive Malaysia's home loan system. INFO Alternatively, email [email protected] and we'll be more than happy to help out in whatever ways we can. This infographic is brought to you by iMoner.mY Malaysia's Number One financial comparison website dedicated to helping people make the best of their money. Designed by Piktochart Created: July 2013 LO