When should you consider refinancing your home loan?
1. Lower interest rate
Sometimes, banks might be able to offer you a new loan with a lower interest rate than your existing loan. A loan with a lower interest rate means you’ll pay less in interest and in monthly installments.
Imagine you have 10 years left on your existing home loan and you have a balance of RM100,000 to pay back at an interest rate of 3.8%. For example if the bank offers you a new loan for RM100,000 with a 3.1% interest rate for 10 years, here’s what your savings could look like
|Loan at 3.8%||Loan at 3.1%|
|Monthly repayments (RM)||1,003||970|
|Monthly savings (RM)||–||33|
|Total interest for 10 years (RM)||20,357||16,428|
|Total savings (RM)||–||3,929|
Use our home loan calculator to see how much you could save with a lower interest rate loan.
2. If your property has gone up in value and you need the extra cash
If your property goes up in value, you can refinance your loan to pay off the existing loan. You’ll get cash if there is money left over after paying off your existing loan.
For example, say you bought a house for RM300,000 10 years ago. You took a housing loan of RM250,000 and have paid RM125,000. Now the property value has gone up to RM350,000. You can refinance your loan for the RM350,000 to pay off the balance RM125,000 you owe the bank and get the RM125,000 as a cash out payment. But don’t forget, you will be paying interest on the RM350,000. So you should only refinance for the amount you need. Don’t take the full amount just because it’s available. While the interest rates may sometimes be lower than other loans, these loans are usually for a long period of time.
3. If you want to pay less in monthly repayments
You could refinance your property to extend your loan duration but repay less monthly. You could use this option if you feel you are unable to cope with your current monthly repayments. Although you’ll pay less monthly, you’ll probably pay more in interest as it’s for a longer duration.
For example, your original loan was for RM250,000 for 25 years with an interest rate of 3.5% and your monthly repayments were RM1,347. If you decide to refinance your loan to 30 years, you will be paying less monthly, but you will end up paying more in interest on the loan.
|25-year loan||30-year loan|
|Loan amount (RM)||250,000||250,000|
|Total interest (RM)||125,468||154,140|
|Increase in Total Interest (RM)||–||28,672|
Use our home loan calculator to see how much it would cost you to take a longer loan.