Refinancing your property for cash and credit consolidation

Refinancing is a process that property owners could engage to unlock the full value of their properties. To initiate the process, the bank would request a valuer to perform a valuation on the property and proceed to offer up to 90% of the property value as loans, with the property being used as a collateral. If the property is encumbered, a portion of the money will be used to pay off the outstanding loan and the remaining amount will be credited into the applicant’s account.

In general, secured loan facilities such as mortgages, hire-purchases, and ASB loans are charged lower interest rates compared to unsecured facilities such as credit cards, personal loans, and to some extent over draft accounts. Secured in the phrase refers to the loan agreement having a collateral, e.g. property, car, ASB units. There is a number of overdraft facilities which we will go over one of these days, but for now it is enough to know that overdraft facilities can be granted with or without collateral.

Cashing out on the paper gain

Paper gain of a poperty is the unrealized gain from capital appreciation. Imagine buying a property 10 years ago at the cost of RM200,000 and today it has appreciated to RM400,000. You would be happy with the gain but there is no way for you to utilize the gain unless you either sell the property outright or refinance it.

Selling the property may not be suitable if the investers are planning to take advantage of the rental income as rental increases as property prices increases. For property owners that are staying in the property in question, selling it is also out of the quiestion as they may already be deeply rooted in the residential area and would prefer not to move.

As such refinancing the property may be one the options that property owners could take to unlock the value of their properties without selling them outright.

Consolidating your other loans into a single account

A typical person may have a few loan accounts attached to him, this can be seen in their credit report. These loan accounts may in the form of mortgages, hire-purchases, personal loans, PTPTN, and more. Each loan account has its own tenure, outstanding, installment amount, and most importantly interest rates. As mentioned above, loans with collateral have lower rates than those without.

The basic idea with refinancing to consolidate the other loans is to take advantage the lower interest rates offered for a secured loan facility (a mortgage) to fully settle other loan facilities with higher interest rates. A typical mortgage at the time of writing has an interest rate of around 4.2 to 4.6% per annum (p.a.), depending on the loan amount and credit profile of the applicant. A higher purchase of a passenger car taken at 9 years has an annualized interest rate of 5 to 6%, personal loan starts at 6%, while credit card is just stupidly high at 1.5% per month of the previous month’s statement balance.

Final thoughts

Refinancing is a quick and cheap way to unlock the paper value of your assets. The funds raised from the process of refinancing has lower interest rates than personal and business loans. It is also ideal as a way to consolidate other liabilities into a single, low-interest account.

This post has been edited by wild_card_my: Apr 20 2017, 05:39 PM

what would be d strategy like to cut finance period shorter using re-financing?

wanna cut down d interest rate/sum so that can sell off d prop faster

The only way to cut down your finance period by refinancing is if:

a. You refinance only the outstanding loan amount and not add any cash-out from the refinancing exercise
b. the interest rate is lower than the current interest rate
c. legal fees is not financed into the financing as this will increase the total loan amount. You should pay it off out of pocket.

What is your current interest rate and outstanding balance?

a. yes, its NOT to obtain cash for other spending.
b. my current prop A int rate is 7.0% flat (i think)
c. this depends how much is d legal fees.

oustanding balance is ard rm 110k

a. Understood
b. That is pretty high, even with the ups and downs of the BLR, the effective rates for the past 10 years have never reached 7%. Right now, at 110k loan amount, at 4.5% financing rate, you are saving about 2.5% per annum by refinancing
c. The legal fees should be about 4 to 5k depending on the title details (strata vs individual, leasehold vs freehold, master vs without title). At this rate, financing it into the loan may be wise.

Tenure will be set to maximum, but with flexi facility, any money that you pay extra on top of your installment will be used to offset the interest payable on a daily basis.

Let me know if you want to proceed, we can discuss your situation privately.

This post has been edited by wild_card_my: Apr 20 2017, 07:05 PM

Appreciate the food for thought. TQ

How about pawn the house to bank? How this work?

For example have a fully paid property market value 200k.

You would get a maximum of 90% of the MV, plus some as moving costs. So you would get a RM185k~ loan, of which RM180k would be as cash for you to invest in other things.

You would be responsible to pay back the bank installments, but you are borrowing from the bank at a low rate, compared to personal and business loans.

B. yes, old rate signed 10x years ago. is this roughly correct that:
: 7% @ rm 110k = rm 7700/yr
: 4.5% @ rm 110k = rm 4950/yr
Difference : RM 2750/yr x 10 remaining yrs of loan = RM 27.5K cumulative interest.
est refinancing costs = RM 4500, so total saving is ard RM 23K

c. Its a strata title.
D. Does refinancing take into considerations that my current loans/commitment status? It obviously has changed since the past 10+ years.

Ys, pm me ur contact. I would like to find out more on debt consolidation.

Thanks!

PTPTN has the lowest interest rate of 1% to 3%

car loans are at 3.2% (give and take)

why would I consolidate it all under a home loan at 4.2%?

btw I appreciate your topics ts. it really helps me understand the nature of refinancing. I have a property that I purchased 4 years ago and I need money to furnish/do some repair works the home for my future bride. did a calculation that I need nearly 20k to 50k to do all of that

I'm really thinking of refinancing my home.

I need to check on PTPTN, but car loans are calculated on simple interests... the same goes with credit cards and personal loans, these are calculated using simple interest method. To do an apples to apples comaprison you will need to convert it to annual interest rate.

As you can see, the simple interest rate of 3.2% when converted to anual interest becomes 5.84%, which is higher than 4.2% annual interest for a typical housing loan

Annual interest rate for housing loan, 4.2%



Simple interest converted to annual interst, 3.2% becomes 5.84%



This post has been edited by wild_card_my: Apr 21 2017, 12:56 PM

How is the Effective rate is 5.84%? I'm using the calculator for car loan of 100k and 3.2% p.a for 9 year, the loan is total up of RM 128.8k which 28.8k is the interest. Divided back to 9 year is 3.2k each year which means is exactly 3.2%. How the 5.84% calculated??

So what you did just now was to calculate the loan based on simple interest, which doesn't make you wrong, but the whole exercise was to convert the simple interests (PL, HP, CC) into annual rates to see how it would compare to annual interest loans (Mortgage, ASB-loans, some PL)

So based on your calculation, at 3.2% (not p.a. since this isn't an annualized interest) for 9 years, the total repayment is RM128.8k, which is correct. Now if you plug in the numbers (the total repayment) into a mortgage calculator (using annualized interest, ie. p.a), the interest rate is 5.84%.

So a 3.2% simple interest (typical HP rate for local cars) is actually more expensive than 4.2% annualized interest (typical mortgage rate)



here is the same loan size, at 4.2% interest rate. You can see the savings of about 8k, due to the lower interest rate



All this means is that the simple interest cannot be compared to annualized interest without conversion. So it is wrong to say "HP rate is cheaper than mortgage" just by looking at the numbers. Even bankers (salesmen) tend to make this mistake.

This post has been edited by wild_card_my: Apr 22 2017, 11:44 AM

Ah~ I get what you means now. Due to house loan was charged on the balance of loan, which the interest incurred was reducing method, therefore the interest payment throughout the loan period will getting lesser.

However, for car loan the interest was calculated beforehand and add into your loan, therefore the interest was fixed and actually if compare to other loan type the interest incurred throughout the period is actually much higher. (3.2% become 5.84% effectively).

You got it!!!

This is simple concept but it can be confusing due to the misinformation perpetuated by some ill-informed bankers and "consultants". I forgive them for not knowing, but I cannot forgive them for not accepting nor learning the truth in what they are trying to teach.

Well what can I say, their primary purpose is to sell, not to educate. So some misinformation goes a long way.

its funny that we had to discuss this in "refinancing" article. I will write another one based on the topic we just discussed then, thanks mate.

Nice info there Ts, good read although quite tldr

-So for refinance rate usually can get lower interest than current loan, but with extending tenure?
- for pawn, usually the interest rate range is higher or not from normal loan?
- agreed, with fix vs effective interest rate figure, I observed sometimes some banks will put the lower one in the pamphlets (which is the fix rate), whereas the actual calculation might be reducing type, e.g. In PL.

1. that is correct, although you can also maintain the tenure and in the end pay less interests, as long as the interest rates charged is in fact lower than your current loan

2. If you are referring to repawnin a fully paid-off property (unencumbered property) to the bank in exchance for a mortgage (for cash-out), the interest is the SAME as if you were to get a mortgage for purchasing a new property

3. And people are easily fooled, for reasons no other than not educating themselves. But I am happy that people are learning from my postings, I wish I can do this on a much larger scale.

True. People have a few options, to let go of the properties or to refinance to get some form of liquidity. Although refinancing requires them to prove their source of income too.

Which means if you were to do it, you have to do it before it is too late. There may come a point in your life where you would have a propety with low encumberance, but have no means or refinancing due to your lack of source of income.

Ts,

Possible to get sgd loan by refinancing props in Malaysia???? Ha ha.. lower int rate

Very very interesting.

But is it following the BLR? And Fluctuate? Or follow Flexi?

Because having long term and stable tenant will allow you to do that...