How Refinancing Can Help During This Difficult Time of Covid-19 Pandemic and What to Consider If You Are to Apply
Published on 20 April 2020 by Lee Fong Ling
Entering the month of April in the year 2020, there are almost 200 countries all around the world who are in combat against Covid-19 Pandemic and we are already seeing signs of a global economic downturn.
As the most effective way to contain, control and reduce the spread of Covid-19 is to lockdown the country, lots of people are affected financially because they are unable to run their businesses or work as usual. Despite the Government providing relief such as loan moratorium and economic stimulus package, the assistance is merely a short term relief whilst the economy of the world probably will take a year or more to recover. If you are having high commitments and/or currently paying high amounts of interest to banks/financial institutions, it may be prudent for you to consider refinancing.
What Is Refinancing?
The act of refinancing your loan simply means that you can obtain a new loan/facility either from the same bank/financial institution or from a different bank/financial institution to pay off your existing loan.
How Would Refinancing Help You?
(1) Lower Bank Interest
From early of the year 2020, Overnight Policy Rate (OPR) as announced by Bank Negara Malaysia has decreased (2.75% as at 22 January 2020 and 2.50% as at 3rd March 2020). When the OPR decreased, the interest of the banks will usually decrease as well. The OPR declined to 2.50% in Malaysia for the first time in a decade resulting in a significant decrease in the loan interest rate offered by most of the licensed banks in Malaysia (4.0% per annum or even lower). You may compare the current interest rates of the banks/financial institutions to decide whether you would like to obtain a loan/facility from a different bank/financial institution or a new loan/facility from the same bank/financial institution.
Based on a rough calculation (you may use any of the online loan calculator), we would like to give an illustration of the interest amount you could save from a refinancing:
As you could see from the illustration above, by refinancing to a lower interest rate, you could save a lot in terms of the interest to be paid to the bank/financial institution in the long run and this would mean that you will have lower monthly instalment, extra cash flow or you probably could secure shorter loan tenure.
(2) Procure Extra Cash in Hand
Another way refinancing could help you during this difficult time is that you may obtain extra loan/facility amount based on an increase of your property’s current market value. For example, if you purchased your property ten years ago at the price of RM500,000.00, the market value now could be RM550,000.00 while your outstanding loan sum is merely RM450,000.00, you may now obtain a loan of RM550,000.00 from the bank/financial institution and you would be able to unlock an extra RM100,000.00 after the refinancing. With this extra amount, you could settle other debts, finance other investments or even fund your child’s education during this difficult time.
Would The 6 Months’ Moratorium be Applicable for Refinancing?
As the moratorium announced by Bank Negara Malaysia is for loan/financing outstanding as at 1st April 2020, for new loan/facility/financing approved or disbursed after 1st April 2020, the moratorium will not be automatic, and is subject to the bank's/ financial Institution’s assessment and approval.
The Legal Fees and Charges to be Paid for Refinancing
Just like the process when you applied for a housing loan and/or mortgage the first time, there will be bank processing fees, legal fees, stamp duties, disbursement fees, valuation fees, and probably a new insurance such as Mortgage Reducing Term Assurance (MRTA) or Mortgage Reducing Term Takaful (MRTT) for the refinancing process.
The amount payable for the bank’s processing fees, valuation fees, MRTA, MRTT, etc. varies from one bank/financial institution to another and therefore it is prudent to check with the bank officers on all the details before accepting the new loan/facility offer from the said bank/financial institution.
For the legal fees and stamp duties, please visit our firm’s website at http://www.gtrz.com.my/loan-charge-calculator.php and key in the loan amount which you wish to obtain to ascertain the standard legal fees and stamp duties. For leasehold property and/or properties which require State Authority’s consent, the legal fees and disbursements could vary to cater for the need for such consent application. As stated in our website, we would recommend anyone interested in applying for refinancing to contact us to get a full quote for your particular circumstance.
Other Matters to be Considered Before Apply for Refinancing
(1) The ability to obtain fresh loan/financing: If you are certain that your financial health is good and you will have no issue obtaining a new loan/financing from the bank/financial institution, you may proceed to approach the bank/financial institution for refinancing. Otherwise, it may be good to obtain your CCRIS report through Bank Negara Malaysia as this CCRIS report will show your current financial liabilities, loans, assets and any blacklisted cases, etc. The bank/financial institutions which you approached will also procure your CCRIS report to determine whether or not to grant approval for your application for refinancing.
(2) The lock-in period: It is also important to take note that most of the banks/financial institutions will impose a lock-in period (usually 3-5 years) whereby a penalty of 2-5% will be charged on the loan/financing amount if the property is sold off or refinanced or fully settled within the lock-in period. Please check the lock-in period of your current loan/financing as it is usually stated in the letter of offer. Even an Islamic financing package might have a clause to impose additional profit in the event the property is sold off or refinanced or fully settled within the lock-in period.
(3) The types of loan for refinancing: Generally, housing loans in Malaysia can be divided into flexi, semi-flexi and term (fixed) loan. Different banks will have different loan packages for refinancing and therefore it is prudent to take some time to go through each package in detail to determine which one is the best for you.
(4) Time needed for the whole process: After the loan/facility for refinancing is approved, the entire refinancing process would take about 3 months but if State Authority’s consent is needed or if there are some complications/issues during the process, such cases could take up to 6 months to complete.
Some might feel that the legal process for refinancing is a tedious process from the application until completion, but this process could be made much easier when you engage an experienced and reliable lawyer to assist you. In light of the total amount of interest you could save or the extra amount you could unlock from the refinancing, it might be worthy for you to invest your time, money and effort to go through the entire process of refinancing.
If you are interested to know more about the legal processes for refinancing or require advice on any other related matter, please feel free to call us for explanation or for any assistance you might need throughout the process.
The contents of this article are not intended to constitute legal advice on any specific matter and should not be relied upon as a substitute for specific legal advice on matters or transactions.
For further information and advice on the article above or any areas of corporate and conveyancing, you may contact any of our corporate and conveyancing lawyers.