This guideline is part of Bank Negara’s efforts to reduce unnecessary household debt, and also cools any speculative activity in the property sector that is fuelled by lax home loan refinancing.
Effect of the guidelines
Before this, you could refinance your house up to 90% of its market value. The cash out amount can be used for any purpose. This includes investing in other properties, and is a common practice among serial property investors. Maximum loan tenure follows those of housing loans, which is 35 years.
Assuming the house is worth RM400,000, outstanding housing loan balance is RM150,000, interest rate is at 4.6% and Margin of Finance is at 90% of market value.
Example refinancing calculation under the old rules:
Amount to cover outstanding balance = RM150,000
Cash Out Amount = RM210,000
Total Refinance Amount = RM360,000
Tenure = Max 35 years
Total Monthly Installment = RM1,726.09
Example calculation under the new rules:
Amount to cover outstanding balance = RM150,000
Tenure = Max 35 years
Monthly Installment = RM719.20
Cash Out Amount = RM210,000
Tenure = Max 10 years
Monthly Installment = RM2,186.54
Total Refinance Amount = RM360,000
Total Monthly Installment
= RM719.20 + RM2,186.64
= RM2,905.84
That is a difference of RM1,179.75 per month!
Is there any way around it?
The good news is yes! As of this date of writing (27 Sep 2013), only 5 banks in Malaysia have implemented this limit. The rest are set to follow suit in the coming weeks. Additionally, this should see the re-emergence of Term Loan + Overdraft facilities that fell out of favour in recent years to Full-flexi loans.
So if you’re looking to refinance your house any time soon, hurry! Make use of our Mortgage Refinance Comparison tool and drop us an application for a hassle free home refinancing experience!
