10 Year Limit on Mortgage Refinancing Cashout

In Q3 of 2013, Bank Negara Malaysia (BNM) issued new guidelines to banks regarding refinancing of mortgages. Prior to this, anyone could refinance their homes with repayment tenures up to 35 years. Under the new guidelines, any cash out amount from mortgage refinancing would be capped at 10 years tenure. Many people are now asking, how can you avoid it?

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 Home Loan Refinancing Comparison tool and drop us an application for a hassle free home refinancing experience!

Continue reading...