Not many can say that they own the house they live in. Although buying your own home is a huge part of adulting, honestly, buying your first home is no walk in the park.
The steps involved range from filtering through endless home locations and reviews, purchasing credit cards you don’t need to fix your credit profile.
Besides brawling with document after document that undergo strict approval processes and of course, a herculean level of financial prudence that is guaranteed to stress any human (or demi-god for that matter – take that Hercules)
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Yes Hercules, you “gotta do all that” even though you’re the son of Zeus. Which brings us to the main headache after you complete all the steps; the servicing and repaying the banks that provided your home loan.
“If you have yet to wrap your mind around how to resolve your home loans, perhaps you should consider refinancing your home loan.”
This is a popular method adopted by many to service their home loans. Let’s have a closer look at how refinancing can be a suitable approach for you.
Refinancing is the replacement of an existing debt obligation with another debt obligation under different terms to take advantage of a better interest rate (a reduced monthly payment or a reduced term) or to free up cash.
Generally, refinancing occurs when a person or business changes the interest rate, payback schedule, and terms of an already existing agreement.
STEPS TO REFINANCING YOUR HOME
1. Have a Property Under Your Name
The first step to apply for refinancing from the bank is that you must own your own property unit. It is important to note that the property must be under your name (in cases of joint loans – you and your spouse).
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2. Survey the Property Market Value
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“The focus here is to be able to measure the value of your property to determine the loan amount that you can apply to refinance.”
Basically, if the value of your home is higher than the outstanding bank debt , then it’s safe to say that you can apply for refinancing.
3. Check your eligibility
Similarly to your initial loan application, there are certain documents that you are required to prepare to apply for refinancing. Amongst them are:
- Income slip
- KWSP/EPF statement
- CCRIS Report
- DSR (Debt Service Ratio) Report
*Visit dsr.hartabumi.com to generate your own Debt Service Ratio Report!
4. Submit your application
There are two methods you may choose to ensure your application receives the necessary approval. You may choose to either set an appointment with your preferred bank officer or via a loan broker.
However, if you do decide to go with a loan broker, it is important to clarify on certain matters such as whether you already have a lawyer or have a preferred choice of home insurance.
It is important to hit the nail on the head on these matters to prevent any potential conflict or misunderstanding from arising in the future.
5. Identify the Type of Loan you own
It is important to know the type of loan you own be it flexi, semi flexi or basic term loan. Each type of loan has its own perks and quirks so it is advised that you familiarize yourself with them.
Different type of loans may differ in terms of the monthly payment, deduction of interest, duration to withdraw money as well the different cost(s) of the account.
6. Identify the Lock-In Period
A lock-in period or Rate Lock is a period during which a loan cannot be paid-off earlier than scheduled without incurring penalties.
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This period is meant to generate a certain minimum return on the sums advanced that covers your lending along with the loan administration expenses.
The benefit of this is that it protects you from market fluctuations. Every home loan has a specific lock-in period where you will have to pay a penalty charge at a 2% to 3% rate of the initial loan amount. This would apply if you are able to pay your outstanding loan amount
In this instance, you may easily incur costs ranging from RM6,000 up to RM9,000 for a house valued at RM300,000 if you pay your home loan within a period of two or three years.
7. Assess the Need for Home Insurance
You may choose between MRTA (Mortgage Reducing Term Assurance) & MLTA (Mortgage Level Term Assurance) or MRTT (Mortgage Reducing Term Takaful) & MLTT (Mortgage Level Term Takaful).
Statistically, most homeowners would opt for home insurance as it reduces the interest rates of the loan.
So yes, if you are seeking to lower your monthly cost commitments, you should consider adding home insurance alongside your refinancing application.
This is not mandatory across the board, however some banks do make this a requirement when applying for refinancing.
Either way, there are obvious benefits to having your home insured in dealing with any unforeseen circumstances that you may encounter later on.
Once all the above steps are done, you may review the policy and terms of the loan offer and proceed to sign and submit your application to the bank.
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Lastly, a gentle reminder to put this newly acquired money to good use – you went through all that trouble to deal with the headache of resolving your outstanding home loan.
Don’t go looking for new headaches by falling victim to another new smartphone on the market!