WITH lending rates at historical low levels, the obvious question to ask is – should one refinance their home loans? The answer is simple – if there are net savings to be enjoyed by refinancing the existing loan, then yes. If the impact is neutral, then there’s little point going through all that hassle.
Two years ago, banks were charging home buyers base lending rate (BLR) “plus” interest rates for their housing loans.
Today, the BLR for mortgages has fallen to a “minus” level. In addition, then, the average BLR was about 6.75% which was later adjusted to about 5.55% currently.
The fall in lending rates followed the unprecedented cut in overnight policy rate (OPR) by Bank Negara Malaysia since November last year by 150 basis points to 2% as it stands now.
Over the week, the central bank paused on its rate cut, leaving the OPR unchanged.
This has led some economists to predict that there will be no more OPR cuts for the rest of 2009 and 2010 which may give borrowers a reason to lock in their interest rates for housing loans at current low levels.
If the economy stabilises by next year, analysts expect interest rates to rise. But the views are mixed as there are also analysts who feel that if the situation worsens, Bank Negara could further cut the OPR.
Dr Choong Kwai Fatt, tax consultant and associate professor at the Faculty of Business and Accountancy, Universiti Malaya, opines that now may be a good time to refinance home loans.
“For refinancing, we recommend customers to change to Flexi loan, which allows them to make additional repayment and draw balance at any time with convenience of automated teller machine cards and cheque books. In addition, any amount in the current account is used to reduce the outstanding loan amount, hence there are interest savings,” he says.
Typically, banks’ lock in period is about five years; customers who switch banks before this period ends will have to fork out a penalty fee which comprises 3% of total loan amount or loan outstanding or a minimum penalty of RM5,000-RM10,000.
The fees however vary from bank to bank. There are other costs involved in switching lenders as well such as search fees, inspection fees, stamp duty and loan legal fees (usually costs less than 3% of total loan).
It is important to note that all rates and terms and conditions are negotiable, and hence, vary on a case by case basis.
Two years ago, banks were charging home buyers base lending rate (BLR) “plus” interest rates for their housing loans.
Today, the BLR for mortgages has fallen to a “minus” level. In addition, then, the average BLR was about 6.75% which was later adjusted to about 5.55% currently.
The fall in lending rates followed the unprecedented cut in overnight policy rate (OPR) by Bank Negara Malaysia since November last year by 150 basis points to 2% as it stands now.Over the week, the central bank paused on its rate cut, leaving the OPR unchanged.
This has led some economists to predict that there will be no more OPR cuts for the rest of 2009 and 2010 which may give borrowers a reason to lock in their interest rates for housing loans at current low levels.
If the economy stabilises by next year, analysts expect interest rates to rise. But the views are mixed as there are also analysts who feel that if the situation worsens, Bank Negara could further cut the OPR.
Dr Choong Kwai Fatt, tax consultant and associate professor at the Faculty of Business and Accountancy, Universiti Malaya, opines that now may be a good time to refinance home loans.
“For refinancing, we recommend customers to change to Flexi loan, which allows them to make additional repayment and draw balance at any time with convenience of automated teller machine cards and cheque books. In addition, any amount in the current account is used to reduce the outstanding loan amount, hence there are interest savings,” he says.
Typically, banks’ lock in period is about five years; customers who switch banks before this period ends will have to fork out a penalty fee which comprises 3% of total loan amount or loan outstanding or a minimum penalty of RM5,000-RM10,000.
The fees however vary from bank to bank. There are other costs involved in switching lenders as well such as search fees, inspection fees, stamp duty and loan legal fees (usually costs less than 3% of total loan).
It is important to note that all rates and terms and conditions are negotiable, and hence, vary on a case by case basis.
Details: High time to refinance your loan?
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