Should You Redraw, Remortgage, or Refinance Your Home Loan in Malaysia?

Have you heard of the 3Rs of home financing? These three options – redraw, remortgage, and refinance – offer flexible ways to get cash for unexpected challenges or important things like your children's education.

If your savings aren't enough to cover these moments, understanding the 3Rs of home financing can be a game-changer in making the right choice. This article will explain each of the 3Rs so you’ll understand the differences and how they can help you when you need them most.

Redraw

A redraw facility lets you make extra payments on your home financing whenever you can afford it, offering two key benefits. First, it helps you pay off your financing faster, reducing your overall interest. Second, it provides flexibility—allowing you to withdraw the extra funds you've paid in case of an emergency.

Here’s an example of how much you can redraw if you paid an extra RM300 into your home loan every month.

• Monthly home loan repayment: RM1,000
• Payment made every month: RM1,300
• Monthly excess payment: RM1,300 - RM1,000 = RM300
• Yearly excess payment: RM300 x 12 = RM3,600
• After 1 year, you can redraw: RM3,600
• After 5 years, you can redraw: RM3,600 x 5 = RM18,000
• After 10 years, you can redraw: RM3,600 x 10 = RM36,000

You should also be aware that additional fees may apply for each withdrawal of extra funds. Most banks in Malaysia charge around RM250 for every redraw transaction made from a conventional home loan.

However, not all home loan types offer a redraw facility, particularly fixed-rate loans. So, if being able to redraw is an option you’d like, make sure you ask for a home loan that provides the facility when you purchase a home.

Remortgage

Remortgaging means using your fully paid-off home as collateral to secure a new loan. Think of it as converting the value of your fully owned house into cash that you can access upfront, which you then repay through a new home loan.

This can be a compelling choice, as home loan rates are often lower than the interest you’ll pay with personal loans. Another benefit of remortgaging is you can opt to additionally consolidate multiple debts—such as any existing credit cards or other personal loans—into one single home loan. By doing this, you simplify your finances and may also reduce your overall interest costs.

However, it’s important to note that remortgaging your home means taking on new debt after paying off your initial mortgage. This new debt can sometimes be higher than your initial loan amount, particularly if your property’s value has appreciated over the years. Therefore, you should carefully consider your financial situation and long-term goals before committing to a remortgage.

Let’s see how this could look like for a purchase of a RM250,000 home whose valuation has increased to RM800,000 after 30 years.

Keep in mind that you will also need to cover the same expenses that you incurred when you first applied for a home loan, such as valuation, legal fees, and stamp duty fees.

Refinancing a home loan in Malaysia

Refinancing a home loan in Malaysia applies when you still have an outstanding home loan. Essentially, you are taking out a new mortgage that exceeds the balance of your current loan, providing you with extra cash.

If the value of your property has increased since you purchased it, you can refinance your home at its current higher value. The difference between the new loan amount and your existing balance will be paid to you in cash. You will then continue making monthly repayments based on the new loan amount and interest rate.

Here’s an example of how much cash in hand you can have when refinancing a home:

Refinancing can offer several advantages. Refinancing with a different bank may secure a lower interest rate, reducing your monthly payments and saving you money over the loan term. Additionally, refinancing may allow you to shorten your loan tenure, helping you pay off your home sooner and reducing the overall interest you pay. However, this often comes with the trade-off of a higher monthly payment.

It's important to consider the potential costs involved. Refinancing often comes with upfront fees, such as legal and administrative costs, and there may be a lock-in period set by the bank during which early repayment could incur penalties. Make sure to evaluate these factors carefully before deciding to refinance.

Comparison of the 3Rs

Here’s a summary comparing the pros and cons of each of the 3Rs.

Conclusion

The 3Rs are valuable financial tools that can help you manage your home loan effectively, each offering distinct features and considerations. While you may never need these options, understanding the 3Rs and how they work will empower you to make informed decisions about your home loan and your overall financial situation should the need arise.

Thinking of applying for any of the three options above? Explore our diverse range of home loan solutions designed to meet both your current and future needs.

💡 The information provided above is purely for educational purposes.