What do you do when you need a large sum of money for an emergency? If you think applying for a bank loan is a fool-proof way to resolve dire financial emergencies, you may be severely disappointed. So, what other options do you have if you don’t have a backup emergency fund?
Well, what if there was a way for you to not only acquire the urgent cash you need but also build a backup emergency fund at the same time? Before we dive into this, let us explore the importance of an emergency fund. At the same time, we will discuss why a bank loan may not be the most reliable solution for emergencies.
Why You Need a Backup Emergency Fund
With the current economic climate, many undoubtedly find themselves looking for ways to tap into cash flow when they have depleted their savings or emergency funds. Often, those struggling financially also have low credit scores, making it harder to get approved for credit cards or bank loans.
In spite of that, having an emergency fund can provide you with a financial cushion while you try to get back on your feet. Here are some instances where emergency cash will come in handy:
- Medical emergencies
- Unemployment or loss of income source
- Owe money to loan sharks
- Keeping your business afloat
Why Bank Loans for Emergencies Are Not A Reliable Strategy
While the unexpected may happen at any moment, some may turn to emergency bank loans such as fast loans or personal loans for fast financing. Before you take out a bank loan, here are some drawbacks and risks that you should consider.
- Risk of rejection
When you’re in an emergency, you might assume that taking out a bank loan can be a quick fix to your problems. However, there is no guarantee of approval if you have poor credit or have no credit history at all.
- Long waiting period
Time waits for no man; the same goes for emergencies. In particular, life-saving surgical bills, medical fees or funeral expenses.
- High interest rates and fees
Unsecured bank loans may have higher interest rates and fees due to the increased risk involved for lenders. Banks may also offer you a smaller loan amount based on your credibility as a borrower.
- Losing your collateral
On the other hand, secured loans require you to pledge your financial assets as collateral, such as property and car. Failure to repay the loan would result in the loss of your car or property, causing further problems.
- Risk of accumulating more debt
Unfortunately, individuals who urgently need fast cash may turn to loan sharks if they cannot take out bank loans. However, these illegal lenders will charge extremely high interests and may harass borrowers, in some cases, violently, for repayment.
How Refinancing Can Help Build Emergency Funds And Why It’s Crucial To Apply Early
Well, here’s the good news! Homeowners who pay monthly mortgage repayments have built up a large amount of home equity. Thus, they have a lifeline they can count on – their home.
Cash-out refinancing can be a smart financial move for homeowners needing urgent cash. As your property value increases, you can refinance your home for better terms, including lower interest rates, lower monthly repayments and greater total savings long-term. The cash-out earned can be used as a backup fund to cover medical fees, car repairs, business investment and more.
Nevertheless, you should not wait until you are in a desperate situation to apply for refinancing. Mortgage refinancing loans are still a form of bank loan, after all. Hence, there are many documents and time-consuming procedures to go through before you can get your loan approved.
The biggest mistake you can make is to start applying only when you are faced with a stressful or life-or-death emergency; it might very well be too late by the time you get the cash needed to bail you out. So, do yourself a favour, and plan ahead for unexpected life events by applying for a mortgage refinancing loan as soon as possible.
Here’s a case study to illustrate how we help our clients refinance their mortgages.
Encik Izam and his wife, Puan Janizan, sought to refinance their home to pay off their debts. Unfortunately, both of them have insufficient credit history and poor credit scores.
We helped Encik Izam and Puan Janizan to refinance their property successfully and obtain the cash-out they needed to repay their debts:
|Interest rate||3.38% per annum|
|Total monthly repayment||RM2,632|
|Repayment tenure||240 months (20 years)|
Read the full client story on our website.
Refinance Your Mortgage to a Flexi Loan for Emergency Funds
Alternatively, you could refinance your mortgage to something called a Flexi loan. A Flexi loan is a type of mortgage loan offered by banks that provides greater flexibility. You can withdraw or deposit money into the linked Flexi loan account whenever you like without going through any procedures or incurring additional charges.
To illustrate, here’s an example:
|Loan Amount||RM320,000 (80% loan margin)|
|Balance||RM200,000 (deposit back into Flexi account)|
|Annual Interest||3.2% of RM120,000|
In this scenario, your property is valued at RM400,000, so you are given a loan amount of RM320,000 due to the 80% loan margin. Assuming that your property is fully paid and you do not have any outstanding amount owed, you may use some of that money to settle any urgent debts.
Let’s say you used RM120,000, and now you have a balance of RM200,000. This balance can be deposited back into the linked account. The bank will only charge you interest based on how much you used, unlike regular mortgage loans.
Also, no procedures or additional charges apply when you deposit or withdraw from this account. Therefore, you now have quick access to a pool of money you can use as a backup emergency fund.
Advantages of Refinancing for An Emergency Fund
- Untapped capital in your home
Instead of taking out another loan and adding more debt to your worries, you can get cash from your home equity and the increased value of your property.
- Improving mortgage rates
Reducing your loan term or lowering monthly repayments can save you money in the long run. Thus, you can get emergency cash and repay your loan more easily.
- No approval process or additional charges with Flexi loans
When you refinance your mortgage to a Flexi loan, you enjoy greater benefits like faster access to cash, as you can quickly withdraw money without elaborate approval processes or additional charges. In reference to the example given earlier, having Flexi loans means that you can use the RM200,000 balance in the Flexi account any time you want. This is in contrast with the 3-month waiting period needed without Flexi loans.
Disadvantages of Refinancing for An Emergency Fund
- Higher monthly repayment
The cash-out refinance may offer you urgent cash, but you need to consider if the monthly loan payments are affordable. Not all property value goes up, so a refinancing appraisal will reflect this and affect the refinancing rate and terms offered.
- Upfront fees
Besides the better interest rates and instant cash-out, you will need to cover the closing costs. This includes the valuation fee, mortgage insurance, and loan agreement fee.
- Long-term debt
While you might be paying less each month (for a longer tenure) provides you with immediate cash on hand, you may end up paying more in increased interest costs.
How BlueBricks can help you
If you are running out of savings and don’t want to rack up debts on high-interest credit cards, refinancing your home may be one of the best ways to get emergency funds. So, let BlueBricks guide you with your application to refinance your home. Can’t wait for the loan application and need cash urgently? At BlueBricks, we offer reliable money lending services as well.
A leading loan agency company in Malaysia
As a professional loan specialist, BlueBricks has years of experience providing loan consultancy and comprehensive loan rejected services.
If you are submitting a new application, BlueBricks offers FREE consultations as well as CTOS and CCRIS reports to improve your chances of approval for bank loans. Thus, you can get your urgent cash-out as soon as possible. Furthermore, we will not charge any upfront fees for our services until your loan is secured.
Loan Rejected Services
BlueBricks is a leading one-stop solutions provider of comprehensive loan rejected services. This includes providing refinancing loan rejected services for emergency funds.
If your refinancing application is rejected, we can help identify the reasons for rejection, such as missing documentation. Before your resubmission, we will address the problems with your previous application. That way, we can avoid prolonging the wait and have a higher chance of approval.
Find out how our refinance housing loan rejected service can help you with your current or future loan application.
Backup Emergency Fund – FAQ
1. What if I already have an emergency fund?
That’s great to hear. If you already have enough funds saved up for an emergency, you can use the additional cash to pay off other debts, pay off your mortgage early or invest for higher returns.
2. How do I build my emergency fund?
Planning is essential, and here are the easy steps to follow:
- Determine how much you need in an emergency fund.
- Set a savings goal.
- Automate your savings.
- Assess your progress and goal.
3. How do I get money to save in my emergency fund?
You can save money for your emergency fund by cutting down on your monthly expenses, avoiding splurging on unnecessary purchases, and selling things you no longer need, to name a few. A great alternative is to earn more income by working part-time or starting your own business.
4. Can I refinance my mortgage for an emergency fund if I don’t have income documentation?
Yes. BlueBricks has helped clients refinance their mortgages so they can cash out for emergencies even though they had no proper income documentation. You can still qualify for mortgage refinancing by showing banks that you can manage finances well or pledging other properties or assets as collateral. It also helps to clear debts on time and maintain a good CTOS score.
5. If there are issues with my CTOS, can I still refinance my mortgage for an emergency fund?
Yes. There can be many reasons why your CTOS has issues: AKPK status, bankruptcy, suspected mule account, etc. Regardless of the reason, BlueBricks can help clients refinance their mortgage successfully despite having CTOS issues.
6. Can I apply for mortgage refinancing to build an emergency fund if I’d only bought my house 3 years ago?
Typically, a house that has been bought only three years ago would not have appreciated in value enough to warrant a substantial cash-out. The bank’s valuation would reflect the exact amount your house is worth. Suppose you bought your house for RM500,000 three years ago, and now the bank values it at RM600,000. Since it has not appreciated at least 50%, amounting to being worth RM750,000, it would be difficult (and not advisable) to refinance your mortgage.