For homeowners and investors who have paid down their mortgages and gained better financial stability, a cash-out refinancing loan may seem alluring due to the current low-interest-rate environment on housing loans.
This is evident for some Malaysians struggling to sustain themselves financially due to the COVID-19 pandemic and need to get their hands on extra cash. So, what really is cash-out refinancing, and how can it benefit homeowners and investors in Malaysia?
What is Cash-Out Refinancing in Malaysia?
Cash-out refinancing means replacing your current housing loan with a new larger loan. Your new loan may have different terms, including interest rates, monthly instalments and tenure.
It allows you to take advantage of the equity you have built up in your home and gain the difference between the two loans (your current one and the new one) in cash.
Moreover, it is a more preferred alternative to taking on a second loan as you do not have to commit to a new mortgage. But you probably wonder, how does cash-out refinancing differ from other refinancing methods such as term refinancing?
Cash-Out Refinancing vs Term Refinancing
Both refinancing methods are the basic options when one wants to refinance their housing loan.
On the one hand, if you wish to refinance your existing housing loan to get a lower interest rate or different terms, then term refinancing could be your best option.
On the other hand, if you wish to extract some of the built-up equity in your home—perhaps to settle other commitments or to do a renovation, then you may take cash-out refinancing.
Hence, it is essential to take note of the difference between both methods before considering to refinance. Here are the key takeaways about the differences between both refinancing methods:
- In term refinancing, you replace your current housing loan with one that has better terms.
- In cash-out refinancing, you can extract some of the built-up equity in your home.
- Cash-out refinancing usually comes with added fees or a higher interest rate* as it poses a greater risk to banks.
- You may extract some cash from your refinance without having to pay added fees by taking advantage of the overlap of funds.
*This may vary between banks. Hence, remember to consult your banks thoroughly before making any decision.
To put things into perspective, the following exemplifies how you can take advantage of the overlap of funds:
|Original loan amount||RM500,000|
|Loan paid off||RM100,000|
|Existing loan balance||RM400,000|
|New loan = Loan balance + Cash-out needed||RM450,000|
You should receive the RM50,000 cash once your refinancing is approved and concluded.
Advantages of Cash-Out Refinancing
Now that you know how cash-out refinancing differs from term refinancing methods, here are some advantages of taking cash-out refinancing. They are as follows:
1. Lower interest rate
When it comes to refinancing, the interest rates tend to be lower than other types of debt. Hence, it is a relatively cost-effective way to borrow money.
2. Quicker approval
This is not guaranteed, but in most cases, a cash-out refinancing usually takes a shorter time to be approved. This is because cash-out refinancing is based on your existing loan, allowing you to avoid a tedious approval process.
However, you need to prepare the necessary documentation sufficiently to smoothen the approval process. You will receive the extra cash within days of the concluded loan approval.
3. Debt consolidation
If you are currently paying debts with higher interest rates than a mortgage loan, you may want to consider cash-out refinancing. In terms of debt consolidation, refinancing is more beneficial and a wiser option than taking out a new personal loan.
4. Healthier credit score
Using the funds from cash-out refinancing to pay off your other debts, such as credit cards, will help build your credit score. This is possible by reducing your credit utilisation ratio, which is the amount of credit you’re using.
However, refinancing might become problematic for your credit score if you refinance too often to settle other debts. Having your credit score pulled too many times over a short period will raise a red flag and definitely make Bank Negara Malaysia and credit reporting agencies frown.
How can BlueBricks help?
Although cash-out refinancing is a relatively cost-effective way to borrow money with quicker approval, it does not guarantee total approval. Your application is still vulnerable to rejection, and this is where BlueBricks can help you with your application.
Leading loan agency company in Malaysia
BlueBricks has years of experience as a loan specialist providing loan consultancy services and comprehensive loan rejected services.
If you submit a new loan application, BlueBricks offers FREE consultation and reports for CCRIS and CTOS prior to the submission. Above all, we do not charge any prepayment for the provision of said services.
Loan Rejected Services
BlueBricks is a one-stop solution provider of comprehensive loan rejected services. This includes providing cash-out refinancing loan rejected services to clients.
Hear first-hand from our client on how we help them refinance their property.
If your cash-out refinancing is rejected, we can help identify the underlying problems and reasons for rejection. With that, we can develop a strategy, execute amendment and rearrangement, and resubmit to the bank with a higher chance of approval.
You can find more about our refinance housing loan rejected service to help you with your current or future application.
Cash-Out Refinancing – FAQ
Considering a cash-out refinancing on your existing housing loan requires a considerable amount of homework and commitment. Hence, we have compiled a short guide to help you with your refinancing application.
1. What is CCRIS?
CCRIS stands for Central Credit Reference Information System. It is a system created by Bank Negara Malaysia which compiles credit information about a borrower or potential borrowers into standardised credit reports.
2. What is CTOS?
CTOS stands for CTOS Data Systems Sdn Bhd. It is a credit reporting agency that maintains a record of historical information about a person’s credit experience to assess individuals or business companies’ creditworthiness and repayment capabilities.
3. Do I need CCRIS and CTOS for my cash-out refinancing application?
Yes. The process of refinancing a housing loan is similar to that of getting one in the first place.