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Debt Consolidation Malaysia: Unlock Your Home Equity to Consolidate Debts

Need immediate cash? Seeking a way to simplify your finances? Well, with debt consolidation through cash-out refinancing, you can have both!

But what exactly is debt consolidation in Malaysia? Before you decide to consolidate your debt and cash out, you should understand what it is and how it works.

Essentially, debt consolidation means paying off your two or more existing debts with a new loan. This consolidates your old debt, so you don’t have to worry about repaying individual debts with varying interest rates and fees.

Of all its benefits, perhaps the most attractive one of all is the financial relief of significantly reducing monthly repayments.

So, let’s go through the ways you can consolidate debt and see why cash-out refinancing is the ideal choice to achieve your goals and cash out now!

Ways to Consolidate Debt through Mortgage Loans

1. Cash-Out Refinancing

Cash-out refinancing is helpful for individuals with significant debts, provided that they have sufficient equity in their home.

To illustrate, here’s an example:

Bank ValueRM300,000
Outstanding AmountRM100,000
Loan AmountRM240,000 (80% loan margin)
Cash-Out AmountRM140,000

In this scenario, you can refinance a home valued at RM300,000, where you still owe a remaining RM100,000. Due to the 80% loan-to-value ratio, you can take out a loan amounting to 80% of the RM300,000, which is RM240,000. Consequently, the amount you get to cash out is RM140,000 after deducting the outstanding RM100,000 from the RM240,000 loan.

You can now pay off your debts with the RM140,000 cash-out. Ultimately, you’ll be left with a new monthly mortgage payment with a lower monthly instalment than you did before.

While cash-out refinancing is a great option for those wanting to reduce overall debt, it’s essential to compare the interest rates, repayment terms and fees. That way, you ensure that you pay less in total interest payments in the long run.

2. Top-Up Loan

While they may seem similar, top-up loans are not to be confused with cash-out refinancing. With cash-out refinancing, you replace your original mortgage with a new mortgage, ideally at better terms and lower interest rates. On the other hand, top-up loans are separate loans offered against the equity in your home.

So, if you have RM200,000 in equity, you could open a line of credit to pay your other debts. This option of debt consolidation in Malaysia is suitable for those who already have an affordable housing loan with a decent interest rate.

Why Cash-Out Refinancing is Ideal for Debt Consolidation

There are several reasons why cash-out refinancing is the better alternative than a top-up loan.

  1. Cash-out refinancing pays off your existing housing loan and provides you with a new one. Meanwhile, top-up loans add a second payment on top of your existing mortgage.
  2. Typically, cash-out refinances have lower interest rates than top-up loans.
  3. The value of your property determined by the bank may be higher because different banks have different valuers. So, your chances of getting a higher loan are also higher.
  4. Unlike with top-up loans, you can compare the interest rates between the banks with refinancing. The lower the interest rates, the lower the repayment period and financial burden placed on you.
  5. In general, each bank has its own set of requirements for approving your application. If one bank rejects you, you can try different banks until your application is approved. Unfortunately, such is not the case with top-up loans.

For a better idea, here’s how we help one of our clients consolidate their debt.

Case Study

Encik Zamri and his wife, Puan Masliana, wish to not only prevent the foreclosure of their home but also pay off their debts and have extra funds to invest in his business. Hence, he decided to apply for a cash-out refinance. However, his application was rejected by the bank.

We helped Encik Zamri and Puan Masliana to obtain a loan successfully:

Current property market valueRM440,000
Refinance loanRM412,929 (90% loan margin)
Interest rate3.35% per annum
Monthly repaymentRM2,364
Repayment tenure240 months (20 years)
Cash-out earnedRM276,000

Read the full client story on our website.

The Pros and Cons of Debt Consolidation in Malaysia

The ProsThe Cons
Pay off your debt sooner
It can help you shorten the repayment period and save money on interest.
Does not fix the root problem
It does not address the financial habits that led to debt and cannot prevent recurring debt.
Manageable monthly payment
Easily keep track of your debt with a single payment and fixed interest rate.
May have upfront costs and fees
Debt consolidation may come with fees, including:-        Consultation fee-        Valuation fee-        Loan agreement fee
Receive lower interest rates
Generally, mortgage loans have lower interest rates than credit cards.
May pay a higher total amount
Depending on your credit score, you might not qualify for lower interest rates. Extending your loan term can ensure lower monthly repayments, but you may pay more in interest in the long run.
Boost your credit score
Paying off your debts in full and on time can definitely help you improve your credit score.
Missed payments have high penalties
Falling behind on your monthly repayments could lead to late fees and negatively impacts your credit score too.

Should You Consolidate Your Debts?

This would depend on your financial and personal circumstances. With that said, here is when debt consolidation is a smart move:

  • When it saves you money in the long run (i.e. in total interest)
  • If you can afford to pay your new monthly repayments on time
  • When you need to shorten your monthly instalment period
  • If you need additional cash flow

On the flip side, here is when debt consolidation is not advisable:

  • If you cannot afford to pay the monthly repayments
  • If you face issues with impulse buying

How BlueBricks can help you

It can be tricky to manage your significant debts and find the best way to consolidate them. Cash-out refinancing for debt consolidation in Malaysia may be the easiest way to access money, but your approval is not guaranteed. This is where BlueBricks come in to help you with your refinancing for debt consolidation application.

A leading loan agency company in Malaysia

BlueBricks is a professional loan specialist with years of experience providing loan consultancy and comprehensive loan rejected services.

If you are submitting or resubmitting a new loan application, BlueBricks offers FREE consultations as well as CTOS and CCRIS reports to improve your chances of approval. Furthermore, we will not charge any upfront fees for our services until you secure your loan.

Loan Rejected Services

BlueBricks is a leading one-stop solutions provider of comprehensive loan rejected services. This also includes providing refinancing loan rejected services for debt consolidation.

If your refinancing for debt consolidation is rejected, we can help identify the underlying problems and reasons for rejection. Before your resubmission, we can develop a strategy, rearrange and amend your documentation, and resubmit to the bank with a higher chance of approval.

Learn more about our refinance housing loan rejected service to help you with your current or even future application.

Debt Consolidation in Malaysia – FAQ

Refinancing your housing loan for debt consolidation is a solid financial strategy to reduce high interest rates, so you pay less in the long run. Here is our quick guide to clear any doubts you may have about debt consolidation in Malaysia

1. Do I qualify for debt consolidation in Malaysia?

Depending on your credit score, you will have to meet the lender’s minimum requirements to qualify for cash-out refinancing or a top-up loan for debt consolidation purposes.

2. Will debt consolidation affect my credit score?

At first, you might see a decline in your credit score, but your credit score is more likely to increase in the long term once you pay off your debt. Also, if you do not make your monthly repayments for your loan on time, it will negatively impact your credit score.

3. Will I lose my equity when I refinance my home?

No, you will not lose the equity of your home when you refinance. However, the equity may fluctuate depending on the remaining mortgage you owe and the market value of your property.

About Bluebricks

BlueBricks Holding is one of the top ten leading loan agency companies in Malaysia in terms of loan approval rates. As a leading licensed loan agency company, we have extensive knowledge and experience in mortgage and business loans, and this enables us to help our customers to get the deal that is best suitable to them.

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