Have you ever wondered what a loan drawdown is? While it may seem like a small detail, a loan drawdown can be an essential aspect of loan agreements.
By receiving the loan amount at different times throughout the term of the loan agreement, borrowers can take out what they need when they need it.
It helps them manage their cash flow and meet obligations such as interest payments or taxes so that they can avoid getting into debt.
Discover the steps involved in the loan drawdown process, from loan acceptance to a successful loan drawdown.
What Is Loan Drawdown in Malaysia?
In simple terms, a loan drawdown is the release of funds under an agreement with a lender. Lenders often allow loan drawdowns to give money advances to borrowers and set interest rates based on these short borrowing periods.
The loan drawdown happens after both parties have agreed to a loan. The lender will process the requested funds and deposit them in the borrower’s bank account.
The borrower will then have to pay off the loan amount in increments, usually with interest, until the drawdown amount and other term agreements are satisfied.
When it comes to home loans, a loan drawdown means you are using the money the lender provided to buy the property. Lenders use this term to describe when the money is usually paid directly into the bank account of your choice, usually on the settlement day of the property.
For example, you recently bought your first home for RM700,000. After paying your RM140,000 deposit and receiving the final contract, you have five weeks until your settlement date.
You then carry out the necessary steps before your loan drawdown, such as preparing your documents and participating in a property valuation.
Upon the official settlement date, your lender will draw down the remaining RM560,000 to pay the vendor. You are now the official homeowner of the new property.
On the other hand, money is separated into multiple payments if a property is under construction. This is because the construction project is completed in different stages.
For example, you were approved for an RM300,000 construction loan but have only drawn down RM20,000 so far; therefore, you’ll only be charged interest for the $20,000.
However, if you draw RM30,000 in the next phase of the construction, you’ll be charged interest on RM50,000. It continues that way until the entire loan has been used.
Understanding the Loan Drawdown Process
A loan drawdown is an important step in the loan application process. It is important that you understand the entire process to know the steps involved in a successful loan application.
1. Loan Acceptance
In the loan application process, once your bank approves your loan, they will send you a loan approval lett. Read it carefully, as it will outline everything you need to do.
Once you are satisfied with the loan details and have signed the loan acceptance letter, the bank will assign a solicitor to begin the facility agreement.
You will then have to sign the Facility Agreement and other relevant loan documents at your appointed solicitor’s office.
2. Legal Documentation
In this stage, your appointed solicitor will commence the necessary legal work, such as:
- Conducting a land and bankruptcy search
- Applying for a private caveat, a formal legal notice to the public that you have an interest in a particular property or land
- Applying for consent to charge from State Authority (if applicable)
- Obtaining the redemption statement from the existing financier (for refinancing cases)
- Presenting the Memorandum of Transfer (MOT) to State Authority for release of the balance loan sum for sub-sale cases.
- Stamping of housing loan documents
In the meantime, you will have to ensure that your quit rent and assessment and maintenance fees (for Strata properties) are duly paid, and a copy of the receipt is sent to the loan solicitor.
3. Property Valuation
A full inspection will be conducted, and internal and external photographs of the property will be taken as proof of inspection.
The valuation report will then be prepared and sent to your bank within 2 to 4 weeks from the inspection date.
4. Loan Drawdown
Your bank will disburse your loan within 1 to 2 weeks from the date of receipt of the solicitor’s Letter of Advice for drawdown and the valuation report (subject to full compliance with the bank’s Letter of Approval and terms and conditions).
The loan drawdown timeline varies according to the type of property. The initial drawdown is to pay the redemption sum to your existing financier (for refinancing properties) or vendor’s financier (for sub-sale properties).
However, for properties under construction, the loan will be drawdown upon receipt of progressive billing from the developer.
The balance drawdown will commence upon receipt of the original security documents.
5. Loan Advices
You will receive an update on your loan within 1 month from the date of the loan drawdown.
For properties under construction, you and your financier will receive progressive billings.
On the other hand, for instalment-based loans, you will receive advice on the commencement of instalment.
6. Loan Statement
You will receive your loan statement from your lender in:
- Yearly statements (for conventional home loans and Islamic financing packages)
- Monthly statements (for Flexi home loans and mortgages and Flexi financing-i packages)
How Bluebricks Can Help You
With our refinance housing loan rejected services, Bluebricks help you identify the reasons why your previous loan applications have failed and develop effective strategies to secure approval for your loan.
If you have questions and want to speak to an expert for the right advice, book a consultation with us for a free, no-obligation chat.
A Trusted Loan Rejected Services Provider
Bluebricks is a licensed loan specialist with years of loan consultancy experience and comprehensive loan rejected services.
If you find the loan application process too complicated, our financial experts are here to help. We will navigate you through your loan application process from the beginning to the end.
Loan Drawdown – FAQs
Homeownership is a significant milestone in many people’s lives.
But before you sign, research and equip yourself with the correct information on what the whole home-buying process entails, as this will probably be the largest investment you will ever make.
Want to find out more? Continue reading to discover the 3 frequently asked questions about the loan drawdown process.
1. Is there a difference between loan drawdown and loan disbursement?
Yes, there is. Loan drawdowns are often associated with bank loans or money deposited into an individual account. On the other hand, loan disbursements refer to either cash outflows, dividend payments or purchases from an investment account.
2. What is a loan drawdown date?
A loan drawdown date is a date your home loan begins. It is also the date your repayments and interest are calculated from.
3. How long does a loan drawdown take?
The timeframe lenders take to release a borrower’s funds varies. However, banks generally need a week (minimum) to disburse the requested loan amount.