The term top-up loans are often mentioned alongside refinancing and sometimes even intertwined. Some of us may think they are the same, given that both terms are connected to housing loans and mortgages.
However, they are not similar and differ in criteria and purpose. Here are 3 important things you need to know about top-up loans before applying for one.
What exactly is a Top-Up Loan in Malaysia?
A top-up loan is an additional loan on top of an existing mortgage currently being serviced. It is usually attached to home loans as the property is regarded as collateral.
The property would probably have increased in market value after a certain number of years, and the top-up amount will be based on the increased amount. Moreover, top-up loans are suitable for borrowers who demand immediate cash-out.
To put things into perspective, the following exemplifies how it works:
Jenny bought an apartment and took a loan of RM120,000 from Bank Y in 2007.
| Loan amount: | RM120,000 |
| Loan tenure: | 30 years |
| Interest rate: | 4.5% per annum |
| Monthly repayment: | RM608 |
| Outstanding amount in 2016: | RM100,000 |
| Property’s market value in 2017: | RM250,000 |
After evaluating Jenny’s Debt Servicing Ratio and taking other factors into account, Bank Y offers Jenny a top-up amount of 80% of her house’s market value, minus the outstanding amount:-
| Top-up loan amount: | (80% x RM250,000) – RM100,000 = RM100,000 |
| Tenure: | 25 years |
| Interest rate: | 4.8% per annum |
| Monthly instalment: | RM573 |
After getting the top-up, Jenny’s revised monthly instalment will be RM1,181 (RM608 + RM573).
Some banks may draw a new agreement for the top-up amount, while some may up stamp the previous agreement instead. Also, do note that the interest rate may change, and the top-up loan repayment tenure may be shorter than that of the existing mortgage, depending on the terms set by your bank.
How does it differ from refinancing?
Refinancing is the act of reducing your credit payment by lowering your interest rate. Simply put, it means replacing current housing loans with a new one under differing terms and conditions.
Both refinancing and top-up loans offer you immediate cash for your other area of spend. However, the former option gives you the freedom to choose any bank that can provide the best possible terms, while the latter option can only be done with your existing banks.
In addition, as refinancing means undertaking a new loan, all the standard entry costs apply, including legal fees and stamp duties. In some cases, you may need to pay additional redemption charges for the existing one and early termination penalties.
However, with top-up loans, the existing credit agreement only needs to be up-stamped, and your current bank will not invoke any early termination penalties. Hence, it is a more economical option.
How does it differ from renovation loans?
As the name suggests, a renovation loan is a facility created solely for the purpose of renovating one’s home, including but not limited to remodelling, repair, new furniture or fixtures, new lighting, etc. It is usually available to borrowers who have existing housing loans with the same bank or combined with the loan package.
This facility usually comes with a flat interest rate and varies between banks. However, note that, unlike top-up loans, renovation loans can only be used for the intended purpose and cannot be diverted towards any other area of spend.
With the top-up amount, you are free to utilise it for any need you might have, be it to renovate your house, start a business, pay for your child’s education, or simply settle other debts.
Now that we have distinguished top-up loans from the other options, let’s go over the pros and cons:
PROs
- You need not redraw the loan agreement
- Cheap entry costs (legal fee and stamp duties on top-up amount only)
- Shorter processing time as compared to refinancing
CONs
- Unable to enjoy lower interest rate and shorten the loan tenure*
- You may need to service or pay into two different accounts
- The top-up amount may be limited, depending on the property valuation offered by other banks
*This may vary according to the terms set by your bank.
How can BlueBricks help?
Although undertaking top-up loans is a relatively cost-effective way to obtain immediate cash 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 specialist in providing loan consultancy services and comprehensive loan rejected services.
If you submit a new 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, including top-up loans.
Hear first-hand from our clients on how we help them with their rejected top-up loan applications.
If your application is rejected, we can help identify the underlying problems and reasons for rejection, develop a strategy, execute amendment and rearrangement, and resubmit to the bank with a higher chance of approval.
You can find more about our loan rejected services to help you with your current or future top-up loan application.
Top-Up Loans – FAQ
Considering to undertake top-up loans 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 application.
No, but the lock-in period of your housing loan will be recalculated.
Yes, when a new loan agreement is redrawn.
Yes, you can treat it as a personal loan and use it for other areas of spend.
