Thursday, January 24, 2013

Reduce your homeloan interest rate

Homeloan Rates Reduced in 2008, 2009 and 2010

In early 2009, Bank Negara Malaysia ("BNM") reduced the bank interest rate significantly (by 40%) and increased the liquidity of banking system to prepare for the anticipated economy downturn of the world.

I remember Malaysia's homeloan interest rates went down significantly though gradually in the year of 2009. (Meanwhile, prices of house went up gradually and significantly in 2009 to 2011.) It went down to as low as 3.5% - 4.0% (BLR less 2.3%) from previous height of approximately 6.0 - 7.0%. It was a very significant reduction. It cut household's homeloan interest cost, one of the largest expenses of middle class households, by 1/3.

Banks would not informed you or reduced your homeloan interest rate

However, if you had a homeloan earlier than 2009 then, there was a catch: your bank would not offer or inform you of the new reduced homeloan rate. They would continue to charge you based on your original homeloan interest rate that probably hovering between 5.0% - 7.0% (BLR plus 2%).

It surprised me to find out recently that, even until today, some of my friends and colleagues are still carrying these pre-2009 homeloans with high interest rate. What they did not know is that they can reduce the interest rate and instalments.

Method To Reduce Your Homeloan Interest

  • Check with other banks their homeloan offer. Get two banks' offers.
  • Call your bank to reduce their rate, or else you would switch your homeloan to another bank.
  • At this point, your bank would most likely agree to reduce your homeloan interest rate and in return would want to tie you down for at least 3 years.
  • You can agree and the rest is just paperwork
  • If your bank refuse to reduce your interest rate, then switch to another bank. Some banks even offer free legal fee for switching of loan. Here is an useful infographic on refinancing your housing loan.

Why didn't I write about this earlier?

I used to think such thing is just so straight forward, like "Bank Negara had reduced the interest rate, the banks had a lower homeloan interest rates... and come, let's talk to the bank officer to reduce our rates!!" And sooner or later most people would know and ask their banks to reduce their homeloan rates...and so I thought.

Apparently it is not the case. Many people do not know this even after 4 years since 2009. So I write now. Hope it helps. If you still have an old homeloan, check your interest rate and talk to your bank to reduce it. The saving can be huge.