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How Refinance Could Save Mortgage Interest Charge - Self Help
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Hope it is helpful.

Refinancing your existing home loan can save you a lot of mortgage interest. In certain cases, you can easily save more than a hundred thousand.

The reason to refinance mortgage:
-To save interest cost by “switching” to better home loan package -To reduce monthly payment -To reduce or prolong loan tenure -To cash out the home equity for emergencies or other needs such as children education and business venture.
-Maybe it's just simply to enjoy better flexibility in managing cash flow -To consolidate all other debt into one with the lowest interest charges

How much can you save by refinancing home loan?

Look at the example below.

Home loan details of Mr.X:
-Loan amount is RM 500,000.00
-Start paying monthly installment on 1st January 2006 -Loan tenure of 30 years -Mortgage interest rate with his existing bank: first year 2.5%, 2nd year 6%, 3rd onward year 6.5%.
-Lock in period 3 years

After the lock in period of three years with the existing bank, Mr.X can refinance his mortgage to another Bank, as there is no penalty on early settlement. Let's say CIMB bank is offering an interest rate package as shown below:

•BLR – 2.05% (based on our current rate) for entire loan tenure and the moving fees are absorbed by the bank. (Current BLR is = 5.55%)

To compare apple to apple, I calculate using the remaining tenure of
27 years and only refinance the remaining principle of RM 476,471.33 at end of third year. The new schedule is reflected below:

Before refinancing, he would have to pay RM3120 per month as installment. After refinancing with the CIMB bank, he only pays RM2272 per month, providing him a positive cash flow of RM848 each month.

Compare the total amount of interest paid after 30 years:

Without refinancing
=RM607,620.88

With Refinancing ( from 4 th year)
=RM333,098.42

Total savings = RM274, 522.46

Mr.X can save even more by refinancing after lock-in period (normally 3-5 years). Keep repeating the same strategy of refinancing and he'll be out of mortgage debt much earlier than the initial 30 years tenure.



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