What Is Refinancing?
Refinancing or loan refinancing (in Bahasa Malaysia: pembiayaan semula) is the process of replacing your existing loan with a new loan that offers better terms and conditions - usually a lower interest rate, a more suitable repayment period, or both.
Imagine you're paying a monthly home loan instalment of RM2,500 at an interest rate of 4.5% per year. By refinancing to a rate of 3.8% per year, you might be able to reduce your monthly payment to RM2,200 - that's a saving of RM300 a month, or RM3,600 a year!
Types of Refinancing in Malaysia
1. Home Loan Refinancing
This is the most popular type of refinancing because:
- Loan amounts are usually large (RM300,000 - RM1,000,000+)
- Loan tenures are long (20-35 years)
- Even a 0.5% difference in interest rate can save tens of thousands of ringgit
If you're still planning to buy your first home, start with our first-time home buyer guide in Malaysia to understand the full process before you think about refinancing down the road.
2. Car Loan Refinancing
Less popular but can still deliver savings:
- Loan amounts are smaller (RM30,000 - RM150,000)
- Tenures are shorter (5-9 years)
- Savings may not be as big as home loans, but still significant
Before you took out your original car loan, you may find our car loan vs personal loan comparison useful for understanding the cost structure you're now refinancing.
3. Debt Consolidation
A form of refinancing where you combine several smaller debts into one - read our complete debt consolidation guide for a detailed explanation. With this type of refinancing, you:
- Take one large loan to pay off all your smaller debts
- Combine personal loans, credit cards, and car loans into a single loan
- Get a lower interest rate and only need to manage one monthly payment
4. Cash-Out Refinancing
Refinance and take out extra cash:
- Your property value has gone up, so your equity has increased
- Refinance for an amount larger than your outstanding balance
- Get extra cash for renovations, business, or emergencies
When Is the Best Time to Refinance?
Situation 1: Market Interest Rates Have Dropped
This is reason #1 to refinance:
- Rule of Thumb: If market rates have dropped 0.75% - 1% below your current rate, it's usually worth refinancing
- Example: Your home loan is at 4.5%, the current market rate is 3.5% - a 1% difference means GO REFINANCE!
📊 Example Savings Calculation
RM500,000 Home Loan, Outstanding Balance RM400,000, 25 Years Remaining
| Rate | Monthly Payment | Total 25-Year Interest |
|---|---|---|
| 4.5% (Old Rate) | RM2,221 | RM266,300 |
| 3.5% (New Rate) | RM2,002 | RM200,600 |
| SAVINGS | RM219/month | RM65,700! |
Situation 2: Your Credit Score Has Improved
- When you took out your original loan, your credit score may have been average (CTOS 650-700)
- After consistent payments over several years, your score rises to 750+
- You now qualify for a better interest rate
- The bank will classify you as a "low-risk borrower"
Situation 3: Your Income Has Increased
- You got a pay raise or a new job with a higher salary
- Your DSR (Debt Service Ratio) is now better
- The bank is more confident in your ability to repay
- You can negotiate for a better rate
Situation 4: You Want to Reduce Your Monthly Payment
Even if the interest rate difference isn't much, you can refinance to:
- Extend the loan tenure (e.g., from 20 remaining years to a new 25 years)
- Lower your monthly payment, even though total interest is higher
- Useful if your cash flow is tight right now
⚠️ Caution
Extending the loan tenure will lower your monthly payment, but will INCREASE the total interest you pay overall. Only do this if you genuinely need it for cash flow management.
Situation 5: You Want to Shorten the Loan Tenure
Conversely, if your income has increased and you can afford to pay more:
- Refinance to a shorter tenure (e.g., from 25 remaining years to 15 years)
- Monthly payment goes up, but you finish paying off sooner
- Save significantly on total interest
- Your house/car becomes fully yours sooner
Situation 6: You Want to Switch Rate Type (Fixed ↔ Variable)
- From Fixed to Variable (Floating):
- If the OPR is forecast to fall or stay low
- Variable rates are usually 0.5%-1% lower than fixed
- But there's a risk - if the OPR rises, your monthly payment rises
- From Variable to Fixed:
- If the OPR is expected to rise (a rising interest rate environment)
- You want security and predictability
- You know exactly how much you'll pay every month for budgeting
When NOT to Refinance
Refinancing isn't always a good idea. Avoid refinancing if:
1. Your Loan Is Almost Fully Paid Off
- If you have 5 years or less remaining, it may not be worth it
- Most of your payments are already going towards the principal (not interest)
- Refinancing resets the process - you start paying interest again
- Refinancing fees and costs may be bigger than the savings
2. You're Still in the Lock-In Period
- Most loans have a lock-in period of 3-5 years
- Exiting early = penalty of 2-5% of the outstanding balance
- Example: Balance RM300,000, penalty 3% = RM9,000!
- You need to calculate whether the savings outweigh the penalty
3. The Rate Difference Is Too Small
- If the new rate is only 0.25%-0.5% lower, it may not be worthwhile
- Refinancing costs (legal fees, stamp duty, valuation) can reach RM5,000-RM15,000
- It can take several years to break even
4. Your Credit Record Has Gotten Worse
- If you've had many late payments since taking out the original loan
- Your CCRIS/CTOS score has dropped
- The bank may offer a HIGHER rate or reject you outright
- Better to repair your credit first before applying for refinancing
5. The Asset Value Has Dropped
For home loans:
- If the market value of the property has fallen (e.g., poor economy, damaged area)
- The outstanding loan is higher than the property value (negative equity)
- The bank may not approve, or may ask you to top up cash
The Refinancing Process: Step by Step
Step 1: Calculate Whether It's Worth It
Before doing anything, calculate first:
A. Check Your Current Loan Balance
- Check your latest loan statement or log in to online banking
- Note:
- Outstanding balance
- Current interest rate
- Remaining tenure
- Monthly payment
B. Check the Lock-In Period and Penalty
- Refer to your original loan agreement
- Call the bank and ask:
- "What's the penalty if I settle early?"
- "Is there still a lock-in period?"
- "How much does a redemption statement cost?"
C. Survey the Current Market Rates
- Check bank websites (Maybank, CIMB, Public Bank, Hong Leong, etc.)
- Use comparison websites:
- iMoney.my
- CompareHero.my
- RinggitPlus.com
- Check the current Base Rate (BR) or Base Lending Rate (BLR) from Bank Negara
D. Calculate Potential Savings
Use the iKasih Credit loan calculator to quickly estimate your new monthly payment before you contact the bank.
Simple Formula:
Monthly Savings = Old Payment - New Payment
Total Savings = (Monthly Savings × Months Remaining) - Refinancing Cost
Example:
- Old payment: RM2,500/month
- New payment: RM2,250/month
- Monthly savings: RM250
- Tenure remaining: 20 years (240 months)
- Total savings: RM250 × 240 = RM60,000
- Refinancing cost: RM8,000
- NET SAVINGS: RM52,000! ✅
E. Calculate the Break-Even Point
How long will it take to recover the refinancing cost?
- Break-even = Refinancing Cost ÷ Monthly Savings
- Example: RM8,000 ÷ RM250 = 32 months (2.7 years)
- If you plan to stay in the house for more than 3 more years = GO FOR IT!
- If you plan to sell within 2 years = DON'T, you won't reach break-even in time
Step 2: Check Your Eligibility
Documents Required
- Identity: MyKad (front & back copy)
- Income:
- Salary slips (last 3-6 months)
- EA/BE form (income tax)
- EPF statement (optional)
- Bank statement (6 months)
- Existing Loan:
- Original loan agreement
- Latest loan statement
- Land title/grant (for home loans)
- Valuation report (if available)
- Credit Record:
- Obtain CCRIS from BNM (free)
- Obtain a CTOS report (RM25-45)
- Check for errors and correct them if needed
General Eligibility Requirements
- Payment Record: No late payments in the last 12 months (CCRIS all code 1)
- DSR: Maximum 60-70% (depending on the bank)
- CTOS Score: Minimum 700 for the best rates
- Employment: Minimum 6 months at current job (1-2 years for self-employed)
- Loan-to-Value (LTV): Usually a maximum of 90% of the property value
Step 3: Apply to a New Bank
Option A: Apply Directly to the Bank Yourself
- Pros: No middleman, can negotiate directly
- Cons: Need to do your own research, takes time
- How:
- Choose 2-3 banks with the best rates
- Call or email to get a quotation
- Make an appointment with a loan officer
- Submit complete documents
Option B: Use a Loan Agent/Broker
- Pros:
- They have relationships with multiple banks
- Can submit to many banks at once
- Help with paperwork and the process
- Know which banks are more likely to approve based on your profile
- Cons:
- May charge a commission (0.5-1% of the loan amount)
- Or the bank pays them (no cost to you, but check whether you're still getting the best rate)
Option C: Apply Through an Online Platform
- Popular Platforms:
- iMoney: One application, multiple banks respond
- CompareHero: Comparison + application
- Bank websites: Direct online application
- Pros: Fast, convenient, get multiple quotes
- Cons: Less personalized service
Step 4: Wait for Approval
This process usually takes:
- Initial approval (Letter of Offer): 3-7 working days
- Property valuation (for home loans): 7-14 days
- Final approval: 14-30 days from full submission
At this stage, the bank will:
- Check your credit (CCRIS/CTOS)
- Verify income documents
- Conduct a property valuation (for home loans)
- Check DSR and repayment capacity
Step 5: Accept the Letter of Offer
Once approved, the bank will send a Letter of Offer. Review it carefully:
- Loan Amount: Matches what you applied for?
- Interest Rate: Fixed or variable? What rate?
- Loan Tenure: How many years?
- Monthly Payment: How much is each instalment?
- Lock-In Period: How many years? What's the penalty for early settlement?
- Fees and Charges:
- Legal fees
- Stamp duty
- Valuation fee
- Processing fee
- MRTA/MLTA insurance (if required)
🚨 Important: Don't Get Too Excited!
Even if you get an approval with a rate that looks good, RECALCULATE the total cost. Sometimes banks offer a low rate but charge high processing fees or other hidden costs that can negate your savings!
Step 6: Inform Your Old Bank
After accepting the offer from the new bank:
- Inform your old bank that you want to settle the loan
- Request a Redemption Statement
- This document shows:
- The outstanding loan balance
- Interest accrued up to the settlement date
- Penalty (if any)
- Total amount required to close the loan
- Usually valid for 30 days
- There's a charge for the redemption statement (RM50-200)
Step 7: Legal Process and Signing
The lawyer will handle:
- Stamp Duty: Payment to the government
- Calculated based on the loan amount
- There's remission/reduction for first-time refinancing (check the latest rules)
- Legal Documentation:
- Loan agreement with the new bank
- Discharge of charge (for the old bank)
- Creation of charge (for the new bank)
- Transfer documentation
- Disbursement:
- The new bank will pay the old bank directly to settle the loan
- If there's extra (cash-out refinancing), it will go into your account
You'll need to pay:
- Legal fees (RM2,000 - RM5,000 depending on loan amount)
- Stamp duty (RM1,000 - RM10,000+ depending on loan amount)
- Disbursement (costs for stamping, registration, etc.)
Step 8: Loan Disbursement and Settlement
On the set date:
- The new bank will release the funds
- Settle the loan with the old bank
- The old bank will release the charge on the property
- The new bank will register the new charge
- You'll receive a Settlement Letter from the old bank (keep it safe!)
Step 9: Start Payments to the New Bank
- Set up auto debit/giro for the monthly payment
- Make sure your account has enough balance every month
- Keep all documents for future reference
- Monitor your loan statement to ensure there are no errors
Refinancing Costs You Need to Know
1. Costs for the Old Bank
- Early Settlement Penalty: 2-5% of the balance (if still in lock-in period)
- Example: Balance RM300,000, penalty 3% = RM9,000
- Redemption Statement Fee: RM50-200
- Legal Fee for Discharge: RM500-1,500
2. Costs for the New Bank
- Processing/Application Fee: 0.5-1% of the loan amount (usually)
- RM300,000 loan × 0.5% = RM1,500
- Sometimes the bank waives this fee for promotions
- Valuation Fee (for home loans): RM300-800
- The bank sends a valuer to assess the property's value
- Ensures the market value supports the loan amount
3. Legal Costs
- Legal Fees: Based on the set scale
- RM100,000 loan = ~RM1,500-2,000
- RM300,000 loan = ~RM3,000-4,000
- RM500,000 loan = ~RM4,000-5,500
- Disbursement (costs for stamping, registration, courier, etc.): RM500-1,500
4. Stamp Duty
Calculated based on the loan amount according to the government schedule:
- First RM100,000 = 0.5% = RM500
- Next RM400,000 = 1% = RM4,000
- Above RM500,000 = 1.5%
Example: RM300,000 Loan
- RM100,000 × 0.5% = RM500
- RM200,000 × 1% = RM2,000
- Total stamp duty = RM2,500
💰 Good News: Stamp Duty Exemption
The Malaysian government provides an exemption/reduction on stamp duty for refinancing in certain situations. Check with your lawyer or bank whether you qualify for the exemption. This could save you thousands of ringgit!
5. Insurance (If Required)
- MRTA/MLTA (Mortgage Reducing/Level Term Assurance):
- Sometimes required by the bank
- Protects the bank and your family if you pass away
- Cost: RM2,000-10,000+ depending on age, health, loan amount
- Fire Insurance (for the property):
- Usually RM200-500/year
- Needs to be renewed every year
Total Refinancing Cost Estimate
Example for a RM300,000 Home Loan Refinancing:
- Early settlement penalty (if any): RM0 - 9,000
- Redemption statement: RM100
- Processing fee (new bank): RM0 - 3,000
- Valuation fee: RM500
- Legal fees: RM3,500
- Stamp duty: RM2,500
- Disbursement: RM1,000
- MRTA (if required): RM0 - 5,000
- TOTAL (if no lock-in penalty): RM7,600 - 15,000
- TOTAL (with penalty): RM16,600 - 24,000
Tips to Get the Best Rate
1. Improve Your Credit Score 6-12 Months Before Applying
- Pay all bills on time
- Reduce credit card utilization to under 30%
- Don't apply for new loans or credit
- Check CCRIS/CTOS and correct any errors
2. Compare a Minimum of 3-5 Banks
- Don't take the first offer
- Use comparison platforms
- Check both conventional and Islamic banks
- Sometimes smaller banks offer better rates to attract customers
3. Negotiate!
- Don't accept the offered rate as-is
- Ask: "Can you give a better rate? Bank X is offering 3.5%, can you match that?"
- Leverage your good credit score and relationship with the bank
- Negotiate to waive processing fees or legal fees
4. Timing Matters
- End of quarter/year: Banks want to hit targets, more willing to negotiate
- Promotion periods: Raya, Chinese New Year, year-end sales
- When the OPR drops: Banks reduce rates, a good time to refinance
5. Bundle Your Banking Relationship
- If you transfer your salary account, ASB/fixed deposit
- Banks may offer preferential rates for "total relationship"
- Ask for package deals
Banks Offering the Best Refinancing Rates (2026)
*Rates are subject to change. Please check with the bank for the latest rates.
Home Loan Refinancing
1. Maybank Home Loan Refinancing
- Rate: From 3.70% per year (variable)
- Lock-In: 3 years
- Promo: Waives legal fees up to RM5,000
- Requirement: Minimum loan RM100,000
2. CIMB HomeSmart Refinancing
- Rate: From 3.65% per year
- Lock-In: 3 years, penalty 3%
- Advantage: Flexi payment options
3. Hong Leong Smart Home Loan
- Rate: From 3.75% per year
- Lock-In: 3-5 years
- Promo: Cash rebate RM2,000 for refinancing > RM500k
4. Public Bank Housing Loan
- Rate: From 3.80% per year
- Lock-In: 5 years
- Advantage: Very stable, consistent rates
5. RHB Smart Home Financing-i (Islamic)
- Profit Rate: From 3.85% per year
- Lock-In: 3 years
- Shariah-Compliant: Tawarruq concept
Car Loan Refinancing
1. Maybank Hire Purchase Refinancing
- Rate: From 2.5% per year (for new cars < 5 years)
- Tenure: Up to 9 years
2. CIMB Auto Finance Refinancing
- Rate: From 2.3% - 4% per year
- Processing: Fast approval in 24-48 hours
3. Hong Leong Car Loan Refinancing
- Rate: From 2.4% per year
- Advantage: Cash rebate for refinancing
Conclusion
Refinancing is a very powerful financial tool when used correctly. By switching your loan to a lower rate, you can:
- ✅ Save tens of thousands of ringgit in interest
- ✅ Lower your monthly payment for better cash flow
- ✅ Settle your loan faster (if that's your goal)
- ✅ Free up cash for investment or an emergency fund
Remember the Simple Formula:
- CALCULATE: How much are you saving vs. how much does it cost?
- COMPARE: Shop around for the best rate
- NEGOTIATE: Don't accept the first offer
- EXECUTE: If the numbers make sense, go for it!
Don't let a high interest rate burden your finances longer than necessary. Check the current market rates today and calculate whether refinancing could save you thousands of ringgit!
📞 Need Help With Refinancing?
iKasih Credit offers FREE refinancing advisory services. We'll help you calculate savings, compare banks, and guide you through the whole process. Contact us today for a free consultation!
Disclaimer: The interest rates and terms listed are for general guidance only and are subject to change without notice. Please check with the bank for the latest information. This article is for educational purposes and is not professional financial advice.