How to unlock cash flow in the current property market

The housing market is predicted to remain tepid over the next couple of years, making it a good time to add to your portfolio if you are in a strong financial position. (Freepik pic)

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According to PropertyGuru DataSense, the area with the most property transactions in Selangor for the first half of 2021 (H1 2021) was Klang, with a median price of RM400,000.

In H1 2017, Klang was also the champion for the most transactions in Selangor, but with a median price of RM331,800.

In popular, well-developed areas like Klang, Puchong and Shah Alam, it is not surprising to see house values increase dramatically in just a matter of years.

If you have owned a property in any of these locations for more than five years, consider checking the current value compared with when you first purchased it. If your property value has increased, you could refinance to gain some extra cash flow.

Refinancing is when you replace your existing loan with a new one that has different terms and conditions. You can choose to either do it with your current bank or a different one.

Normally, people refinance their mortgage to get better benefits – like a lower interest rate – compared with the current agreement. Those who have seen their property value increase can opt to cash out the newly gained equity via refinancing.

This works by taking out the capital appreciation in cash and adding it to the current outstanding balance of the loan. For example, if you purchased your property at RM400,000 and it is now valued at RM450,000, you could choose to refinance and add RM50,000 to the loan.

The additional amount you added on becomes yours to invest with as you wish.

In popular areas like Klang, it isn’t surprising to see house values increase dramatically in just a few years. (Wikipedia pic)

Financing your future property

Those who have been following the property landscape will know the current market outlook will remain tepid for the next year or two, making it a good time to add to their property portfolios, provided they are in a strong financial position.

Should you decide to purchase a property soon, consider a flexi loan instead of a basic term loan. Given its no-frills nature, a basic term loan, where the borrower pays a fixed monthly instalment, is the most popular loan type. Any additional amount you pay will be considered an advanced payment for the upcoming month.

With flexi loans, on the other hand, any advanced payments you make will decrease the loan interest as the principal amount has been lowered. To make the deal even sweeter, you can also withdraw any additional amount paid before schedule.

There are two types of flexi loans: semi-flexi and full-flexi. For a semi-flexi loan, processing fees, penalties and approval processes might apply when you request to withdraw the additional amounts.

A full-flexi loan, on the other hand, offers not only the same payment flexibility but also less hassle when withdrawing advance payments. There are no extra charges, no approval fees and no approval process. In fact, you will be provided a chequebook with a linked current account to simplify the withdrawal process.

If you do your due diligence, you will be able to find the perfect flexi loan deal for you. (Rawpixel pic)

A full-flexi loan provides the benefits of depositing extra funds into the current account and withdrawing them at any time. The scheduled monthly instalments will automatically be deducted from the account as per the loan repayment schedule previously agreed on in the contract.

Similar to a semi-flexi loan, putting additional funds into the current account reduces the property loan interest, saving you money in the long run.

To enjoy the flexibility and perks offered by flexi loans, some extra charges do apply. The interest rates may also be slightly higher, but if you do your due diligence, you will be able to find the perfect deal for you. To compare the difference in payments between a basic term loan and a flexi loan, check out our calculator here.

With a combination of refinancing and flexi loans, you can put the money gained from cashing out your equity into advanced payments on your flexi loan, thereby reducing the interest of the loan.

Since the money can be withdrawn from the flexi current account whenever you need it, you can still use it in the case of an emergency.

So, should you refinance your home? If property values go up, you should definitely consider freeing up your cash and taking the opportunity to add a property to your portfolio without digging into your current savings. You can get an estimate of your current property value here simply by keying in your property details into our search bar.  

But it’s important to consider your financial standing first before taking on the commitment of purchasing a new property. Check out our previous article for more tips on buying a residential property, whether it is for own stay or investment.

This article was prepared by Adlene Hanna of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.

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