Most of us rely on loans for big-ticket items such as property and cars, or for when we need extra cash for emergencies. But what happens when we change our minds or need to cancel the loan application due to unforeseen circumstances? We asked a mortgage specialist to share the implications of cancelling a home loan application in Malaysia.
Once you’ve done your research on the loan package that’s right for you, the next step is to commit to the loan agreement. Generally, there is a stipulated timeframe for the borrower to sign the Letter of Offer and the Loan Agreement with the bank.
However, situations might arise when borrowers want to cancel their property loan application. So, what are the implications to you when you cancel a home mortgage application in Malaysia?
iProperty Malaysia engaged with a mortgage specialist from Smart Choice Solution Sdn Bhd, Ethan Phoon, for insights on this frequently asked question, and the consequences for cancelling at different stages in the loan or purchase process.
What Are The Most Common Reasons Borrowers Cancel Their Home Loan Applications?
We change our minds. So do borrowers. They might have second thoughts about their home mortgage applications. Thus, it is always prudent to weigh all the pros and cons before applying for a loan.
Here are 9 common reasons that lead borrowers to cancel their house loan applications:
- Family members discouraged them from proceeding
- A financial emergency
- Received financial assistance from the government
- A lower interest rate from another bank
- Received monetary gifts from family, friends or relatives
- Inherited assets or money
- Loss of the current employment or income source
- Dissatisfied with the terms and conditions of the lending bank
- Realisation of inability to repay the loan
Regardless of the reasons, the borrower should ideally cancel the home loan application before the bank disburses the money either to the borrower or another party. Different banks have different procedures.
What Are The Consequences Of Cancelling Home Loan Applications In Malaysia?
If you’ve decided not to proceed with the loan application, you’ll need to look at the stage of the loan application process you’re in.
Scenario 1: Bank’s salesperson hasn’t submitted your home loan application
Generally, the bank’s salesperson will meet you to assess your financial situation, collect your documents, and prepare them for submission to their loan department.
At this stage, you should call the bank’s salesperson to not proceed with the loan application and ask them to destroy your documents, or you can meet the bank’s salesperson to collect your documents.
There’s no penalty or cost involved here.
Scenario 2: Your home loan application has been submitted for review
After compiling your documents, the banker will send them to the reviewers so that they can proceed to review your financial health.
The bank will also request your CCRIS report from Bank Negara Malaysia (BNM) to check on your credit history. The bank will have to provide information about your loan application, such as the loan amount you are applying for.
At this stage, you can inform the banker that you don’t intend to proceed with the home loan application by giving a written notice. There’s no penalty or cost involved here.
However, since the bank has requested for your CCRIS record, it will be remarked as “pending approval” in the record. It will be marked as such as long as the banker did not cancel your home loan application.
If the banker has cancelled your home loan application, the “pending approval” remark will be removed from your CCRIS record in the next refresh cycle.
Scenario 3: Your home loan application has been approved
Once the home loan is approved, a letter of offer will be generated. Depending on the bank’s procedure, some will auto-generate the letter, while some others will need confirmation from the sales staff.
In your CCRIS record, your home loan application will be remarked as “Approved by FI”. To cancel your home loan application, inform the bank by providing a written notice.
Once the banker has updated the cancellation request, it will be removed from your CCRIS record in the next refresh cycle.
At this stage, you’ll need to inform the bank by giving written notice regarding your intent to cancel the loan application. There’s no penalty or cost involved here.
Scenario 4: You’ve signed the bank’s letter of offer
You were excited about the bank’s approval, and have proceeded to sign the bank’s letter of offer. But now, you’re having second thoughts. At this point, it’ll depend on what is stipulated in the letter of offer.
Some banks don’t take any action, while some will charge a penalty fee. If there’s a penalty fee, there’ll be an administration fee of less than RM2,000. So, you should read the letter of offer closely before signing.
Scenario 5: You’ve signed the bank’s loan agreement
Usually, after the borrower has signed the bank’s letter of offer, the bank will get one of their panel lawyers to proceed with the loan agreement. The borrower will meet the lawyers to sign a loan agreement to proceed with disbursement.
If you’ve signed the loan agreement but decide not to proceed with the loan, you’ll be charged an administration fee from the bank and the lawyers. The fee will depend on the loan amount that the borrower is taking.
In the event the loan is cancelled, the bank has the right to recover all legal fees, stamp duty and other related expenses incurred, from the borrower.
The loan agreement contains the cancellation clause. You may get a legal advisor if you need assistance in understanding the cancellation clause stipulated in the loan agreement.
Scenario 6: The bank has already disbursed the home loan
Once the bank has disbursed the home loan, you can’t cancel it anymore. You may need to settle the entire sum, and most likely, you’ll be charged with an “early settlement fee”, which is usually included in the bank’s letter of offer.
Usually, the early settlement fee will be 2% of the loan approved by the bank.
Does Cancelling A Home Loan Application Affect The Borrower’s Credit Score?
If the borrower cancels the home loan application before the loan has been disbursed, the borrower’s credit score isn’t affected.
If the borrower cancels the loan after the loan is disbursed, the loan will be remarked in the CCRIS record. So the borrower will have to settle the loan for the loan commitment to be removed from his CCRIS record. Otherwise, it will affect the borrower’s loan eligibility score.
How To Cancel A Loan Application In Malaysia?
Step 1: Call the salesperson who was in charge of your home loan application. Inform him/her about your intent to cancel the loan application.
Step 2: Send a written notice to the bank’s branch to which the salesperson is based. Snail mail and/or email are acceptable. Some would prefer email, as they can request confirmation of receipt of email from the salesperson. That way, there’re timestamps, which could avoid any miscommunication or dispute.
Sample of Housing Loan Cancellation Letter To The Bank In Malaysia
City, State, Postcode
Loan Officer’s Name
City, State, Postcode
RE: Cancellation of my car/home/personal loan application
Dear [Loan Officer’s Name],
This letter is in response to our phone call on [DATE], during which I’ve informed that I wish to cancel the loan application and this letter serves as a written notification.
On [DATE], I applied for the [car/home/personal] loan and completed all of the necessary paperwork for approval.
However, [PROVIDE YOUR REASON HERE e.g. I’ve found a lender who’s offering a lower interest rate for the same amount that I’ll need for my mortgage.]
Please cancel my mortgage application and return all my documents to me as soon as possible. I’ll be happy to drop by the bank and pick up the paperwork, once you’ve informed that they’re ready.
If you have any questions, please contact me at [PHONE NUMBER] or [EMAIL ADDRESS]. Please let me know when I can pick up the documents, on or before [DATE].
[Your Printed Name]
Research and Ponder Before Signing On The Dotted Line
There are various repercussions that may follow a decision to cancel a loan application. Regardless of the loan type, it’s always wise to weigh all the pros and cons before applying for loans.
You could also reach out to legal advisors, or professional financial planners like Smart Choice Solution, to fully understand your rights and responsibilities when applying for a home mortgage in Malaysia.