An overdraft facility or cash line facility is a demand loan offered by banks that lets you withdraw money even when you have zero funds in the said account. In almost all cases, the credit limit is decided by the bank.
For a housing loan, an overdraft facility is accessed through an account that is linked to your home loan account. The bank grants an amount with a predetermined interest rate even if you owe money to the said institution. The facility comes with additional fees and charges (varies from bank to bank).
Features and Benefits of Home Loan Overdraft Facility
- Obtain money even if your account does not have sufficient funds.
- A quick and convenient option to raise the required funding in case of an emergency.
- No fixed repayment schedule gives you the freedom to pay back the amount as per your convenience.
- You will need to pay interest only on the amount used by you and not on the total overdraft sum that has been granted by the bank.
- It often comes with a quicker approval procedure.
Who Should Apply for Home Loan Overdraft Facility
It’s a good option to go for if you are looking for a quick short-term funding for your emergency requirements. Also, you can use the facility in case you need to do any construction or renovation related add-on work for your house.
Eligibility Criteria for Home Loan Overdraft Facility
Following are the eligibility criteria you need to qualify for getting a Home Loan Overdraft Facility:
- Malaysian citizen or a foreigner with authorized identity proofs.
- You have to be minimum 18 years old to apply for an overdraft facility.
- You need to follow the minimum collateral criterion (as per the bank’s request).
Documents Required for Home Loan Overdraft Facility
- A copy of NRIC or MyKad for identification.
- Original copy of collateral/certificate.
- Last 3 months’ salary slips (for a salaried employee).
- 3-6 months latest bank statements (for a self-employed individual).
- Any other documents as requested by the bank.
Fees and Charges for Home Loan Overdraft Facility
|Home Loan Overdraft Facility||Fees and Charges|
|Stamp Duty||As per the Stamp Duty Act 1949 (revised in 1989)|
|Commitment Fee||As per the bank’s discretion|
|Documentation Charges||As per the bank’s discretion|
Q. How long does it take to get an overdraft facility approved by the bank?
A. It depends on the bank’s discretion and similarly, the timeline for approval varies from bank to bank. However, make sure that your documents are valid. Having a good credit score also helps speed up the approval process.
Q. Do I have to pay the interest on all the amount I have got an overdraft on my Home Loan?
A. No, you do not have to pay the interest on the full amount that has been granted to you. You will be entitled to pay the interest on the amount that you have used for the credited amount.
Q. How is the interest rate for a cash line facility charged?
A. The interest rate that is charged for an overdraft facility can be on the higher side compared to the home loan. The Base Rate (BR) of the bank is also a crucial factor that affects the total interest rate to be paid.
Q. Do I need to present a collateral for obtaining the facility?
A. Both secured and unsecured cash line facilities are available in Malaysia. For secured cash line facilities, the bank will give you an amount of fixed deposits, property, and pledge of shares along with the home loan schemes that you have acquired.
Q. What is the amount of commitment fees that I need to pay while acquiring the overdraft facility?
A. The commitment fee is charged as per the bank’s discretion. However, most of the banks charge up to 1% on the unused portion of the approved overdraft as a commitment fee as per the guidelines of the Association of Banks in Malaysia.
Wondering whether it is worth using an overdraft facility for home loans? While it’s best to use it during emergency situations, you also should keep in mind that it comes with additional fees and charges. Compare the facility with other financial vehicles, do the calculations, and you will surely know whether you would want to use overdraft facility against your home loan or not!