Written by: Sr. KC Law, Principal & Valuer at Action Real Estate & Valuers
There are generally 3 types of home loans available to finance your properties:
1. Basic term loan
2. Semi flexi loan
3. Full flexi loan
On the same topic of home loans, we have also shared a guide on how to get a housing loan in Malaysia. Have you ever wondered what the banks think of you when you apply for a loan? Read this piece on Getting A Housing Loan In Malaysia.
1. BASIC TERM LOAN
This type of loan has been the norm in the past, however it is now not a very favorable option for most modern home buyers due to its lack of flexibility.
For this type of loan, you pay a fixed installment monthly over the entire loan tenure period. If you have extra cash in hand and would like to make an advance payment to pay down the principal sum, you will need to write to the bank and ask for permission to pay down the principal sum (subjected to the bank’s approval).
However, the additional amount you allocated to pay your loan cannot be withdrawn in the future.
Hence, if you have an emergency use of the money you will be stuck with a liquidity problem.
2. SEMI FLEXI LOAN
In comparison to the previous loan, this type of loan allows you to deposit any extra cash into your loan account to reduce the principal sum, without the need to formally write to the bank for permission.
Subsequently, this will help you reduce the interest charges and your loan tenure.
For example, your loan balance sum is RM400k and you have RM200k cash at hand for say 2 months. You can deposit this money in the loan account for 2 months and withdraw it out 2 months later.
If the loan interest is 4.5% per annum you would have saved RM1,500 as interest from depositing RM200k for 2 months only.
At the end of 2 months, you decide to withdraw the RM200k for other more important use. You will then have to make a request to the bank, which will impose a RM50 service charge for withdrawing the money.
At the end of the day, your net saving is still RM1,500-RM50=RM1,450. Hence, parking your extra cash in your loan account can help you save money.
3. FULL FLEXI LOAN
This type of loan allows you to deposit and withdraw any advance payment into the loan account anytime you need, without the need for formal applications and at no extra charges, although it does come with a monthly fee of RM 10 to maintain your current account, it also provides you with a cheque book.
Every month your loan is automatically deducted from your savings account (if you create a standing instruction). Whenever you have extra money in your savings account, you may choose to transfer it into your loan account to offset your principle sum and subsequently reduce your interest charges.
For instance, your current loan balance is RM 400k, you have extra RM 200k cash which you have decided to park into your current account. Your loan interest will only be based on RM400k- RM 200k = RM 200k, instead of the initial RM 400k.
As and when you require the extra cash, you can withdraw it by writing out a cheque, or by internet banking and there is no need to go through the bank as in the semi flexi loan.
So, which is the best package?
If you occasionally have spare cash in your hands, you may want to opt for either one of the flexi loans.
If you are usually tight on cash and do not intend to make payment advances, you may want to opt for the basic term loan, they may sometimes offer lower interest rates.
At the end of the day, choose the type of loan based on your own financial needs; i.e. How much of financing flexibility do you need?
P/S: Here is a good tool for you to use to compare different bank’s interest rates, there is also a home loan calculator in it! It makes calculating the monthly repayments easy for you. To use the mortgage calculator, you just have to type in the property price that you would like to borrow and for how long. It will do all the calculations and will present you with the best mortgage deals available.
Find the best home loan in Malaysia with interest rate as low as 4.39% p.a. and apply online.
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About the Author
Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyor Malaysia and Member of Malaysia Institute of Estate Agents.