Do you want to learn more about the various Malaysian home loans? Here’s a quick rundown of the many home financing options available to aspiring house buyers, including basic term, semi-flexi, and full flexi loans.
Congratulations on your upcoming major life decision, prospective homeowner. Purchasing a new house can be stressful, especially if you are unfamiliar with the various types of home loans available.
Housing loans in Malaysia are categorized into three types: basic term loans, semi-flexi loans, and full-flexi loans. Another alternative is to take out an Islamic mortgage loan. The majority of property loans on the market are variable interest rate loans, meaning that the interest rate is linked to the bank’s base rate (BR).
You might believe that the loan package with the lowest home loan interest rate is the best option, but this isn’t always the case. To assist you choose the right house loan for your circumstances, we’ve detailed the benefits and drawbacks of each of the four options.
What is the definition of a basic term loan?
This is the most basic and traditional sort of home loan available in Malaysia. Because of its simplicity, this sort of loan is preferred by the majority of individuals. A basic term loan means that you will pay a fixed amount of payment throughout the course of your loan term, with no option to alter the loan interest rate at any moment.
Advantages of a basic term loan
You have a fixed monthly instalment amount to pay over the loan period with a basic term loan. Let’s imagine your monthly loan payment is RM1,000 throughout the course of a 30-year loan term. This is the actual amount you’ll pay over the next 30 years, so you’ll know if you can afford the loan repayment and won’t have to worry about your financial obligations growing.
The disadvantages of a standard term loan
In a nutshell, this form of mortgage provides no flexibility. Let’s imagine you have some more cash in a given month and want to make a larger payment. Either the bank will reject your application, or the additional amount will be viewed as a prepayment for future months rather than an advance payment to help lower your loan interest rate. Furthermore, you may not be able to withdraw any extra monies paid above the stipulated amount.
Most banks also include a penalty clause, in which you will be penalized roughly 3% if you pay off your mortgage early, within the first 2-5 years. In any instance, you have the option of requesting special considerations from the bank, but the ultimate decision is at their discretion.
What is a semi-flexi loan, and how does it work?
The most popular loan type issued by most Malaysian banks is the semi-flexi loan. It also gives you more flexibility than a traditional term loan because it allows you to make advance payments on your home loan.
Advantages of a semi-flexible loan
The semi-flexi loan reduces your loan interest by allowing you to make advance payments on your home loan amount because the principal amount is reduced. You’ll save money in the long run as a result. Furthermore, a semi-flexi loan allows you to withdraw additional funds that you have paid above and beyond the agreed-upon payment schedule.
Drawbacks of a semi-flexible loan
You may or may not need to make a request to your bank to pay the additional amounts, depending on the terms and conditions.
Additionally, you may be charged a processing fee, penalty, and/or be required to go through an approval process if you choose to withdraw extra funds. When compared to a simple term loan, the interest rate on a home loan may be greater, but this isn’t always the case, therefore it’s wise to “shop around” for different possibilities so you can make an informed selection.
What is a full-flexi loan, exactly?
A full-flexi loan has the same features as a semi-flexi loan, but you can now withdraw your advance payments without incurring any additional costs, penalties, or approval process. You will also be given a checkbook and a linked current account so that you can withdraw money whenever you choose.
Advantages of a full-flexi loan
You have the option of depositing extra funds or withdrawing your advance payments at any moment with a full-flexi loan. According to your bank’s loan repayment schedule, the loan amount will be automatically deducted from the funds in your current account. Furthermore, if you deposit additional monies into this current account, your property loan interest will be reduced.
A full-flexi loan is an example of lowering loan interest.
Assume your loan is worth RM800,000. You have some funds and want to pay RM300,000 into your house loan account at some point in the future. The amount of advance payment paid will be deducted from your loan interest, which will be computed based on the outstanding balance of:
The difference between RM800,000 and RM300,000 is RM500,000.
Drawbacks of a full-flexi loan
Please keep in mind that if you withdraw the previously paid additional money, the interest that you saved will be charged. A set monthly fee of about RM5 to RM10 is also charged to flexi loan customers. While the cost is minimal, it is nevertheless an additional expense on top of your monthly mortgage payment. Flexi loans are also not offered at most Malaysian banks, making it difficult to shop around for the best flexi loan rates. Furthermore, interest rates on full-flexi loans may be greater than those on term loans.
How can I get money out of a flexi loan?
You may be provided a checkbook and/or an ATM card, allowing you to withdraw funds whenever you choose.