When seeking a home loan to finance a property, ascertaining the type of loan you want is one of the first and most important questions you have to ask yourself. In Malaysia, that usually means choosing from one of the three major categories: Basic Term, Semi-Flexi or Full-Flexi.
Your monthly instalments/repayments go towards paying down your principal and the interest portions of a home loan. Generally, all home loans in Malaysia work on the reducing balance method, where you pay interest on the remaining loan balance.
If you’re relatively inexperienced in mortgage products, read on and allow us to shed some light on the major differences in order to help you choose a loan that truly fits your requirement.
1) Basic term loan
A basic term housing loan is one that comes with fixed repayment schedule, where the monthly instalment you pay is the same throughout your entire loan period.
Generally, a loan of this category does not allow you (or make it exceptionally hard for you) to reduce your loan interest with advance payment. Any additional payment you make is merely treated as pre-payment for future instalments and does not affect the total interest you’re paying on the loan itself. You can, however, write in to the bank and request for special considerations, which may, or may not, be granted at the discretion of the bank.
In the past, basic term home loans used to be the most common type of loan for home buyers in Malaysia. Nowadays, they are not as prevalent as they simply do not offer the kind of repayment flexibility required by the modern homeowner.
2) Semi-flexi loan
A semi-flexi housing loan is a type of home loan that comes with a built-in facility enabling borrowers to make advance payment to lower their loan interest without the need to make any formal request to the bank.
With a semi-flexi loan, any additional amount you repay on top of the normal monthly instalment is automatically used to reduce the principal loan amount, subsequently lowering the amount of interest you’re being charged for your home loan. If you like, you could also make a request with the bank to withdraw the additional payment you’ve made, though you’re likely to incur some charges during the process.
Compared with the full-flexi home loan, a semi-flexi home loan is considered a preferred option for those with spare cash and flexible income, due to the potential to save on loan interest.
3) Full-flexi loan
Full-flexi home loan (or just “flexi loan”) takes the notion of flexible payment to the next level, enabling borrowers to make an advance payment to lower their property loan interest and withdraw the additional payments they’ve made whenever they like, without the need for complicated procedures, or additional charges.
In a typical flexi loan package, you get a property loan account that is linked to a current account with a chequebook. Every month, loan instalment is automatically deducted from the current account and paid to the property loan account. By depositing an additional sum of money into the said current account, you’ll also be able to offset your principal loan amount and reduce the interest on your property loan.
If you have a flexi loan of RM300,000 and you’ve deposited RM100,000 into the linked current account, your loan interest will be based on RM300,000 – RM100,000 = RM200,000.
Just like a semi-flexi loan, you’ll be able to withdraw the additional payment you’ve made, simply by writing a cheque using the chequebook provided. The process is much easier because you do not need to make a request with the bank, as in the case for a semi-flexi loan.
Take note that most flexi loans do come with a fixed monthly fee (usually RM10 per month) to maintain the current account, so you might need to evaluate the financial commitment against the convenience of a flexi-loan before you make a decision.
Choosing a home loan category
To most Malaysian home buyers today, choosing a home loan usually boils down to a choice between a semi-flexi loan and a full-flexi loan, due mainly to the repayment flexibility that they provide. But if you do not envisage having additional cash to make an advance payment on your home loan, there is nothing wrong with going for a basic term loan (especially if you manage to secure a better interest rate compared to other loans).
For those of you who’re still stuck in a dilemma after reading this article, our recommendation is to go with a semi or full flexi loan if you can. After all, it’s always better to have options than none. You can also make use of iMoney’s home loan comparison table to find a package that fits your specific criteria.
Love this article? You may also want to read up on the 6 things you should consider before you take up a home loan to buy a house in Malaysia.