The previous article on Home Loans help shed light on the glossaries and some mechanisms of conventional home loans. However, there are a few different methods of repaying back loans. This article will guide you through the main conventional home loans in Malaysia, followed by the pros and cons. Three main types of loans are normally considered when purchasing home in Malaysia.
Basic Term Loan
Basic Term Loan (BTL) is a traditional loan scheme that has a definite monthly repayment system based on either a fixed or floating interest rate, which the individual must pay within the stipulated time period. This was a common method back in the days. This benefits people with steady incomes and long-term jobs. It is even attractive for some people due to the low interest rates. However, the downside of this loan is that the individual is unable to pay more than the stipulated sum.
For example, Ah Beng has to pay back RM2,300 monthly for a RM300,000 loan. One day, he sues a man and gets paid hundreds of thousands. He finally has the financial capability to pay RM200,000 immediately. However, BTL will disregard such transactions and the money deposited will be used as a pre-payment for the upcoming payments as agreed by the bank and the individual. Due to the rigidity and strictness of the structure, Ah Beng has to keep on paying RM2,300 until the end of the term.
Semi-Flexi Loan
Semi-Flexi Loans (SFL) is a revised and more preferred loan as compared to the primitive BTL. Individuals could deposit additional payments and reduce the overall loan amount. For example, Ah Beng loans RM450,000 and has to pay a monthly payment of RM2810 for the next 20 years with an interest rate of 4.35%. Suddenly, Ah Beng wins the Toto lottery and decides to pay back RM300,000 immediately by banking that amount into his account. Now, the bank only charges interest for the remaining loan of RM150,000!
This is considered a more desirable option because it provides more flexibility and freedom to pay back loans. Other than making advance payments to lower loan interests, banks have allowed borrowers to withdraw any additional money paid ahead of schedule for emergency purposes. However, do note that it requires processing fee (RM50-RM100) and some processing time. Also, not everyone can win Toto like Ah Beng, so please bear in mind that this is when you have readily available cash.
Flexi-Loan
Flexi Loan (FL), as the name suggest, provides a flexible and free range option for the borrower to withdraw and deposit into the loan account without incurring any additional charges or procedures. It operates with shorter tenures and savings on interest. This is possible by opening a Current Account and binding it towards the loan. The installment amount is scheduled monthly from the Current Account, while the additional money inside the current account reduces the principal amount owed. For example, Ah Beng takes a FL of RM500,000 and inherits a large sum of cash from his deceased relative. He parks RM450,000 inside the linked current account and saves interest rates on that RM450,000. Meaning to say, he has only needs to pay for the remaining RM50,000 interest!
Although it sounds beneficial and ideal, there are a few downsides. Firstly, the banks charge a monthly maintenance fee (RM5-RM10) for the current account. Assuming you are taking a 10-year period to return the money, you have fork out RM1200 extra for this. Besides that, interest rates for SFL and BTL have lower interest rates as compared to FL. Due to the nature of FL, many banks are unable to offer this option.
Loanstreet has listed out useful types loan calculators for more prediction and estimation on home payments.
Verdict?
As SFL and FL offers amazing flexibility, BTL might have lower interest rates and offer better renumerations. There are many banks offering amazing loans at low interest rates nationwide. RinggitPlus and iMoney has listed the desired options for you to research and compare. Yet, despite all the free and readily available tools, weigh your options and consider the future and your financial capabilities. Not everyone can be like Ah Beng, where he can sue, inherit and strike a Toto lottery, so be careful with your options and choose wisely!
This article is part of a 3 section guide. Part 1 explains the basic structure of home loans while. Read on for Part 3 comprising of the different Islamic home finances in Malaysia.
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