To Flexi or Not to Flexi: Which Home Loan is For You?

Many of us are aware of the fundamentals of a home loan — or any type of loan. You borrow money from the bank, you pay it back in monthly instalments over several years and you’re charged interest on the outstanding amount left to pay. We call this — a basic term loan. But did you know there’s something called a flexi loan? How about a semi-flexi loan?

In Malaysia, flexi or semi-flexi loans are still relatively new concepts that are growing in popularity every day. Read on to find out why they’re such game changers.

Here’s the Basic Run-down

Term Loan

This is what we’re all familiar with. In a term loan, the repayment schedule and instalment amount are fixed; it doesn’t and shouldn’t change throughout the tenure. This means that any advance payments don’t work to decrease the outstanding debt, so it doesn’t reduce the amount of interest charged on the principal amount. It’s simply counted as a portion of the next month’s instalment. You can appeal to the bank to make an exception, but they may choose to reject the appeal.

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This means you pay RM2,280 every month. By the end of the tenure you’ll have paid RM370,800 on interest alone and there’s usually no way to lessen this amount. On the plus side though, the interest rates for term loans are often less than that of flexi or semi-flexi loans.

Flexi Loan

As the name suggests, this kind of loan is much more flexible than the term loan. The borrower is provided with a current account in which they keep the instalment amount for the bank to deduct every month. RM10 monthly fee is usually charged for the maintenance of the current account. With the flexi loan, the borrower is able to make advance payments by depositing more money in the current account. This actually reduces the outstanding debt amount, thus saving on the interest that would’ve been charged. For example:

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The borrower can also withdraw the surplus payments whenever s/he needs to — no extra fees or tedious procedures involved.

Semi-Flexi Loan

If you’re more of a middle-ground type of person, this might be for you. It is similar to the full flexi loan in that the borrower can make advance payments in order to reduce the principal amount but it’s not as simple (or desirable) to withdraw the extra cash. This is because extra interest will be charged on the amount that the borrower takes out. There’s also a withdrawal fee involved — around RM50, depending on the bank. There’s no current account involved, and so there’s no RM10 monthly fee.

What’s Good – for Whom?

A term loan would be ideal for you if you’re often short on funds and you don’t think you’d be able to make big enough advance payments to justify the higher interest rate of a flexi loan.

A flexi loan could be good for you if you have a decent amount of spare cash and you’re often in need of liquid funds. The higher interest rate shouldn’t matter too much if you can manage to drastically lessen the principal amount owed.

Semi-flexi is for those with some money to spare, a flexible income and not such a high demand for liquid cash. However, they must be willing to wait a while for it and pay the withdrawal costs. This is the most common choice among borrowers.

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It really is dependent on how your financials are and what your current situation is. If you are interested in flexi loans, do further independent research and get in contact with the banks you have in mind since not all of them offer such loans. Good luck, and when you have your financing sorted, go to NuProp to view brand new property listings.

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Image: BusinessTimes.com.sg