If you find yourself feeling confused about the different housing loans available in the market, you are not alone. It’s easy to get lost in the slew of home financing jargon when searching for the right housing loan to finance your home. Not to worry, though! We are here to make your search much easier by breaking down term loans and flexi loans in Malaysia.
What is a Term Loan
Also known as a basic term loan, a term loan is the most preferred type of loan due to its simplicity. This is largely due to the fact that term loans have a variable interest rate and offer a fixed repayment schedule for a maximum loan tenure of 35 years.
The term loan’s predictable repayment schedule no doubt provides stability for most borrowers. As for any attempts to settle term loans within the first 2-5 years, you would be charged interest of around 2-3% more.
Yes, it may sound strange, but the bank does not want you to settle your debts earlier. These restrictions were established to ensure banks could benefit from the steady loan interests over the loan repayment period.
Existing borrowers will also benefit from making additional payments over the scheduled repayments. To illustrate, here is an example:
Having received a bonus of RM50,000, you can request permission from the bank to pay an additional amount. As such, you can benefit from either:
Shorter loan tenure
- By maintaining the initial instalment amount, you can have the option to shorten your loan tenure. For instance, you can apply to the bank to shorten the tenure of your 35-year loan to 32 years.
Lower monthly instalments
- In this case, you can choose to maintain your loan tenure while reducing your monthly instalment payments.
What is a Flexi Loan
In stark contrast, the flexi loan in Malaysia offers way more flexibility. Borrowers can make additional payments or withdraw them for emergencies—all without penalties or complicated approval procedures.
Since the home loan is linked to the borrower’s current account at the particular bank, the monthly loan repayment sum is automatically deducted from there. You have the added benefits of being able to deposit or withdraw your advance payments any time you like. This means you are free to reduce your home loan interest!
If you saved up an additional RM200,000, you could use that amount to pay off some of your outstanding home loan of RM500,000. Now, your loan interest will be lowered, as it will be based upon the newly reduced principal amount of RM300,000.
While flexi loans in Malaysia are great options as housing loans, they are not available at every bank. In addition, you need to pay a monthly fee ranging from RM5 to RM10, and their interest rates tend to be higher than most.
What is a Semi-Flexi Loan
You may be aware that there is a third home loan option available: the semi-flexi loan. It is unsurprisingly the most common loan type in Malaysia. A semi-flexi loan’s flexibility is in between that of the term loan and a full flexi loan. As a result, it has fewer restrictions for borrowers.
You can pay off outstanding loan amounts in advance with the semi-flexi loan, reducing the total interest. But that would still require approval from the bank. If you wish to withdraw the extra money for emergencies, you may do so after paying a processing fee.
Term Loan vs Flexi Loan: Pros and Cons
Since we are focusing on the comparison between term loans and flexi loans, let us go over their pros and cons again.
|Term Loans||Flexi Loans|
|ProsFixed monthly instalmentInterest rates are usually lower than other home loansEasier to plan finances and budgets||ProsLinked account enables automatic loan payments Freedom to withdraw additional money above monthly instalment value at any timeAllows advance payments to reduce home loan interests|
|ConsCannot make additional payments to lower interest ratesCannot withdraw additional funds paid above fixed monthly instalmentSettling mortgage earlier results in penalties||ConsHas a monthly maintenance feeHigher interest rates than term loansNot available at every bank in Malaysia|
What is OPR and How Does it Affect Your Home Loan
Financial institutions must pay a certain amount of interest when they lend each other funds overnight. This amount is determined by Bank Negara Malaysia and is known as the overnight policy rate (OPR).
As you would expect, the higher the OPR, the more expensive it is for you to borrow money. An increase in OPR would increase your home loan interest rates. However, Bank Negara Malaysia seems to be keeping the OPR at a significantly low rate of 1.75% as of May 11, 2022.
Term Loan vs Flexi Loan: Which One is Right For You
If you are fortunate enough to have spare cash at hand, it is best to opt for the flexi home loan because of the potential to save on interests. For home buyers on a tight budget, the term loan’s predictable repayment schedule and low interest rates would provide some much-needed financial breathing room.
Refinance to the Right Home Loan For You
A good thing to know about home loans is that you can refinance them later to achieve lower interest payments. When you refinance your home loan, you are simply replacing your old home loan with a new one that gives you better terms like lower interest rates and reduced loan tenure.
Besides lowering interest payments, refinancing also lets you consolidate debts and even acquire immediate cash to settle urgent matters. What’s more, refinancing lets you take advantage of flexible loan packages, like semi-flexi and full flexi loans, to save on interest!
Plan ahead and explore how you can use home loan refinancing to your advantage.
How Can Bluebricks Help
Although researching the pros and cons of the different home loans (link to “Types of House Loans in Malaysia Which Is Best for You” article) is essential, having a professional guide you on this major step is always helpful. That’s where Bluebricks comes in! If you are still unsure about which home loan would best suit your needs, we are here to offer you our services.
Leading Loan Agency Company in Malaysia
Bluebricks has been specialising in loan consultancy services for years. We are also known for our comprehensive loan rejected services. Moreover, we offer FREE consultation and reports for CCRIS and CTOS. No prepayment for these services will be required.
Loan Rejected Services
As a one-stop solution provider of loan rejected services, Bluebricks has helped numerous clients with their rejected loan applications. Our strategy involves identifying all the reasons for failed applications and making amendments to improve the chances of approval.
We stop at nothing to help you achieve your specific financial goals. Check out our refinance housing loan rejected services too. While you are at it, see how we successfully helped a first-time homebuyer obtain an RM816,879 loan despite their first application being rejected.
Term Loan and Flexi Loan – FAQ
To help you on your journey towards homeownership, we have compiled a quick list of the most common questions on term loans and flexi loans.
1. What is the maximum loan tenure for term loans in Malaysia?
Typically, the maximum loan tenure is 35 years. That said, banks do take your age into consideration when approving home loans. Applicants who are 30 or 35 years old stand a higher chance of getting the maximum loan tenure of 35 years.
2. What is the interest rate for flexi loans in Malaysia?
For a monthly repayment of about RM2,500 to RM2,900 and a tenure of 20 years, the interest rates for flexi housing loans range from 2.9% to 4.75% per annum.
3. Is a longer term loan better for housing loans in Malaysia?
A longer term loan repayment period would mean a lower monthly instalment. But you would end up paying a larger sum compared to shorter tenures.