In Malaysia, there are three major types of loan which you can consider - basic term, semi-flexi, or full-flexi loan.
What are the differences between these three types of loan, and what’s the right decision for you? Let’s take a look.
What is a Basic Term Loan?
One of the most simplest loans in Malaysia, a basic term loan is a fixed repayment schedule, with a monthly installment that remains the same, throughout the full repayment period of the loan.
Advantages of a basic term loan
It’s pretty simple, the monthly installment amount is fixed throughout the full repayment period of the loan.
For instance, your monthly installment is RM1,500 for a 35-year loan tenure, you paid RM 1,500 every month and you’ll still be paying the same amount to clear your mortgage loan.
The fixed amount will also make it easier to plan your finances and budgets.
Disadvantages of a basic term loan
The monthly installment is fixed, and the bank was reluctant to take your extra money!
Banks would also restrict borrowers from withdrawing any additional funds which may have been paid over and above the scheduled amount.
What is a Semi-Flexi Loan?
The semi-flexi loan is an evolution of the basic term loan, with an option that allows borrowers to make advance payments on their loan amount, without sticking to a rigid and unchanging loan schedule.
Advantages of a semi-flexi loan
It allows you to pay in advance (larger sums) of your outstanding loan amount. Hence, the principal amount on your loan has been paid off, total interest is also reduced.
But, to make extra repayments, borrowers will have to follow the terms and conditions too. It’s better to email or write a letter to your bank to request permission to pay an additional amount.
With a semi-flexi loan, borrowers can also withdraw additional sums paid over and above the defined payment schedule. There may be a processing fee for withdrawing this money, and once again, the method of approval may vary from bank to bank.
Disadvantages of a semi-flexi loan
The disadvantage is … the flexibility does come with costs, because the interest rate for a semi-flexi loan may be higher when compared with a basic term loan. So it’s better to research a few banks before you go for the mortgage loan.
What is a Full-Flexi Loan?
In Malaysia, the full-flexi (or flexi loan) offers customers versatility, over and above the semi-flexi loan products.
Advantages of a flexi loan
Without the bank approval, borrowers are allowed to make additional payments or withdraw excess sums from their current home loan. With this loan product, the home loan itself is tied to the individual’s current account at the bank.
The borrower is then able to deposit or withdraw any additional amount above that value, as long as they make their agreed minimum loan payments. If you put additional money into your current account for a couple of months, it will automatically reduce the interest on your property loan!
Disadvantages of a full-flexi loan
Most of the banks will charge a monthly fee for maintenance of this current account. That means an additional financial cost beyond just your repayments.
What About Islamic Home Financing?
Islamic financing is a Shariah-compliant home loan. This means that any income obtained from the transaction must be lawful, and according to Islamic law and Islamic economic principles. There is no interest rate for Islamic financing,
For Islamic loans, the profit is earned through the sale of the property involved. In this case, the bank will buy the property at an offered price, and resell it to the buyer with a marked-up price.
The installment you pay after the mark-up is just about the same as a conventional loan’s installment, including the interest rate.
Unlike conventional home loans, late repayments may incur penalties around RM10-RM20, and you have the flexibility to exit the contract at any time without any penalties — as long as you settle all your obligations.
The good news is both Muslims and non-Muslims are free to apply and enjoy it.
What’s The Right Loan For You?
When it comes down to making a choice, there’s no such thing as the ‘best’ home loan. It’s more important to choose what is the right loan for you.
And if you’re looking for property investment in Malaysia, and still not quite sure what is the right loan for you, then it’s best to speak with us!
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