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You’ve discovered your dream house and decided to move forward with the purchase. The next step to be taken is applying for a home loan. Purchasing your first home represents a significant financial commitment, so selecting the appropriate home loan is crucial. In Malaysia, there are three primary types of home loans: basic term or term loans, flexible loans (including semi flexi vs full flexi options), and Islamic housing loans. In this article, we are going to explain the differences between semi-flexi vs full-flexi options.
Which One Is Right for You: A Flexible Housing Loan – Semi Flexi vs Full Flexi Loan?
A flexible housing loan, also known as a flexi loan, is a type of loan that allows for adjustments in the monthly repayment amount. The repayment amount is not fixed but instead has a minimum value that has been agreed upon. In Malaysia, flexi loans are categorized into two types – semi-flexi vs full-flexi.
Both semi-flexi and full-flexi loans enable borrowers to make overpayments, which in turn reduces their loan principal. The loan principal represents the amount of money borrowed from the bank to purchase a house. A lower loan principal not only decreases the interest but also shortens the loan tenure.
On the other hand, a term loan is the basic form of home loan in Malaysia where the monthly installment amount is fixed and remains unchanged throughout the tenure period. For instance, if a buyer borrows RM400,000 from the bank to purchase a house, that RM400,000 represents the loan principal.
The borrower then agrees to pay RM2,000 as a monthly installment and settle the debt over 35 years. With a basic term loan, the buyer must pay the agreed-upon installment of RM2,000 every month for exactly 35 years. This means the loan principal, monthly installment, and loan tenure are fixed and unchangeable throughout the term.
Any attempt to pay extra amount and settle the debt two to three years earlier will be given penalty. In contrast, with a flexible loan, borrowers have the flexibility to pay more than the agreed minimum installment and enjoy the benefits outlined below. So, let’s take a look at what semi flexi vs full flexi loans have to offer and what their shortcomings can be.
Semi Flexi Housing Loan: Pros and Cons
As the name implies, semi-flexi covers half the flexibility for loan repayment. You can still enjoy the flexibility to pay an extra amount of your monthly loan repayment which is unlikely for a basic term loan. However, certain banks may impose additional charges and procedures to withdraw the excess money from your housing loan account.
These days, this type of loan is set as the default loan suggested by most banks in Malaysia.
Advantages of Semi Flexi Home Loan
These are the advantages of semi-flexi for your housing loan:
- Borrowers can enjoy lower interest when they pay an extra amount of their monthly installment. For both semi and full-flexi, interest is calculated daily;
- Borrowers can also enjoy shorter loan tenure or get to clear up their loan years in advance. For example, 35 years of loan tenure can be reduced to 30 years if they put an extra RM5,000 on their loan repayment annually. This might vary according to different loan lenders;
- Borrowers can also withdraw the excess money deposited in their account, with terms and conditions.
Disadvantages of Semi Flexi Home Loan
The only inconvenience of a semi-flexi loan is that some loan lenders will need the borrowers to go through a certain procedure to withdraw the money from their account linked to the housing loan. In short, you can always put in more money, but it’s not that convenient to take them out.
Full Flexi Housing Loan: Pros and Cons
Full flexi, also commonly referred to as a flexi loan, can be described as an upgraded version of semi flexi. Borrowers benefit from having full flexibility in paying their loan. Usually, borrowers will use a current account linked to the housing loan, making it easier to deposit the excess money at any time. Similar to a semi-flexi loan, additional repayment amounts will lower the interest and shorten loan tenure.
Apart from that, borrowers will also have the privilege to withdraw the surplus amount within their current account without complicated procedures or extra charges at their convenience.
Advantages of Full Flexi Home Loan
Here are the benefits of a full flexi loan:
- Borrowers can use their current account linked to their mortgage loan. Hence, the monthly installment will be automatically deducted from the current account. The additional amount paid monthly will reduce the amount of loan principal as long as the agreed minimum repayment amount has been made;
- Additional money within the current account will automatically be used to re-calculate the interest based on the remaining principal amount. For example, the amount of loan borrowed is RM500,000 (principal amount). The borrower then deposits RM100,000 into the current account. The bank will then calculate the interest rate based on the latest loan principal which is RM400,000;
- It is hassle-free as there will be no complicated procedure or additional cost to withdraw the additional money since it is in the current account. Simply put, you can deposit and withdraw the money anytime you want.
Disadvantages of Full Flexi Home Loan
Aside from its super convenient features, a full flexi loan may carry out some drawbacks such as:
- An additional monthly charge of RM10 administrative fee including eight percent SST will be imposed whether you use the account or not;
- Not all financial institutions have full flexi loan as an option, making it a limited product offered by banks for housing loans;
- Higher interest rate as compared to basic term loans.
Choose the Right Home Loan for Your Needs
Keep in mind that a home loan represents a long-term commitment. Selecting the appropriate home loan is crucial, but equally important is planning your finances to ensure timely loan repayments. Now that you know the difference between semi flexi vs full flexi home loans, you can use these viewpoints to make the right decision in choosing the most suitable housing loan for you.
- If you have changeable income, receive commission with your monthly salary, or collect bonuses at the end of every year, you can opt for semi flexi as it allows over-repayments with lots of benefits in return without any maintenance fee;
- Full flexi are suitable for individuals with variable income such as bonuses, business distributions, and cash rich people;
- Check your Debt Service Ratio or also known as DSR with your bankers to see the entitlement of your salary to buy a house as well as home loan eligibility to pick the best loan that suits you.
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