The main differences among term loans, semi-flexi loans, and full-flexi loans for property home loans typically revolve around the flexibility in repayment and interest calculations. Here’s a breakdown of each type:
- Term Loan:
This is the loan where the home loan tenure and the interest rate are fixed. This home loan is very popular in the past but nowadays with more options available, people tend to prefer the Semi-Flexi Loan and Full-Flexi Loan.- Structure: This is the most traditional form of home loan where you borrow a fixed amount of money for a fixed term (e.g., 15, 20, or 30 years).
- Repayment: Monthly repayments are fixed for the entire loan tenure, consisting of both principal and interest.
- Flexibility: Minimal flexibility in terms of repayment schedules and interest calculations. Once set, the monthly installment remains unchanged unless refinanced.
Borrower may pay extra in particular month but bear in mind that since this is a term loan, it won’t in anyway reduces the interest. The extra payment made will only use as a payment for following month installments.
- Semi-Flexi Loan:
With Semi-Flexi loan, borrower will open 2 accounts i.e loan account and a savings account in the same bank. Every month, you may transfer extra payment from your savings account to your loan account and that will reduce the interest you need to pay. Semi-Flexi is not as rigid as term therefore it is very suitable for fixed income earners or commission-based jobs. When you have extra money (eg yearly bonus, commissions), you may transfer to your loan account and therefore reduce the principal and hence reduces the amount to pay.
To withdraw extra money from your account, you need to make application to the bank and usually take 3-5 days and there is a small fee applicable i.e about RM10-RM50 per withdrawal. Withdrawal amount may also has a limit depending on banks.- Structure: Combines features of a traditional term loan with some flexibility.
- Repayment: Borrowers can make additional repayments to reduce the principal amount, thereby reducing the interest payable.
- Withdrawals: Allows borrowers to withdraw any extra payments made, useful for emergencies or financial needs.
- Interest Calculation: Typically, the interest is calculated on the remaining outstanding balance after each repayment or withdrawal.
- Advantages: Offers a degree of flexibility without fully committing to a full-flexi loan.
- Full-Flexi Loan:
Probably the most flexible loan accounts compared to term and semi-flexi. Full-Flexi loan comprised of loan account + current account, both account which are interlinked. Borrower may withdraw from their current account anytime without any application and without any fees.
With all the flexibilities, there is a small fee that borrower need to pay every month about RM5-RM10.
This account is very suitable for those running business where every month they have a bigger amount of idling fund sitting around. By putting into the account account, it can help to reduces the principal and thus the amount to pay.- Structure: Offers maximum flexibility in repayment.
- Repayment: Borrowers can deposit extra funds into the loan account at any time and withdraw them when needed.
- Interest Calculation: Interest is calculated daily based on the net balance (remaining loan amount minus any deposits).
- Advantages: Allows borrowers to potentially save on interest by reducing the principal balance early with extra payments.
- Usage: Often preferred by those with irregular income streams or those who want to actively manage their finances to minimize interest payments.
Key Differences Summarized:
- Term Loan: Fixed repayments throughout the loan tenure.
- Semi-Flexi Loan: Allows additional payments and withdrawals within certain limits, offering some flexibility with interest savings potential.
- Full-Flexi Loan: Maximum flexibility with unlimited additional payments and withdrawals, with interest savings potential.
Choosing the right type of loan depends on individual financial goals, cash flow expectations, and comfort with managing finances. Each type has its pros and cons, so borrowers should carefully assess their needs and consult with lenders to find the most suitable option.