Getting the best interest rate for a home loan in Malaysia, or anywhere else, typically involves a combination of strategies to minimize the total interest paid over the loan term.
Well, today we look at one of the simplest methods that you can choose.
Before that, here are several effective ways to get the best interest rates from the bank:
Negotiate a Lower Interest Rate: Before taking out a loan, shop around and negotiate with multiple banks for the lowest possible interest rate. Many banks are willing to negotiate, especially if you have a good credit score or are a long-standing customer.
Maintain a Good Credit Score: A higher credit score generally qualifies you for lower interest rates. Make sure to pay bills on time, keep credit card balances low, and avoid applying for too much credit at once.
Choose a Shorter Loan Tenure: Opt for the shortest tenure you can comfortably afford. Shorter loan periods usually come with lower interest rates and less total interest paid over the life of the loan.
Make Larger Down Payments: A larger down payment reduces the principal amount of the loan, which in turn reduces the total interest paid over the loan term.
Consider Flexible Loan Packages: Some banks offer loans with flexible repayment options, such as the ability to make lump sum payments or increase monthly payments without penalties. These options can help you pay off the loan faster and reduce interest.
Refinance Your Loan: If interest rates drop significantly after you’ve taken out the loan, consider refinancing to secure a lower rate. Be mindful of any refinancing costs and compare them against potential interest savings.
Using Flexi Home Loan
This is one of the effective methods to reducing the principal and hence the interest is by using either Semi-Flexi or Full-Flexi Home Loan account. You may read the article to learn more about types of home loan.
With flexi type of home loan, when you make a small amount of extra payment every month (eg RM100), it really makes a difference. Well, if financial allows, try to make more such as RM300 or RM500 extra payment to your account and the savings are huge!
It’s hard to imagine, let’s look at simple table below to see how much you’re actually saving. Assuming the loan amount is RM500K, interest rate 4.5% and loan tenure is 35 years.
| Extra Payments | RM100 | RM500 | RM1000 |
| Interest Saved | RM52K | RM180K | RM261K |
| Early Settlement | 3 Years | 11 Years | 17 Years |
From the example above, as you can see, just by depositing RM100 extra payment a month to your flexi account, you are actually saving a huge RM52,000 and you’re saving 3 years of loan servicing period. Of course, if you can, deposit more to save even more!
But….I am working a fixed salary job
Well, if you are earning a fixed salary every month, the good news is that you can still achieve huge saving and cut short the loan servicing period. Here’s how to do it:
Rental Income – If you’re renting the house (investment), assuming you’ve done all your due-diligence, chances are your rental is enough to cover the monthly instalment. Hence the extra payment can use to reduce your principal loan amount.
Force-saving – If you are really tight on money, you don’t have to deposit RM100, even RM50 extra per month will make a huge difference. Nowadays, frankly RM50 may not even enough to pay for a dinner for 4 at a restaurant. Put in whatever comfortable to you. Don’t forget that you can withdraw the amount deposited hence the name Flexi loan.
Withdraw From EPF? – Well, this is controversial. Some people advise to withdraw from Account 2 of Employee Provident Fund (EFF) (or in Malay equivalent Kumpulan Wang Simpanan Pekerja (KWSP)). Frankly, looking at the interest rate paid by EPF which is higher than home loan, therefore it is wiser to stay put with your EPF fund rather than withdrawing it to your loan account.
Average home loan nowadays is around 4% while EPF interest rate is around 8.xx% which is almost double the home loan interest rate.
So, as you can see, you can save huge interest or pay minimum interest (depending on amount deposited). If you’re a cash buyer trying to avoid the instalment interest, this is another option you can leverage on. As you know top-notch investors always leverage on any option available to them, as they like to use OPM (other people’s money).