3 Types of Financing

Upon purchasing any property, you have the option of three types of financing – Term Loan, Flexi Loan and Semi-Flexi Term Loan.  If you are like most people, you may not know the difference between the three.  Fret not though as this article serves to help you identify their key differences.

Term Loan

A term loan is the traditional housing mortgage where you pay a fixed instalment every month.  Your instalment payments consist of the principal balance (loan amount you borrowed) plus bank interest.  You can arrange to make extra payments to reduce the principal balance, but you have to inform the bank of your intention beforehand.

In a term loan, any extra payments you make towards reducing your principal balance cannot be withdrawn in case of need in the future.  The only way to take out the money is through refinancing.

Flexi Loan

A flexi loan gives you the freedom to underpay or overpay your repayments.  When you opt for a flexi loan, you will be provided with an additional current account that links to your loan account.  You have the flexibility of making extra payments to your loan account.  Almost every bank that offer flexible loan waives their right to charge you if you end your term early.  As such, if you have the funds to pay up your loan, you will be able to do just that.

Now how it differs from a term loan is that the money you used to pay extra payments can also be withdrawn.  You can withdraw the money you paid in access anytime by withdrawing through an ATM or by issuing a cheque.  You can do all this without informing the bank.  In addition, you are also granted a line of credit at a predetermined limit.  This is a great feature as it allows you to repay the loan as and when you please and the money you pay to your loan can be re-used.

Depending on the banks, some do charge a monthly RM 10 to maintain this account.  However there are banks that waive this charge.

Semi-Flexi Term Loan

A semi-flexi term loan is a mix between a term loan and overdraft facility.  You can make extra payments to reduce the principal balance, but some banks do require that you provide them with adequate notice in advance.

You have the flexibility to withdraw the extra payments that you have made towards your loan, but you will need to inform the bank that you wish to do so.  In addition to that, withdrawals require an advance 3-day notice.  Banks will charge a processing fee for each transaction.  These fees range from RM 10 to RM 50.  On top of that, some banks will limit the number of times that you can withdraw annually.

These different types of loan serve the different needs of different individuals.  Choosing the right financing is important as it is a long-term commitment.  Now equipped with this information, you are more knowledgeable about the financing options available for you when you purchase a home or property.