A fairy tale.

It was amazing to hear that there are banks elsewhere in this world that give negative interest. Yes, their customers will have less instead of more after keeping their money in these banks.

Banks here is even better in their marketing, and are able to get their customers to pay to keep their money with them without the customers realizing it.

Customer John has extra money above his normal savings. He can put in an extra 100k towards a new house for himself and his family, and take a lesser loan of 400k. And with his monthly salary, John can finish paying the loan in 15 years.

When making enquiry at the bank, the loan officer introduces him to a better loan scheme. This flexi loan allows John to put his extra 100k into the account, which also allows him to withdraw at anytime, and it will also offset the interest charges on the outstanding loan balance.

It sounds like a pretty good loan scheme. So, John agreed and take up a loan of 500k.

Since the loan is now at a higher amount, and also the fact that any extra amount he puts in each month (which he will probably will as John is a bright young man and good in his job and his boss pays generous bonus and annual increments) will also offset the interest charges, John decided to have a lesser monthly installment as well, the loan tenure is now 35 years.

As when John puts in extra money above the monthly installment, John calculated that the total cost of interest will be the same whether the loan tenure is 15, 20 or 35 years.

Before I forgot to mention, John is 29 years old. He is married and co-signed the loan and property with his wife.

As said, the banks here is good in their marketing, and able to convince John to commit and locked him into a 35 years loan instead of his intended plan of a 15-year loan.

End of fairy tale.

=================

John is now richer because with the flexi loan, he has an extra 100k which he can withdraw for any urgent needs. He don't have to put aside extra savings as emergency fund. 

It's a smart move. In Malaysia there isn't any typical loan that does not require you to not pay downpayment for a house anyway, so I am going to ignore that example. But as for the benefits of a longer tenure, look at the picture below and ask me anything for further clarifications.
 
Taking it for 15 year or 35 year are the same, but by extending the loan tenure, you get to have the flexibility of paying less in the case of emergency. But if you already promise to pay in 15 year, you cannot pay less.