Hello,

In regards to the article below:

http://michaelyeoh.com.my/knock-out/

TLDR; version:

1) Instead of paying monthly for your housing loan installment, pay bi-weekly. That basically means that you will be paying every 2 weeks once.
2) Topup another 10% from your installment amount so that the additional payment would knock off the principal amount and reduce the interest even further subsequently.

I'm wondering, is there anyone that is following either or one of the method mentioned above? I'm with Ambank for now, do they even allow bi-weekly payment? Or is there a hidden catch somewhere?

Do share your experience. Thanks!

If I'm not mistaken, banks are aware of these tactics and have clauses that prevent abuse. Need some sifus with experience to clarify on this.

Interested to know too!

if your loan is so-called Flexi, you can do this.

Or, if your bank allows, you can directly pay to principal, albeit manual instruction to bank officer. Nothing new.

basically, pay as much juice you can squeeze out of yourself and as fast as you can.

I still don't get how let say your monthly installment is RM1.5k, you pay 2 x RM750 will result in reduction of tenure & interest paid.

Yeah, I'm on semi-flexi. Does that mean I have to manually write in to the bank bi-weekly in order for my additional RM100 payment to knock off the principal amount? There got to be a better way I presume.

Yes true true

Because the interest is calculated on a daily/monthly rest basis.

https://1stophomefinance.wordpress.com/home...and-daily-rest/

imagine the bank as a legal version if ah long. ah long say ur interest is rm13/day for every rm1000 u din pay.

so the faster u pay, the less interest u have

That's a just flat rate calculations.
When BR/BLR increases or decreases, it will have impact on the interest.
So the best way is still take longest repayment period and dump in every now and then to reduce the principle.
Always check your loan agreement, some need to inform them 1 month in advance to do so. If you never ask and just simply pay more every month and you assume that those extra amount will reduce the principle directly, you may be wrong.

It all depends on your loan package. Even 1 bank can have multiple packages on offer.
Better to refer back to your LO for more info whether the tactic helps. Else, go for some secured method in loan shortening.

Anyone have done this before? Can share feedback from banker?

Used to be working in bank before.
Basically, it's not that effective given the changes of the BLR/BR and it takes time to monitor by yourself. If multiple loans on hand then worse.

For the recent mortgage products, interests are charged on a daily basis, although your installment is being paid only once a month.

For this method to work, it requires a loan account that has flexi facility (not necessarily full-flexi). Even for semi-flexi accounts like the recent OCBC mortgage product (please verify this with your own bank's customer service) the advance payment goes into reducing the outstanding loan. Full flexi is just a fancy word to show that you can freely move money from your savings account to your loan account (for CIMB, they are the same account!) but it comes with a fee of between RM5 to RM20 a month.

Interest is calculated based on the outstanding loan, based on a daily-rest (meaning it is incurred on a daily basis) and by paying bi-weekly, you would save the interest (of the principal portion that you paid in the middle of the month) incurred on your loans by up to 15 days (which is the eventual installment date if you were to pay monthly)

Essentially, this is nothing more than simply paying your loans earlier than you agreed to. It would definitely help, as much how putting a large sum of your bonus into the loan account would reduce the tenure and hence, the interest incurred

You are right in some sense that this is difficult to monitor. But in my opinion, there isn't too much to monitor as all you are doing is paying more on top of your installment, to reduce the outstanding loan thus incurring less and less interests.

This post has been edited by wild_card_my: Jul 1 2015, 11:47 AM

How does dividing the installment into 2 makes the interest less? Cz if let say my monthly installment is RM1500, there is no way I'll pay 2 x RM1500 just to reduce interest, it will disrupt my cash flow. However I don't mind paying 2 x RM750 if this can reduce interest paid.

Care to explain further a bit?

Sure, I'll explain! But I am on mobile now so a little difficult to explain without drawing any illustrations. If you are not clear feel free ask.

1. Like I said, nowadays most mortgage (please verify with your banks just in case) interest is calculated based on daily rest and not monthly rest. That means each day, interest is calculated based on the OUTSTANDING BALANCE of the day, add added into the interest to be repaid by the end of the month as part of the installment.

2. Keep note that when you pay off the installment, you are paying both the INTEREST and OUTSTANDING BALANCE

3. You want to quickly pay off the OUTSTANDING BALANCE to finish paying your loans.

4. We will follow your example of RM1500 monthly installment: As such, when you pay RM750 on the 15th of the month, and another RM750 on the 30th of the month:

a) From the 16th onwards, you have RM750 less of the OUTSTANDING BALANCE.

b) The reduced OUTSTANDING BALANCE means that the interest incurred from the 16th to the 30th is now reduced by a small amount.

5. On the 30th, when you pay another RM750, the interest savings you had earlier would translate to a higher portion of the RM750 installment used to pay off the OUTSTANDING BALANCE.

6. The cycle continues and eventually you would end up paying more of your OUTSTANDING BALANCE and reducing the tenure.

Thanks for your detailed explanation!

I understand that for flexi account, whatever amount in excess will be used to knock off the principal amount but for semi-flexi accounts, I understand that we would need to write in or manually request from the bankers to make the adjustments.

Can I write in to the bank only ONCE to inform them that whatever I'm paying additional should be used to knock-off the principal or do I have to write in to them every 2 weeks?

For these "Semi-flexi" account, you really need to ask the bank. This is because from my experience, the rules are different from one to another. OCBC for example, the only one as far as I know, allows any advanced payments to reduce the outstanding balance. You do not need to inform the bank for that to take place, as long as money is put into the loan account in excess to that month's installment, it will reduce the outstanding balance until next installment date.

So my advice would be to confirm with the bank, even for OCBC customers since they change their rules every now and then.

Then would it be better if I transfer all my salary into the current account for flexi, and withdraw it every now and then for other commitment as per usual.
Since my money is seating there offset the potential interest of 4.45 instead of normal deposit account.

Actually I am planning to do the same too for my 1 housing loan (daily rest) with Ambank which is expected to start installment end of this year. But the extra 1 lump sum amount that I will pay should be available for withdrawal (formal request in writing) when needed. I think that is possible but I yet to get more info from the bank.

Yes, it is a very sound financial planning to do this. This is why some flexi accounts are charged RM5 to 20 a month, because this facility actually has some value to those who use it.

Say, you keep RM20k as your emergency funding all the time for a year in your flexi-savings account, based on 4.5% annual interest rate, you are saving RM900 from paying interests to the bank this way! Of course, your installment stays the same, but this means your tenure is shortened!

Even if you are not keeping a large sum of money in the flexi account all year, but only in the account for a few days between getting your salary and paying off your commitments, due to the daily rest of most, if not all flexi loan accounts, you are saying quite a bit of interests!

Yes, please clarify with the bank just to be sure. It would be best if you could clarify before signing the loan, but different people have different circumstances! Good to know you are being proactive against paying unnecessary interests to the banks