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

Thank you!

But one thing is the 20k is earning the same 4.5% RM900 if i put in 10 years, whereas if I put in FD maybe 4.0% but the interest in the 2nd year is based on compounded value already i.e. 20.8k. Long term wise got good and bad need to calculate.

This post has been edited by kockroach: Jul 3 2015, 11:01 PM

Ok, good question but if you are compounding the 4.0% FD year on year, you need to compound the 4.5% (RM900) savings year on year too. So since you have saved RM900, please put it back into the loan account and make the emergency fund grow to RM20,900.

Your mileage will vary since there will be cash-flow issues to think about. Why? Because your monthly installment still maintain at a the amount agree and changes only as the BLR/BR changes, as such, the RM900 will come out of your pocket. But doing as I said above (compounding the savings) will shorten your loan tenure even further, and most importantly the savings exist and can be calculated.

This post has been edited by wild_card_my: Jul 3 2015, 11:15 PM

Yes. Anyway so far my strategy is put in the flexi account too.

Ahha... sounds legit. even i've read a writing from an islamic financial planner regarding this. Although I don't really understand the mechanism, but I think it is worth trying.

My opinion on this would be that it is a valid strategy as long as:

1. Your salary is credited into that particular account to maximize the savings that take place each day that you do not withdraw your money for payments.

2. If you were a Bumiputra, that you don't put too much of your emergency funds in there anyway, since you are offsetting only 4.5% or whatever your mortgage rates are, compared to ASB's 8.5++%. So for medium to long term emergency-cum-investment, things like ASB or bond funds may still be better .

Will it be prudent to place a large lump sum into the loan account if I intend to sell the house a few years down the road?

It depends, since your installment would not change, all you are doing is to offset the interest payable based on the amount that you dumped in.

Since your interest charge is only about 4.3-4.8% for a mortgage, if you can get better returns elsewhere, you should just invest the money there.


There are 2 types of capital repayment:

a. Capital repayment to reduce the loan outstanding; usually this can be withdrawn at a later date, but you are still required to service the loan.

b. Advance payment to reduce the loan outstanding; usually this cannot be withdrawn at a later date, but you can use this "advance payment" to service the loan i.e you don't have to pay the monthly installment as it will be automatically withdrawn from this pool of money. However, as it is withdrawn each month, the loan outstanding reduction is also reduced, until there is no more money and you would have to pay your installment as normal.

This post has been edited by wild_card_my: Jul 5 2015, 12:45 PM

Thanks for the the detailed and prompt explanation. Really learned a lot from reading all your posts

Thanks. The loan agreement was signed few yrs back before the new prop SNP is signed. Few months ago I asked the banker whether it's worth to convert this daily rest loan a/c to flexi loan, the answer is to convert I need to pay extra few k to redo the loan agreement. He said it's more worthwhile to just write in to deposit the one lump sum amount to my daily rest loan a/c in future to offset the interest instead of converting the loan type.

Yes, it is actually not worth it to refinance just to get that feature, and if you really want to offset the interest, just as what the banker said - write in to the bank and tell them you want to dump a sum of capital that will be used to reduce the capital. This capital can be withdrawn for your own use at a later date.

You loan account is based on the so-called semi-flexi facility which is sufficient for most people, like you. Where you may get a bonus, or other types of windfall every now and then, and would like to use that money to offset interests payments equivalent to the mortgage interest rates.

Full-flexi facilities are only beneficial for those who gets their money in and out almost every day like small business owners. This is because it comes with a flexi fees of about RM5 to RM20 a month, but the interests they save each day from having large capital in and out of their account makes up for it.

You are welcome!

Ref to 1. Meaning to say I change my salary account to my loan account and every month salary in, will also somehow or rather reduce my interest? But once I used to pay my bills and withdrawal, the interest will increase back a bit?

Yes you are right.

Imagine that you get your salary on the 22nd of the monet. Your loan instalment is due on the 28th, your UNIFIand Car loan on the 1st of next month, your elektrik, air, the money you pay to parents, on the 5th of next month.

You save the interests on a daily basis for those many days your money stays in your account, until you take them out to pay off your commitments.

These interest saved would reduce the amount you need to pay when you pay your installment. Your installment would remain the same as scheduled,, but the portion that goes into your capital payment is now higher, and the portion that goes into interest payment is now lower.

If seeing that laying biweekly can save interest. How about paying every week? If my installment is 2000 per month. Does paying 500 per week make a difference?

Yes, definitely. But you can only do this if you get your salary 4 times a month right? Since if you already have the money upfront, why not just do advance payment that reduces the capital? and if you are already going to do this so oftern, it would be the utmost best if you just get a full-flexi account!

I would've have my salary before the installment cycle ma? But speaking of which, since I have it before the installment cycle, might as well I dump the installment in even faster? As in using this month salary oay next month installment.

Should be faster then paying 4x or 2x a month right?

Exactly, you got it all right. If you get your money or salary earlier in the month, then just pump it into the loan account now, if you want to save the 4.4%++on mortgage interest.

Btw, plese ask the bank first ya about your loan's advance payment p0olicies..

Currently applying uob (semi flexi) and rhb (full flexi). I did ask them if its possible to pump in more money and they say its possible. But it is a current account I don't think company can bank in salary to current account kut.

You can always make a transfer from your bank to the the current account from UOB or RHB. For a cheap2 fee of only 20sen!

Public bank told me that it can offer me 60% OD and 40% term loan for housing loan facility. But the problem is, PBB will still charge me 1% commitment fee if I cover up my OD facility in full though my OD limit is below RM250k.
Previously, bank don't charge 1% commitment fee for unutilised OD facility below RM250k. Is there any bank still practice that ?

I do not do OD often enough to be in the know. but come tomorrow morning I will get myself updated and let you know with policies with my bank.

But if you do not mind, may I know the MV and type of the property?

Thanks.

RM390k DSL.

I just checked with my Relationship Managers from HLBB MBB and OCBC.

There shouldn't be any 1% commitment fees on the OD facility in your case since the OD amount is lower than 250k. Let me know if you need help with this.

Do you reckon these banks offer part OD, part term loan for housing loan facility ?
I prefer OD facility albeit slightly higher interest rate because I can make my lazy money in FD account to work harder in OD account and at the same time remain comfortably liquid in the event of contingency.

Reckon? No. Confirmed? Yes. Sorry I forgot to mention that. Yeah, these banks do offer part OD and part Term loan like you wanted. I asked them at the same time when I was talking to the RMs.

And yeah, you have a good grasp of use of OD. It's a good facility for those who can get it.

Thank your Sir.

My current house is under OD/TL facility.

A question about full flexi TL.
Consider I plan to fully pay up full flexi TL upon full loan disbursement to save the interest cost, can a full flexi TL offers the same convenient and liquidity as in OD ??

Is it applicable on car loan?

Term loans with Flexi can be cheaper, but it has a term. You may also accidentally finish paying off the loans and the account would be closed. And it comes with a monthly charge of RM5 to RM20 depending on the banks.

Best to have a combination of facilities, or full OD. Although even without the commitment charges, the OD facility may have higher rates than term loans.

Not at all. Car loans have their interest calculated in advance. You will not save any interest by paying more.

Thanks...

My banker from Maybank have offer me semi flex housing loan.

Explanation

For example, housing loan is RM250,000
So, if you dump RM100,000 into the loan. (need written letter)
Therefore the loan interest is calculated base on RM150,000 (Principal) + Interest

She said I can withdrawn the money with T & C

1. Minimum withdrawal will be RM 1,000
2. Each withdrawal service charges - RM20

It should be better rather you put in the FD because
my loan interest 4.45% vs FD 3.15%

I'm just sharing this info, correct me if I am wrong.

How effective bi-weekly payment on maybank will reduce the Interest rate? Compare to I pay monthly basis as well as capital dump to offset principal? Any master can advise?

What is the type of loan that you are having with Maybank for this?

If you are using M2U, putting Advance Payment into the Loan Account does not necessarily need to notify the bank, it will automatically reduce your Remaining Principal amount.

2 year old thread, is the payment 2-weekly stoll relevant with current loan structure, in order to reduce principle? Heard that some types will treat advance as next installment.

The so-called trick that can pay off faster with bi-weekly payment because you are effectively paying extra one month of installment in advance each year.

One year has 52 weeks. Paying installment bi-weekly will be equivalent to paying 13 months worth of installment each year instead of conventional 12 months. That's why some companies are paying employees additional 13th bonus in order to compensate the extra working weeks.

You can knock off your loan repayment earlier by paying extra installment manually when you receive your bonus once a year too. Same principle only.

yeah, most banks now allow you to pay in advance and whatever is over what you ar esupposed to pay will reduce the capital outstanding, thus lowering your payable interest (interest is calculated on a daily rest, on the capital outstanding)

check with your banks though, not all banks do this.

still the same if u pay by bi-weekly.
worst case u still in loss.

loan 400k
tenure 35 yr
monthly installment 1843.79
interest 4.3%
due date every 1st day of the month
full flexi loan

daily interest 400k x 4.3% / 365 = 47.1232

at 15th of the month
Payoff amount 400k + 15 x 4.3% / 365 = 400k + 706.8493 = 400706.8493
Outstanding amount 400k

Option 1(pay bi-weekly)
Assuming u pay bi-weekly which is at 15th of the month
Payoff amount 400706.8493 - (1843.79/2) = 399784.9543
Outstanding amount 400k

take note that the interest rate is calculate based on the outstanding amount which is 400k and the interest rate will be 47.1232/day


Option 2(offset principle, withdrawal option)
Assuming at 15th of the month, u use (1843.79/2) and bank in to offset the principle, withdrawalable
Payoff amount 400706.8493
Outstanding amount 400k - (1843.79/2) = 399078.105

interest rate after 15th will be based on 399078.105 which is 47.01468/day

Summary, its not worth to pay bi-weekly and a lot of agent is giving false info on this.

still works the same.

Using the bi-weekly (2 week) payment on your installment will effectively pay your housing loan by an additional 1 month by end of the year.

Hello all Sifus,

So lets say if i took a loan of RM500k, with a bank interest rate of 4.45%

And i put RM400K of my own monnies into the flexi accont, does that mean that the 4.45% interest will only be based on RM100k?

yes u r right

Yes you are correct. But you would have to be careful with the flexi account. It is possible that the banks have limits on your flexi capital repayment. Please check in your LO and call your bank directly, because CIMB has made some changes which would not be reflected in your signed LO

Thank you, sir. I will be sure to do that.

Yes correct, you will only incur interest based on the remaining 100k @ 4.45 as you still owe this amount to the bank.

So if my monthly installment is 2k, there is no point paying 1k on the 15th and 1k on the 30th, the amount I paid will still be the same?

no, if you pay 1k on the 15th, you would be saving interest on the 1k for the next 15 days, calculated on a daily rest, provided that your next installment due is on the 30th

u better put the 1k as principal payment and its withdraw able, then at the due date, withdraw the 1k and top up with another 1k to pay as monthly payment.

Semi Flexible loan can do this

do i need to inform the bank?

or i just bank in my money into that account?

You need to inform the bank if you're using a semi flexi loan because the system sometimes can't differentiate if you're putting the extra for next month installment or for advance payment towards principle

very informative

hi guys, so now my MBB flexi mortgage account is up, bank has disbursed money to the vendor and i will need to pay instalment very soon.

Let's say now i have extra money and thinking to park the money in the bank to lower down the interest, what should i need to do? ie where to park the money, do i need to notify the bank etc.

Let's say my loan amount is 300k, i parked 50k,

1. interest calculation is based on 250k right?
2. the 50k is treated as principal reduction or interest advance payment?

i was so confuse on recently public bank mortgage loan full flexi, why need 30k inside the current account?? I doubt that sifu please guide

no need any $ inside the account. dont be con

Hi All Sifu,

Recently I got inquiry on full flexi and semi flexi ,

I just don't get it on semi flexi reduce tenure and full flexi is not ,

I wondering how it can happen

just choose the lowest rate then u will not goes wrong

Just a question, would this work with RHB My Full Flexi Loan? from what I understand you need to park the extra cash inside the loan account in multiples of rm1k in order to reduce the principle.

Leaving it in the savings account will not do any good?

Separately, want to ask,

I got offer from Public bank and RHB so far trying to decide between this two.

1.) PBB Semi flexi 1st yr 4.35% subsequently 4.45% (semi flexi can reduce principle by any amount and min mrta only 6k)

2.) RHB full flexi 4.45% (* downside is need to reduce principle need to pay into loan account multiples of rm1000 and min mrta is higher at 9.7k)

what is your advice and which would you choose?

thanks in advance !

I would suggest you to try getting offer from CIMB. Their offer is the best at current. I just got one from them.
(1) PBB has a processing fee of RM212. (CIMB has no processing fee)
(2) MRTA is not required for CIMB
(3) PBB only allow max 1 withdrawal per month with RM50 charge per transaction. (CIMB has no limit on withdrawal. Charge is only RM10 through online)
(4) PBB only allow withdrawal at parking branch. (CIMB allows withdrawal at branch/call center/online)
(5) PBB only allow max 70% on interest savings throughout tenure. (CIMB allows 100% savings)

This post has been edited by Evertraveler: Jan 30 2019, 12:19 AM

Okay, thanks for your advice but I went with RHB in the end.

CIMB offered a much higher rate than the rest and I wanted full flexi so RHB was the best option.