Hi, I'm currently applying for home loans and am wondering which would be the best option.

3% flexi loan

Or

3.15 term loan?

This post has been edited by deleted: Nov 10 2021, 06:57 PM

Flexi

Why ah?

You don't expect market to rebound in the coming years pushing up interest?

No such thing as fixed. They will take more from you. OPR move interest repayment will move.

Flexi means you pump more cash and settle it earlier and let interest float / readjust accordingly.

better read properly , no such thing is fixed

It's not common but term loans do exist no?

And under term loans repayment is the same for the entire period?

Where you get idea repayment fixed? If OPR sky rocket, all loan repayment go up. Your loan is not a hedge against inflation.

Only car loan fixed, but interest is higher to cover for uncertainty, and just couple years.

Rule of thumb is usually choose lowest interest rate, provided the lock-in and/or early repayment penalties are not too hard to avoid (usually not an issue unless you're intending to buy to flip/resell soon)

Since flexi is lower interest, better to choose flexi.

Term loan repayment is not as fixed as you think, because the interest rate is always BR+x%, and the BR (base rate) is subject to change. Should BNM revise the OPR (overnight policy rate) higher, bank can raise your repayments to cover that. Which is why most letters specify that banks can and will adjust repayments in the event of changes in BR.

Which bank is this?

Ah ok clarified with the agent.

The term loan is not fixed interest as i previously understood.

Thanks sifus.

i though last time AIA got the fixed interest rate ?

Housing loan from banks never had "fixed" interest rate.

I've never taken loan before, but hope maybe get your insight, my thought is that the bank would have calculated a safe risk with flexi vs fixed.
If the probability of flexy being lower than fix, people would automatically opt for it, no?
So if the above is true, wouldn't it be safer to opt for fixed rather than risk it on the open market where the 'bank' never loses?

Sorry in advance, going to give you a long block of text on the assumption that you're new to how loans/financing works.

Both methods (flexi n fixed), banks will "win" (earn money and ensure steady cash flow for their operations), it's just a question of how and where they get their money.

Flexi vs term/fixed is NOT a reference to how the interest rates work.

Both types have a base rate (BR) which is a variable number tied to overnight policy rate (OPR) and cost of operations + a fixed number which is the "offer" that banks adjust based on the credit worthiness of the customer.

When we talk about flexi vs term it actually refers to how the loan repayment and overall interest management works:

Term loan
- Refers to a straightforward loan/financing where you pay a set amount for x number of years, with no incentive or benefits given to get you to pay extra/settle early.
- Cannot reduce the total interest charged for the whole loan amount or give additional payments to reduce interest
- Settling early incurs early settlement fees.
- Cannot withdraw AKA take out additional cash that you might have deposited into the loan, the bank treats any additional payments as pre-paying your future instalments.
- The upside is that it's a fixed commitment, so die² also it'll remain the same repayment amount even in the far future.
- There's also no maintenance fees involved, just straightforward loan repayment.
- Term loans are usually favoured by (and targeted towards) lower income groups whose cashflow isn't very high and require strict budgeting, because it'll never shift and change.
- In order to ensure the instalment stays the same, term loans use a tiered interest schedule, where first few years of instalments you're paying at a higher interest rate, then after a set amount of years your interest rate will be reduced.
- Houzekey, My First Home schemes are usually term loans. Non-banking institutions that offer home loans (some developers, insurance companies etc.) are also usually term loans.
- Lenders "win" by collecting most of the interest owed early in the loan tenure and making sure that you will constantly give them money for long term.

Flexi
- Functionally the same as term BUT they will tie a current account to the loan. The loan instalments will be deducted from that current account.
- You can deposit additional cash into the current account and leave it there and it counts as a form of collateral used by the bank to reduce interest you'd need to pay.
- You can then freely withdraw that cash for other things.
- You can also go for overdraft where you use the home as collateral to get additional cash.
- The main downside is that there's usually a monthly fee associated with the account (from upwards of RM5 monthly), as well as fees charged with requests for overdraft/redraw.
- This is beneficial if you have significant cash savings that you don't mind leaving with the bank's current account, and you are confident enough in your cashflow that you can choose to apply for overdraft. A lot of people with flexi loan like to park their emergency funds/short term savings there.
- Generally speaking, flexi loans have slightly higher effective interest rates than term loan (this varies from bank to bank).
- The current account means bank has collateral they can use for cash flow, and they earn money from the fees collected from maintaining the account.

====

Overall, if we're talking about which is the most financially sound choice, assuming we're aiming for savings and you'll service the loan all the way to the end of the tenure, the lower interest rate loan will almost always save more money at the end of the loan, regardless of whether flexi or term.

This post has been edited by DragonReine: Nov 11 2021, 12:49 PM

Term loan and fixed rate loan are 2 different thing.

term loan interest rate is not fixed