Let's say for Flexi Housing loan I took RM 100,000 and monthly installment is RM700, tenure 20 years. At the 1st monthly installment in 1st year, I put RM 10,700 in my current account as deposit and on 2nd installment, i deposit another RM700 in the current account and so on for next month. The intention is to maintain RM 10,000 in the account to offset the interest charges until the last installment required.

My question is would it be saving more money if I straight away make lump sum payment to the loan using that RM 10,000 on the first installment or just keep it there inside the current account? Of course after making that L/S RM10K payment, the current account balance would be zero now. Im thinking there should be no difference between the two scenario in terms of total interest amount being charged for the whole tenure duration. Am I correct?

This post has been edited by TerTop: Aug 24 2008, 09:02 PM

i think it's the same... either way, you are only saving the interest on the RM10k....

based on my understanding after i talk to one public bank agent la... cause that loan package from public bank got current account as well...
i could have understand wrongly... but as far as i know...it doesn't make any difference if you put in current account or pay off the principal...

in that case, i'd rather put in current account in case u need the money...then still can use...

tertop, from my limited understanding, u'll definitely save more when you perform partial prepayment or reduce your total principal amount.

The down side here as kev has rightly pointed out is you dont have liquidity compared to parking the cash in a flexi loan.

Yeah i do agree on the liquidity point of view. But comes to think of it, the bank main purpose is to make money how come the flexi plan they offer is so good one. I think there maybe some small calculation difference in the allocation of interest/principal when comparing the two method above. Its too good to be true that's why im asking.

Tertop, banks usually charge us more when we took up flexi loan. And they know we took flexi loan bcoz we want liquidity. 80% of the time, ppl who took flexi loan have very little savings, hence the banks still earn.

In terms of how they calculate interest, its same for both scenario, altho they produce fairly diff outcome. Very complicated to explain this online

You get to save interests

Banks get to utilize YOUR money without 'really' paying you interest like FD. + they get to charge you a monthly fee or RM5 or RM10 + some bank do have tons of hidden charge

And Flexi package's interest rate is normally higher than normal package...

So bank don't lose anything by offering this kind of package and if you know how to utilize the package, you don't lose anything too..

there is no different. Just put into the current account would do. Don't forget you are charged RM10 per month for this additional service that is given to you.... no free lunch in the world. Don't forget about the liquidity option that you have. Definately i won't do prepayment... just put into current account would do.

Good point from another perspective. Been doing some calculation, just by keeping ~ RM3000 in the current account, RM10 monthly charges would be totally canceled out by the interest gained from the current account for the whole tenure. Somemore if the BLR increase, that will make the flexi loan gives a higher return than FD!! IIRC during the BLR 10%++ previously, the FD rate does not increase in the same amount. Based on (1-2yr) BLR -2.2% and -2.0% thereafter.

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Added on August 25, 2008, 10:56 pmThanks for another confirmation. I will definitely not making any prepayment now but just deposit as much as possible into the account. The early years is quite crucial i believe.

This post has been edited by TerTop: Aug 25 2008, 10:56 PM

Perspective from a person doing mortgage loan ...
You are right on placing certain amount to offset the monthly charge. And exactly right on the 'better earning than FD' thru this package.
Some people don't see it that way..... they say 'FD i put 1 year, i see more money, this account i put more money i see it deducting only'