I realized nowadays quite many people are financing their house with flexible home loan.If you have a flexible home loan, you can deposit extra money into your account to reduce the interest charges and also make use of your excess payment when needed. Of course, it will be added to the amount available for withdrawal, and will also affect the daily interest amount charged thereafter to be lesser.
I have received email from readers request for my input regarding the flexible home loan account. They faced the problem with the decision whether bank in to home loan account or put into fixed deposit?
Let us assume that you have a housing loan of RM300k and you have a surplus of RM100k. A fixed deposit account will give you 3% interest.
Mortgage outstanding = RM300,000
Mortgage interest = BLR - 2.2%, BLR = 6.6%
Mortgage tenure= 30 years
Monthly repayment = RM1,502
Long term interest charged = RM240,821
Option 1: Put the RM100k into home loan account
New mortgage outstanding = RM200k
New long term interest charged = RM74,633
New mortgage tenure = 15.2 years
1. Long term mortgage interest reduced by RM166,188 or 69% RM240,821 – RM74,633/ RM240,821 x 100)
2. Loan mortgage tenure reduced by 49% (30-15.2 / 30 x 100)
Option 2: Put the RM100k into FD @ 3%
Long term return of RM45,600 = RM100k x 3% x 15.2 years
Note: 15.2 years is used to make an apple to apple comparison
Hence, putting your extra cash into your home loan account is a wise choice as you will reduce your mortgage interest by RM166,188.