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## Save More Money with Flexi Loan or Earn Interest from Fixed Deposit?

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

Financial results:
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%

Financial results:
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.

Tags: , , August 15th, 2012 Posted in Finance Tips, Property | 6,687 views

### One Response to “Save More Money with Flexi Loan or Earn Interest from Fixed Deposit?”

1. Kow Jenn Soon Says:

Simple calculation is 6.6-2.2=4.4%. Means 4.4% VS 3%.
Obviously, flexi loan is better then FD.
BTW, flexi loan has to waive minimum amount, home is 1k, shop is 5k. The minimum amount can’t be used to reduce 4.4%. In additional, flexi loan also charge \$10 per month. Therefore, shop investment pay additional \$(150+120) per year. The breakeven point is 19286*1.4%=270. In conclusion, at least 5k+19286=\$24,286 need to deposit into flexi loan acc, else turn to loss.