Mortgages and Calculator
There are three basic types of home mortgages in Malaysia.
Term loans are the normal loans that has fixed tenure. You cannot do any "principal prepayment" or shorten the loan duration. The interest has been calculated upfront and any extra payment does not reduce the interest payment. If the banks allow "extra payments into principal", you may need seek their approval first.
Same type of term loans but the banks allow you to do extra payments into principal without prior approval. This reduces the loan amount and also the interest. Banks may also allow you to withdraw the "extra payments into principal" that you have paid earlier if you need emergency funds but there will be some surcharges. Some banks may require you to write in first before you can do the withdrawals. This is most common type of loans offered by banks.
This type of loan is a progression of semi-flexi loan. You can deposit or withdraw any amount into the mortgage account. It may be combined with your other accounts (current or savings) and the deposit in these accounts (current or savings) will be considered as "parked inside" the mortgage, thus, lowering the principal and interest. Generally, interest is calculated daily rest, thus, lowering your interest considerably. Due to this flexibility, the banks may have monthly maintenance charges for the accounts or the interest rate for the mortgage may not be that completive as compared to semi-flexi loans.
Term loans were very popular in Malaysia until early 2000s as the computer systems of the banks are still primitive and would not allow additional payments. After the year 2000 onwards, due to competition, most banks offer semi-flexi or flexi loans. Interest used to be calculated on a monthly basis but as the bank's IT system improves, it is calculated daily. This gives a lower interest payment for the home mortgage owner.
As a rule of thumb, if you need to know the monthly instalment amount, based on the current interest rate of around 5% per year, you take double the loan amount and divide by 360. The figure will be the rough estimate of your monthly loan instalment. It is accurate and can within 5% of the actual bank-calculated amount. Interest accounts for half of the total payment. The longer the loan duration, the more interest one has to pay. For a 30-year, 5% RM100,000 loan, the monthly instalment is approximately RM536, out of which RM413 goes into interest and RM122 goes into paying the principal. At the end of the 30th year, out of the RM536 monthly payment, RM535 goes into principal and RM2 as interest.
When the mortgage starts, a large portion of the instalment goes into interest payment. It is only at the tail-end of the mortgage repayment that the principal accounts for the large portion of the instalment. Thus, it is advisable to pay as much as possible into the principal so that you don't pay too much interest.
Most banks will offer semi-flexi loan and with a loan margin of up to 90% of the value of the home. There is usually a lock-in period of 1-3 years if the terms and conditions are very attractive. This is to discourage people from "mortgage hopping".