10 Proven Tips to Repay Your Home Loan Faster in Malaysia!
A home purchase is an important milestone but generally comes with a large mortgage. If you want to get out of debt faster and save money on interest payments, there are tried-and-true ways to speed up your house loan repayment in Malaysia.
Understand Your Home Loan in Malaysia
Before delving into the techniques, it’s critical to grasp the fundamentals of house loans in Malaysia. There are three primary types of house loans available:
Basic Term Loan: This sort of loan has a set repayment plan, which means you pay a regular monthly sum throughout the loan’s term. While this provides consistency, it lacks flexibility because you cannot often make additional payments to lower the principal.
Semi-Flexi Loan: The most popular sort of house loan in Malaysia. It enables you to make additional payments on top of your regular installments, so lowering the principal and total interest paid. You can also withdraw these additional payments if necessary, although this may be subject to bank approval and fees.
Full-Flexi Loan: This is an improved version of the semi-flexible loan. It comes with a connected current account, and your monthly amount is immediately debited. You have the flexibility to make additional payments and withdraw them without difficulty.
The usual Malaysian house loan tenure is up to 35 years, although it is also limited by the borrower’s age, with the median limit being 70 years. The younger you are, the longer your prospective loan term. During this period, you will repay both the principal (the original loan amount) and the interest (the cost of borrowing).
During the first years of your loan, a bigger amount of your monthly payment goes towards interest. As you make regular payments, the proportion steadily changes to the principal. In reality, for most house loans, the first ten years will find you spending about 80% on interest and barely 20% on principal each month. This is why it is critical to execute measures that lower your principal early on to save considerably on interest payments in the long term.
Factors That Determine Loan Tenure
Aside from your age, your income has a huge impact on how long your loan will last. Banks determine your ability to repay a loan based on your income and other financial obligations. In general, a larger income may help you to qualify for a longer loan duration, since it reflects a stronger ability to make regular payments over a longer period.
Case Study: Paying off a Home Loan in 8 Years.
One Malaysian homeowner successfully paid off their house loan in 8 years, rather than the customary 30 years. They accomplished this by constantly making additional payments, including allocating half of their yearly bonus to their mortgage. This case study emphasises the need for financial discipline and constant work in meeting your objective of early mortgage payback. Prioritising mortgage payments and making careful spending decisions can drastically decrease your loan term and save on interest.
10 Proven Strategies for Paying Off Your Home Loan Faster
1. Make Extra Payments
Any additional payments you make directly reduce your loan principal, helping you save on interest and shorten your loan tenure. Use your annual bonuses, tax refunds, or any unexpected windfalls to make lump sum payments.
2. Increase Your Monthly Repayments
Even a slight increase in your monthly installment can significantly cut down your repayment period. For example, adding RM200 to your monthly payment on an RM500,000 loan can reduce your loan tenure by a few years.
3. Choose a Flexi Loan
Many Malaysian banks offer flexi home loans, where you can deposit extra funds into a linked current account to reduce interest charges. The more money you keep in the account, the less interest you pay.
4. Opt for Biweekly Payments
Instead of paying once a month, split your repayment into two biweekly payments. This results in one extra full payment per year, which helps reduce both your principal and interest.
5. Refinance for a Better Interest Rate
If you’ve been paying your loan for a few years, check if you can refinance for a lower interest rate. Even a 0.5% reduction in interest can save you thousands of ringgit over the loan tenure.
6. Pay More During the Lock-In Period
Some home loans in Malaysia have a lock-in period (usually 3-5 years). Since refinancing isn’t an option yet, try to make extra payments during this period when your interest rate is still low.
7. Use EPF Account 2 for Loan Repayment
You can withdraw funds from EPF Account 2 to pay down your mortgage, either as a lump sum or to reduce your monthly repayments. This can significantly shorten your loan tenure.
8. Avoid Unnecessary Spending
Cut down on luxuries like frequent dining out, impulse shopping, or unnecessary subscriptions. Redirect these savings toward your loan repayments.
9. Reduce Other High-Interest Debt
If you have outstanding credit card debts or personal loans, pay those off first. The interest rates (often 15%-18% p.a.) are much higher than home loan rates (3%-4% p.a.), and eliminating them will free up cash to repay your mortgage faster.
10. Generate Extra Income
Consider renting out a spare room, starting a side hustle, or investing in passive income sources. Even an extra RM500 per month directed toward your mortgage can shave years off your loan.
Interest Rates of Home Loans in Malaysia
Understanding the interest rates associated with home loans is crucial for making informed decisions. Interest rates can vary depending on several factors, including the type of home loan, loan tenure, margin of finance, type of property, and credit score.
Currently, the Base Lending Rate (BLR) in Malaysia is around 6.6%, and the Standardized Base Rate (SBR) is 3.00%. However, the actual interest rate you’ll receive on your home loan will depend on the specific bank and loan package you choose.
Here’s a table showing some examples of home loan interest rates offered by different banks in Malaysia:
| Bank Name | Home Loan Interest Rate |
| Maybank Maxi Home | 4.30% (BR - 3.0%) |
| OCBC Standard Housing Loan | 4.35% (BR - 3.72%) |
| RHB My1 Home Loan | 4.45% (BR - 3.65%) |
| AFFIN Home Invest-i | 4.34% (BR - 3.74%) |
It’s important to compare interest rates from different banks and choose a loan that offers a competitive rate and aligns with your financial situation.
Loan Tenure and Monthly Installments
To illustrate how loan tenure affects your monthly installments, let’s consider an example of an RM600,000 home loan at a 4.5% interest rate:
| Loan Tenure | Monthly Installment (RM) |
| 10 years | 6,218 |
| 15 years | 4,590 |
| 20 years | 3,796 |
| 25 years | 3,335 |
| 30 years | 3,040 |
| 35 years | 2,840 |
As you can see, a shorter loan tenure results in higher monthly installments but the significantly lower total interest paid over the loan’s life.
The Settlement Process for Your Home Mortgage
When you’re ready to fully settle your house mortgage, here’s a broad overview of the process in Malaysia:
Request a redemption statement from your bank. This statement details the outstanding balance and any associated fees. The price for this request normally ranges between RM50 and RM100.
Check for fines. If you repay your loan within the lock-in period, you may face a penalty of 2% to 3% of the outstanding loan amount.
Appoint an attorney: You will need a lawyer to manage the legal components of the settlement process, such as document preparation and guaranteeing a seamless transfer of ownership.
Prepare a property title: Ensure your property title is ready for final settlement and transfer of ownership.
Paying off your house loan quickly can save you a lot of money on interest and give you financial independence sooner. Implementing the ten tried-and-true tactics mentioned in this article can help you get out of debt and accomplish your financial objectives faster.
Remember to examine your financial circumstances, select the techniques that best meet your demands, and stick to your payback plan. Those with greater salaries may find it easier to refinance to a shorter loan term or make larger lump-sum payments. First-time homeowners might profit from making biweekly payments or continuously rounding up their monthly payments. Borrowers with big families may benefit from prioritising high-interest loans and avoiding lifestyle inflation to free up more income for mortgage payments.
Finally, the key to success is persistence and a proactive attitude to managing your mortgage. By taking charge of your money and making educated decisions, you might realise your dream of having your own house sooner than you think.
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