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Can I make extra payments on my home loan other than the monthly contractual repayments? Should I prepay my housing loan or mortgage?

This depends on the terms and conditions stated in your loan agreement.

By paying in extra money each month or making an extra payment at the end of the year, you can speed up the process of paying off the loan.

When you pay extra money, be sure to indicate that the excess payment is to be applied to the principal.

However, if you make a lump sum payment or partial repayments to your principal loan, you must give notice to your financial institution. The notice period ranges from 1 to 3 months.

Housing Loan Prepayment Flexibility


Different financial institutions may have different terms and conditions imposed on prepayments.

Check the loan package to see if it allows you the flexibility to make prepayments or extra payments.

Flexibility to make prepayments and paying interest on a daily rest basis, may help save considerable interest charges.

It is also possible to start repayment of the loan during the construction of the house, thus saving more interest charges.

What is important is to make prompt monthly repayments.

Partial Prepayment Of The Outstanding Housing Loan


Many borrowers find it useful to shorten the loan tenure by making partial prepayments with surplus savings or annual bonus.

Partial prepayments can be in any amount. However, some financial institutions may impose restrictions on the amount to be pre-paid while others may impose a penalty.

It is extremely effective in reducing the interest charges you would have to pay if prepayments are made during the early years.

Back to Housing Loan's Contents

Glossary
  1. Prepayment: Payment of all or part of a loan before maturity.

  2. Prepayment Penalty: A fee charged by financial institutions for early payment of loan in full. The fee charged is usually based on a percentage of the loan amount or 'X' months of interest.


Reprinted with permission from BankingInfo (A Consumer Education Programme by Bank Negara Malaysia)


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Knowledge Base ID :   1272
Last Reviewed :   May 22, 2014
Source :   BankingInfo
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