Wednesday, December 7, 2011

Understanding Advance Instalment and Capital Repayment in OCBC Bank home loan prepayment mode

OCBC Bank in Malaysia has been giving quite a competitive housing loan facility since they introduced the so-called semi-flexi scheme.

Unlike the fully flexible home loan provided by some other banks, this OCBC semi-flexi home loan is more difficult to understand, more troublesome to manage, and also introduces cost and constraint when come to excess payment (a.k.a. prepayment) redraw.

Anyhow, many people still consider OCBC semi-flexi home loan, as they give among the lowest interest rate, highest possible margin of financing, longest possible serving term, and short lock-in period.

If you were to take up this OCBC semi-flexi home loan, you need to understand about their definition and operation of Advance Instalment and Capital Repayment, which are the 2 options of prepayment for you to put in excess money into your loan account in order to reduce the outstanding balance, and therefore will reduce the overall interest paid as well as shorten the overall loan tenure.

These 2 prepayment modes are clearly spelled out in the Main Terms & Conditions document that come together with your home loan offer letter. I'll summarize it here.

Both Advance Instalment and Capital Repayment will reduce the outstanding balance, and therefore will immediately help you to save on interest charged the next day onwards (since the loan is on daily rests). If you have the current version of the Main Terms & Conditions document, it is stated in Clause 6.6 (a) in that document.

Advance Instalment:

  • Non-redrawable. Once you banked in, you cannot take it out from your account.
  • You can use it to automatically set off future monthly instalment, provided there is enough Advance Instalment in your account for the deduction. This is useful if you are going away to oversea for a long period, and might not be convenient to serve your monthly home loan repayment for quite some times.
  • Can make payment with cash (over the counter), cheque, ATM machine, inter-bank transfer, etc.

Capital Repayment:
  • Redrawable to your saving or current account with OCBC Bank, subject to the terms and conditions.
  • You still need to serve your monthly home loan repayment on time as usual. The automatic set off mechanism does not apply here.
  • Can make payment with cash (over the counter) and cheque only.
The redrawal terms and conditions for Capital Repayment is typically like this:
  • Redrawing must be made at the OCBC branch.
  • Need to submit the Redrawing Notice to OCBC 3 days before the redrawing occur.
  • RM10 will be charged for each redraw.
  • Only 1 redrawing per day.
  • Redrawing must be in multiples of RM1000.
  • Minimum redrawing amount is RM5000.


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