Big Savings for House Owner

Please refer to the samples illustrated below for better understanding of wrongly done Partial Prepayment. (Mortgage Expert are charging for this information and instructions while you can get it here free)

Scenario 1
Assumed that Mr. John Chong has signed up a mortgage loan for an amount of RM100,000.00 for 25 years repayment with 7% interest rate monthly compounding, the monthly payment is RM706.78. Mr. John Chong has deposited RM20,000.00 as Partial Prepayment together with his first repayment. Most of us assumed that the extra RM20,000.00 deposited will be as Partial Prepayment for principal reduction. In fact, it never happen such way, the extra RM20,000.00 will be treated as Advance Payment for the monthly repayment by the bank or mortgage lender if Mr. John Chong never provide any Partial Prepayment notice to the bank or mortgage lender upon the deposited of the RM20,000.00. Any amount that "park in" as Advance Payment will have no effect to the principal and never save a single cent nor shorten any repayment period. The Advance Payment of RM20,000.00 will "park" there until repayment No 271 where his Advance Payment has enough to covered the rest of repayment. If efficient, bank will noticed Mr. John Chong that he can stop serving the repayment as his Advance Payment has enough to serve the rest of repayment. Table A below illustrated on why Mr. John Chong never benefit from the Partial Prepayment that he has done.

Summary, Mr. John Chong are never save single cent of interest on this case as his deposited RM20,000.00 will be used as monthly repayment start from repayment No 271 until the end of loan tenure.

Scenario 2
If Mr. John Chong has provided a Partial Prepayment notice to the bank or mortgage lender upon deposited of his RM20,000.00, there will be a Partial Prepayment on the principal and save some mortgage interest and shorten some of his repayment period. Table B below illustrated on how much of interest and loan tenure that Mr. John Chong has save if compared to case happened in Scenario 1.

* Mr John Chong has notified the bank for the RM20,000.00 Partial Prepayment and it has reduced the principal.
** By default, the extra amount will accumulated as Advance Payment and will never deduct from principal if Mr. John Chong never notified the bank for Partial Prepayment. The Advance Payment will keep on accumulated until enough to covered the rest of repayment where similar to Scenario 1.

Summary, Mr. John Chong will save around 20% of mortgage interest and loan tenure along serving his loan by notified the bank of his deposited of RM20,000.00 as Partial Prepayment.


Scenario 3
To effectively and correctly perform the Partial Prepayment with maximum save around 55% on the mortgage interest and shorten the repayment period. Mr. John Chong need to request to the bank or mortgage lender to revised his monthly repayment amount after he has deposited the RM20,000.00. As refer to Table 2, Mr. John Chong monthly repayment is RM706.78. After deposited the RM20,000.00 as Partial Prepayment, Mr. John Chong monthly repayment should be reduced to RM565.25, a surplus of RM141.53 from the current repayment. Some of us might assume that the surplus amount is for Partial Prepayment to the principal amount. The answer is NO, the surplus will (again) treat as Advance Payment by the bank or mortgage lender and will be "park in" without any effect to the principal amount. For this case, Mr. John Chong can either keep the surplus amount into his saving account or noticed the bank or mortgage lender that the surplus amount is for Partial Prepayment. Check with the bank or mortgage lender for the condition apply as some bank may have some term and condition for Partial Prepayment, such as minimum of a thousand and its multiply of thousand on the subsequence.

Table C below illustrated on the different of monthly repayment that Mr. John Chong has save if compared to case happened in Scenario 2.

* Mr. John Chong has notified the bank for the RM20,000.00 Partial Prepayment and it has reduced the principal.
** New monthly repayment after Mr. John Chong requested the bank to revised the repayment.

Summary, as referred to Table C, the different between payment No 1 and No 2 is RM141.53, if permitted by bank without any term and condition, this amount must directly deposited as Partial Prepayment and notified the bank to reduced the loan principal. If the routine are done every month, the maximum saving of mortgage interest and loan tenure will be achieved.

** TIP ** My personal experience, in order for your Partial Prepayment to work 100% effectively, I would suggest you to write in to your bank or mortgage lender to request for revised of your monthly repayment every time when you deposited an amount of money that equivalent to 10% of your principal amount. Made it as a habit, don't spend the balance of month repayment that save from the revised, used it to top up as Partial Prepayment to your monthly repayment, it will be finishing your mortgage loan faster beyond what you have expected. Check with your bank and try out!!