You’ve been paying your house loan every month, sometimes even throwing in a bit extra. But when you check your balance, it barely moves.
You look at your statement and think, “Wait, didn’t I just pay extra last month? Why is the amount still the same?”
If that’s ever crossed your mind, you’re not alone. And no, you’re not imagining things.
It’s not you, it’s the way the bank counts It
There’s a small but important difference between two terms: advance repayment and capital repayment. Most people don’t realise this is where the issue starts.
So here’s the deal. Advance repayment basically means you’re paying for the upcoming months in advance.
For example, your monthly loan is RM1,000, but you decide to pay RM3,000 this month. What happens to the extra RM2,000?
The bank just keeps it and uses it to cover your payments for the next two months. That’s it. Your loan balance? Still the same.
So how do you actually reduce your loan balance?
According to financial educator Financial Faiz, you’ll need to make what’s called a capital repayment.
This means you’re specifically telling the bank, “Hey, this extra money? I want it to go towards my loan principal.”
This is important because banks calculate interest daily based on how much you still owe. The lower the principal, the less interest you’re charged each day.
Let’s do some quick maths
Say your outstanding loan is RM200,000, and the interest rate is 4% per year. That’s about:
RM200,000 × 4% ÷ 365 = RM21.92 in daily interest
Now, if you make a capital repayment of RM10,000, your loan drops to RM190,000. And your daily interest becomes:
RM190,000 × 4% ÷ 365 = RM20.82 per day
You’re saving RM1.10 every day. It doesn’t sound like much, but over a year, that’s around RM400.
You’ll also be able to finish paying off your loan months or even years earlier.
But wait, not every loan works the same way
Faiz also pointed out that not all home loans treat capital repayments the same way.
If your loan is semi-flexi, you can usually make capital repayments easily. Just check with your bank if there’s a process or form to submit.
But if it’s a full-flexi loan, things might be a little different since each bank has its own rules. You might need to park the extra funds in a linked account or follow a different method to reduce your principal.
Here’s what you should do next time
So if you’re planning to pay extra, whether it’s from your bonus, side hustle, or just extra savings, make sure you tell the bank it’s for capital repayment.
Otherwise, it’ll just sit there and get used to pay off future instalments while your principal stays untouched.
It’s a small habit change. But one that could save you thousands in the long run and help you become debt-free faster.
