Why my additional payment to mortgage does not knock off the principal?

Applicable to traditional term mortgages & semi flexi mortgages, certain actions below might not be available to certain type of mortgages due to terms set within the agreement.

The normal practice of banks require clients to walk in the branch and provide instruction on the purpose of additional payment. Depositing additional fund into savings account which has a standing instruction that provide regular payment to the loan account will not account to additional payment. Thus, no reduction in interest. Practice requires borrower to pay the sum into the loan account with the instruction of “prepayment". Amount that prepaid can be withdrew if there is an emergency for fund. The immediate effect of this kind of arrangement will be: (1) shorten your tenure virtually (2) will not reduce your monthly installment (3) larger portion of following installments will be used to knock off the principal. 

Other than the instruction of "prepayment", there is another option of "settlement". "Settlement" is a terminology which instruct the office to use the sum deposited to settle part of the principle. Immediate effect of this kind of arrangement will be: (1) tenure remain unchanged, (2) reduce your monthly installment permanently. HOWEVER, PLEASE BEAR IN MIND THAT THE SUM WHICH USED TO SETTLE PART OF THE LOAN IS NOT WITHDRAW-ABLE. 

Thus, please keep in mind that 
(i) putting more money in your savings account does not account for additional payment. i.e. you deposited RM2,500 into your acc, but on monthly basis, it will only deduct 1.8k from it while the idle 700 will be remained in it for next installment 
(ii) you must deposit the additional payment into loan account for prepayment (any additional amount which deposited into loan account will be assumed as prepayment, this is common practice of bank; however, some of the banks might assume it will be an advance payment for next installment), 
(iii) for settlement, you have to walk in the branch, get your number and provide instruction to the officers over the counter. (please mention the word "settlement", if not they will assume to be prepayment again).