There are 2 major types of line of credit facilities which function similarly,
Overdraft: Your home loan account is linked to a current account which allow you to withdraw your money as easy as writing a check. Basically you pledge your home to the bank in order to get a liquid cash account to withdraw the amount you need.
Full Flexi: Hybrid accounts which combine home loan with current account which works similar to overdraft facility.
The main difference between them is how interest and principle is served throughout the tenure. Assuming that you have a 300k overdraft for property A and 300k full flexi for property B which are fully utilized and now you have to pay for them. Assuming the interest charged on both of them now is 1k.
For A: You must at least fulfill the interest of utilized credit. 1k on monthly basis. Available amount of credit line will be same, 300k every month. Upon end of tenure, all outstanding must be paid in full. The banks reserve the right to call back the utilized overdraft anytime. Most of the time, the banks will question & check potential financial problem if the utilization is huge and the outstanding remain constant for more than 1 month.
For B: You must fulfilled interest of outstanding credit + knock off a portion of projected principle every month. Thus, payment = interest of outstanding + a portion of principle. Available amount of credit line will reduce every month, 300k, 299k, 298k, 297k... Upon end of tenure, the last payment will be projected to reduce the outstanding to zero.
Do you really need this kind of facilities?
Most of the time, we will encounter a situation that the bankers tend to hard sell this kind of products by boosting their interest savings feature. And yet, please be cautious that although overdraft or full flexi might sound attractive to us as it offers flexibility of credit but it does not necessary fit to everyone. As limited info is given, I will just give a brief clarification which might helps you. Normally, we would judge its fitness to our clients based on 2 elements and I will further elaborate the situation in 4 different simple scenarios.
1. Your intention: (A) purchase of property or (B) refinancing + top up
2. Cash flow pattern: (C) owning strong cash reserve or (D) not
I. (A) + (C) : recommended
II. (A) + (D) : not recommended
III. (B) + (C) : recommended
IV. (B) + (D) : depends on purpose of fund
Scenario I. Purchasing of property with strong cash pool
Assuming your purchase a property with 90% margin and you are a business man with a stable cash pool on a monthly basis, let's say will account to 70% of your mortgage. You could possibly putting your cash in the full flexi/OD account, effectively, on every month, the effective interest of your mortgage is only calculated based on the 20% margin of outstanding, thus interest savings.
Scenario II. Purchasing of property with limited cash pool
Similar scenario setup as I but you don't have plentiful of cash. Eventually, you are worse off as compare to regular term loan. Most of full flexi /OD does incur some monthly charges, (ie. RM 10). In order to offset the cost of maintaining flexibility, you must at least maintain a positive cash balance of RM 2,400.00 (assuming the interest is 5% p.a., if higher, then the amount will grow). If you are falling under this segment, better if you take up regular term loan. Flexi /OD will only make you worse off.
Scenario III. Refinancing + top up with strong cash reserve
Assuming you have a property with current outstanding at 250k. You top up to 550k (250k for your existing outstanding and cash out 300k with flexi /OD). Its implication will eventually similar to Scenario I, interest savings + you enjoy a lower interest rate large credit as compare to non-collateral credit.
Scenario IV. Refinancing + top up with limited cash pool.
Similar scenario setup as III, but whether your position is going to be better off / worse off, is all depends on what your credit's purpose. Assuming that you get the 300k credit in flexi/OD, and you plan to spend it on something which generate lower return that the interest cost / no apparent return while you cannot recover them within a short period (<1 month). ie. spend them on education fee / renovation. And, you are unable to maintain some balance of cash within the account. It is absolutely make no sense in getting a flexi / OD for this kind of purpose as you worse off by paying additional monthly charges as compare to regular term loan while you are unable to enjoy interest savings.
Yet, the situation is different if you are cashing out for investment / speculation. (ie. futures speculation, daily trading). Assuming you intend to cash out and speculate / invest for a short period, capture immediate profit and pour back the fund to the accounts. Short-term utilization which yield a greater return than the interest cost will better fit your need if you get a flexi/OD.
Fitness of OD and full flexi is varying and subjects to individual's scenario.
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