A Lot of my people I met are very much concern over the 30 years loan tenure. I can understand their concern over the interest paid for over 30 years, which is substantial.
You may be right if you have the ability or are very confident that your loan will be settled in very short loan tenure. Else I would advise you to opt for 30-year mortgage. What I emphasize here is that we wanted a safety net. By applying for the loan package with flexibility in repayment, you can make extra payment on your mortgage loan every month. This would mean that you are settling your loan in a shorter tenure, and yet still taking a longer loan tenure so that you had a cushion if something happened. This is important to you as banks has all the rights to increase the interest rate if you failed in the repayment.
You may ask yourself by now what the actual different between the two approach? Note that the calculation for repayment amount below does not include other cost charged by banks & house owner insurance (if applicable).
Scenario 1: 30 year mortgage repayment without any sort of acceleration
Loan amount: RM200K
Interest rate: 4%*
Tenure: 30 year
Repayment amount: RM955.00
Total interest paid: RM143,739.38
Scenario 2: 15-year mortgage repayment without any sort of acceleration.
Loan amount: RM200K
Interest rate: 4%*
Tenure: 15 year
Repayment amount: RM 1,479.50
Total interest paid: RM 66,288.00
Clearly, being every thing remained unchanged, a 15-year mortgage is a better option, However in this case it would cost you the additional repayment of RM524.50 every month.
Let’s study Scenario 3, 30 year mortgage repayment with accelerated payments:
Loan amount: RM200K
Interest rate: 4%*
Tenure: 30 year
Repayment amount: RM955.00
Extra repayment: RM545.00
Total interest paid: RM64,945.00
Actual Tenure: 14 years & 9 months
In this case the total interest paid & loan tenure are the same as if you were applied for 15 years mortgage. You save about $78,795.00 and loan tenure shorten by 15 years by making the extra payments.
By now you may be thinking of getting 15 years loan with accelerated repayment. Based on the calculation you are right, however it made more sense for us to take a 30 year loan with the maximised & planned acceleration repayments if the interest rate for both 15 and 30 year are the same or not significant.
I could understand that different person have different risk profile toward their own investments. What choice would you have made and why? At the end of the day it is still your own choice & decision. Only time will tell if you have made the poor decision at that time.
Personal Finance, Planning and Management to Wealth Creation
At Clic Finance, you are not going to find any get-rich-quick schemes nor multi-level marketing things for wealth creation. Instead, I will be sharing the information on personal finance knowledge and related topics.
I am personally love to acquire knowledge and skills in personal finance hoping to find answers to deal with debts, how to get out of it fast and how to manage loans to wealth creation and so on.... I could said there are people who get rich quickly, but the fact is almost anyone can get rich slowly and patiently.
In your journey to wealth creation, Don’t become obsessed with money and wealth. Always Remember! Money does gives you more options, but happy and balanced life makes your life worth living. Having lots of money does not guaranttee/mean your happiness in life. You happiness come the moment you receive the services or values that money can bring you.
Learn to have a balanced happy life in wealth creation with proper saving, investment strategies and spending planning.
May be by now you are asking youself: "How I am going to start or achieve it?"
It's simple, Take your actions now and remember failure is ok. A thousand mile journey always start with the 1st step. The sooner you determined to start moving toward your goals, the easier they are to reach. Everybody makes mistake, the important point here is, have you learned anything from it. Every mistake encountered makes you stronger and get closer to the door of success. It would be better to fail once than you have never tried it.
Lastly please note that everything you read here is my own informed opinion. Never believe everything you read, and always form your own conclusions.
Thank You.
I am personally love to acquire knowledge and skills in personal finance hoping to find answers to deal with debts, how to get out of it fast and how to manage loans to wealth creation and so on.... I could said there are people who get rich quickly, but the fact is almost anyone can get rich slowly and patiently.
In your journey to wealth creation, Don’t become obsessed with money and wealth. Always Remember! Money does gives you more options, but happy and balanced life makes your life worth living. Having lots of money does not guaranttee/mean your happiness in life. You happiness come the moment you receive the services or values that money can bring you.
Learn to have a balanced happy life in wealth creation with proper saving, investment strategies and spending planning.
May be by now you are asking youself: "How I am going to start or achieve it?"
It's simple, Take your actions now and remember failure is ok. A thousand mile journey always start with the 1st step. The sooner you determined to start moving toward your goals, the easier they are to reach. Everybody makes mistake, the important point here is, have you learned anything from it. Every mistake encountered makes you stronger and get closer to the door of success. It would be better to fail once than you have never tried it.
Lastly please note that everything you read here is my own informed opinion. Never believe everything you read, and always form your own conclusions.
Thank You.
Wednesday, April 29, 2009
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