If you have read our article about How To Invest In Real Estate, you might notice that for whatever amount that you are borrowing from the bank, you are repaying back almost double of what you borrow initially in the event you are paying your instalment timely accordingly to a tenure of 35 years. The situation becomes worse if the interest rate hiked due to late payment. Even if you have settled the late due, the increment in interest will not be reduced back to what it supposed to be. You have to approach the bank and request for an adjustment once the late due was completely settled.
We have different views on this whether or not should one reduce the total amount of interest paid. Let us share you both the scenarios and you do your own decision.
Scenario 1: settle the loan as fast as possible.
How can one repay the sum borrowed at a faster pace? Increase your income! By making an additional payment with just as little as RM100 to RM150 every single month, you could have a significant reduction in the total interest paid throughout the period and also shorten your loan tenure by years. One could also opt for the monthly auto debit service from your EPF account to serve your loan instalment. Fund from your EPF account is credited to your loan account on a monthly basis, on top of what you are paying from your own pocket. With that, you are actually going an extra mile and paying more indirectly.
On the other hand, when one receives a bonus from your job, you could also use this bonus to settle your outstanding loan. If you are doing this consistently, you will notice that your outstanding balance is greatly reduced at a much faster pace. With that, we are very confident that you can fully settle the commitment much earlier that what it should be, 35 years.
If you require a very personalise service where you need to know exactly how much should you pay in extra in order for you to shorten your tenure by X amount of years or before your children get into university, you may reach us and speak to our expert.
Scenario 2: serve the instalment as per required/refinance
We believe that most people are doing this because "I have no extra cash for extra payment". Even if you have extra cash, some investors would not want to pay a single extra penny. WHY? Because the mortgage interest is so "cheap" compared to a other loan. Some may go to the extend of refinance in order to cash out more. What is refinance and why are people doing this?
Refinance is a situation where your initially bought property has appreciated over the years and now you would like to re-borrow from the bank again to cash out more. For instance, you have bought a property at RM500,000 some time ago. You obtained a 90% loan margin which was RM450,000 loan in total. Now, the property has appreciated to RM700,000. You can re-submit an application to bank to refinance based on the new asset value. If you get a 90% loan margin again, you will be getting RM630,000 loan in total. Which mean, you would now have an extra cash amount to approximately RM180,000. With this amount of cash, you could use it for business expansion or reinvest this portion of cash into something which could give you a higher return than the mortgage interest of 4.4%. This is how the wealthy one gets richer and richer by leveraging on other people's money (bank).
Depending on which kind of individual you are, you decide your own game plan. For a seasoned real estate investor, we love to leverage. Imagine this, for every RM1 that you invest, it could potentially generate you RM10 or even more, how much would you want to invest into? However, leverage could cause disaster if you do it wrongly or without proper planning. One should practise due diligence and plan according to his capability. Do not over do it if you are not confident in what you are going to do. Consult an expert when necessary.
With a mere interest of just 4.4%+/-, we should use any extra cash on hand (instead of paying off the outstanding balance loan quickly) to invest into any kind of instruments such as real estate, forex, stocks, fund or your own business which could potentially give you a return higher than the 4.4%. With that, you will be generating more wealth.
We share an insight of what can you do to your loan. There is no right or wrong on which path you take. Everyone has his own thoughts. It is now up to you to decide your own game plan. If you need our assistance, hit the button below.
~~~ "IF YOU FAIL TO PLAN, YOU PLAN TO FAIL" ~~~