14 February 2014

Cut Your Home Loan 50% Time and 50% Interest

Last week, I unintentionally went and listened a public talk in a local bookstore about a Plan that could help us save 50% loan interest. Well, my first thought was - this Plan must be a scam! Because banking industry is very competitive. Thus, I decided to spend a couple of minutes to investigate the PLAN via listening the 'shows' .

A Costly Basic Knowledge   

After the speaker introduced lots of unrelated 'knowledge' such BLR, interest, debt, small story, out-of-debt, into-debt and bla bla bla, finally, I figured out that the Plan really works! However, I really cannot see any point to subscribe their service. This is because I really do not think that a basic knowledge about housing loan should cost us few thousand dollars (maybe even more). Therefore, I hope my sharing in this post can save your precious time and hard-earned money. 

50% Time and 50% Interest

After ignoring those unrelated information from the speaker, a key word immediately solved the puzzle in my mind - cut 50% time of loan tenure and then to save 50% loan interest. Of course, this is common sense. No wonder the speaker used lots of unrelated information to "cover" this common sense and to make it mystery. In fact, reducing 50% of loan tenure should save more than 50% loan interest!


To justify my views, I decided to compute the interest rate by myself, the loan interest that we are going to save by reducing 50% of our loan tenure should be around 54%!

My justification is based on an example of a capital of 1,000,000 and loan amount of 90% or 900,000 and interest rate of 5%. The total payment for a loan tenure of 30 years is 1,739,160 (with 4831 monthly); while the total payment for a loan tenure of 15 years is 1,281,060 (with 7117 monthly).

(Note: 4% of 900,000 = 36,000!!)

You can try to calculate my example using any housing loan calculator that available in the Internet (such as that from properties websites or banking websites) and some basic mathematics knowledge.

(a) Loan amount                                                           
(b) Tenure (years)                        
(c) Monthly installment (from loan calculator)                                                                         
(d) Yearly installment = (c) x 12
(e) Total installment = (d) x (b)                            
(f) Total Interest = (e) - (a)                                            

Opinion of this Approach

The fewer the loan tenure, the fewer the loan interest we need to pay; but the heavier the burden we need to carry. Therefore, if you are able to fulfill higher monthly commitment to your mortgage, you may consider this approach to save your loan interest via refinancing your mortgage to fewer loan tenure. For refinancing, I think you can do it by consulting your favorite banker directly to save lots of agent's costs.

That's all for today. More fascinating articles and sharing will be updated weekly in Xaivier Blog. So, you are welcome to subscribe our feed to receive our weekly updates.

Written by: Xaivier Chia

P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.


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