20180808 (Wed)
When I calculated the interest portion paid to bank for my mortgage, I do NOT think investing in property is giving good return!
Indeed, if you use the below example, you will be shocked!
Price of property – RM500,000
Bank loan – RM500,000 (for easy calculation)
Bank interest rate – 4.55%
Payment duration – 20 years
Monthly repayment – RM3,176
Total sum paid after 20 years – RM762,292.
Interest amount = RM262,292.
Interest portion % of loan (262,292 / 762,292 x 100%) = 34%
This is according to online calculation from Home Loan Calculator:
What it means is you need to come out with extra 53% (262,292 / 500,000 x 100%) to pay the interest charged. Or, in other words, you wasted extra 53% of your money (RM500,000) in servicing the loan.
What is the formulae used?
i(1+i)^n / {(1+i)^n} – 1;
i=interest rate per month;
n=numbers of months for complete repayment.
Furthermore, you have not added-in the transaction cost – stamp duty and legal fee for the sale & purchase agreement and mortgage facilities. All that can be a substantial amount too!
Subsequently, we will discuss about what on earth is good and bad about investing into properties using this example.