20180809 (Thu)
If I were to compare investing in a property and putting money in a bank, what would be the likely outcome?
Let us assume the interest rate on borrowing is 4.55% per annum, saving interest rate is 3%*, and the property price is RM500,000. Payment duration is 20 years.
From yesterday, we know that by the time we finish paying the loan, the property would have cost RM762,292.
Let us say, we did NOT buy the property. However, we kept saving of RM3,176 monthly for 20 years. How much money would that be worth?
{(1+i)^n} – 1 / i; i = 3%, n = 20 x 12 = 240
Convert 3% per annum into per month:
3/100 x 1/12 = 3/1200 = 0.0025
(1.0025^240) – 1 / 0.0025 = 0.82 / 0.0025 = 328.3
RM3,176 x 328.3 = RM1,042,687.
The comparison:
RM1,042,687 (Saving in bank) versus RM762,292 (cost of property).
*Interest being added to principal on monthly basis.
Tomorrow, we continue to discuss this case.