20190209 (Sat)
How to choose the tenure of your loan? Part 2.
Using the below example: Property price = RM500,000, 90% Loan, interest rate 4.55%
- 35 years loan, Monthly installment RM2,143.61, Full payment 50% capital : 50% interest
- 30 years loan, Monthly installment RM2,293.47, Full payment 55% capital : 45% interest
- 25 years loan, Monthly installment RM2,514.03, Full payment 60% capital : 40% interest
- 20 years loan, Monthly installment RM2,859.08, Full payment 66% capital : 34% interest
- 15 years loan, Monthly installment RM3,453.98, Full payment 72% capital : 28% interest
- 10 years loan, Monthly installment RM4,674.58, Full payment 80% capital : 20% interest
No. 6 and No. 2 (4,675 vs 2,294) you can see doubling your monthly repayment, you could shorten total payment duration from 30 years to 10 years.
This is 66.7% cut for doubling payment of installment. Which means, by double paying, you can shorten by more than half the time of repayment. Hence, the idea is try to shorten the loan tenure by paying more installment. This is the mathematical idea and it is nothing alarming.
However, most people do this wrongly.
We will discuss this tomorrow.