With various clamping down measures on property flipping and speculation starting in 2014 (read – new RPGT, new net selling price rule and no DIBS), you probably decided not to heed any of these and proceed to buy more properties for investment anyway. Great, you have my salute and I am sure this article can help you to get the most desirable home loan. Bear in mind that there’s also a very high possibility that BLR is going up, the reason why AIA Fixed rate home loan is “the rage” at the time of this writing.
Just look at this from iMoney and Loanstreet. Note that these websites give you good comparison among home loans but they are lacking in terms of showing you the total interest paid for each of the tenures.
I am talking about something like Package 3 here:
So which one is better in short term or long term? The answer lies within you – how long you are expecting to settle the mortgage? Follow the process below and tweak it to your repayment period to see which suits you best.
Showing you step by step how to compute total interest paid for package#3 will be able to give you sufficient knowledge to evaluate the remaining 2. You must use a financial calculator or knowing how to use PV (Present Value), FV(Future Value) etc function in Excel to be able to follow this, if you don’t already a competent financial adviser whom you can consult.
- Go to the Compound function of the financial calculator.
- Make a mental note that the period, n is in months. Reason being home loan interest as we know is calculated on daily rest. To both simplify matters and accuracy reason, monthly rest is good enough
- Say, repayment tenure is 30 years, therefore it is 360 months.
- 4.25% per annum is equivalent to 0.3542% per month to tally with #1
- Say, loan amount is half a million. Enter this as PV
- Solve for PMT to get monthly repayment of 2,460
- Go to the Amortization function.
- Enter “1” in PM1 and “24” (24 months or first 2 years) as PM2.
- Solve for ∑ INT for total interest paid to mortgage lender in the first 2 years
- You should get 41,808
- Compute the total instalments paid in the first 2 years. You should get 59,040
- Compare this with 41,808. It means the total principal reduced is 17,232
- From year 3 until year 30, use back the steps in First stage to solve for PMT
- Bear in mind the loan balance now is 500k minus 17,232.
- The monthly repayment starting from year 3 is 2,670
- Repeat steps in Second stage. PM1 is “1” and PM2 is “336”
- Solve for ∑ INT for total interest paid to mortgage lender for the remaining years
- You should get 414,212
- Sum up the total interest paid from year 1 to year 30.
- This should be around 456k
By now you should have no problem calculating total interest paid for Package 1, which is pretty straightforward at 449,845.
Note: Due to time constraint, I am unable to answer repeated queries from everyone. Your queries would have already been answered in this AskCF.com monthly content.
Conclusion (simplified), if you are settling your loan early, assuming everything else being equal – Package 3 will save you some money (amount saved may depend on WHEN you settle the loan). Otherwise, over a period of 30 years, evidently Package 1 will save you 7k something.