Realizing your dream - Part 2

Cost

In order to buy your dream house, you have got to get a loan (unless of course if you have the MONEY). There are many home loans out there for you to choose, some at a higher rate but with better facilities (meaning you have the flexibility to pay more and withdraw at any point of time), some lower rates & some at fixed rates.

But all ends up with only two types of home loans:

a) the normal type based against the BLR (based lending rate) &

b) the other the fixed rate.

The normal type varies depending on the BLR, but on daily rest while the fixed rate ones are like car loan, fixed annual rate for the whole tenure. There are many online loan calculators around you can find, one example is http://mortgages.interest.com/content/calculators/monthly-payment.asp

One good thing about home loans is that you can pump in additional money if you have cash in hand to reduce your loan amount at any point of time, and this will greatly reduce the interest borne by you. A typical home loan is around 25 years, very much depending on how much you can afford to pay monthly.

Now, if your loan is RM300,000, how much do you think you’ll end up paying for your house in 25 years time, assuming there are no early payments and refinancing? Let me give you a rough calculation:

Loan amount : RM300,000
Loan tenure: 25 years
Fixed interest: 5.99% (Best available at the moment)

RM300,000 x (5.99% x 25 years) =
RM300,000 x 149.75% = RM449,250 of interest paid

This is only the figure of interest paid, mind you! As for the total amount you need to add another RM300,000 to make it:
RM449,250 + RM300,000 = RM749,250!!

A RM300,000 house you end up paying for nearly RM750,000???? Now that’s the beauty of home loans… How I wish money grew from the tree..

to be continued...