Hi everyone... really headache of calculating all these home loan and I really need some help. Here is the case n there are 3 options.

This is a refinancing of a home loan package.

Option 1 : Stick to current package which is 1st - 3rd year 5.5%. Following yrs is BLR-1%. Alr paid 2 yrs installment so now is 3rd year. Loan amt left RM211k.

Option 2 : Refinancing v the same bank. For 1st & 2nd year is BLR-0.5% and thereafter is BLR-1.95%. No legal fee or penalty incurred.

Option 3 : Refinancing v other bank which is BLR-2.3% at the beginning to the end of installment. Incurred legal fee and penalty total RM12500.

Expected tenure period 25 yrs. Any one can help me to solve this calculation tat which is the best option.

Thank you.

This post has been edited by enson1985: Apr 21 2009, 02:49 PM

Using simple calculation
current rate 5.5%,
new rate BLR-2.3% = 3.25%.
Different = 2.25% per year

RM211k x 2.25% = RM4747.5 /year extra x 3years
So if you continue to serve current loan, the extra interest you'll paid for another 3 year before lock in ended is around RM12k to RM14k

Given 3 option

1) continue current loan for 3 years, then only refinance

You will paying extra interest of RM12k to RM14k for 3 years. Then after 3 years (lock in ended) and refinance it. By the time do you think you manage to get BLR-2.3% or better? (loan amount will smaller after 3years except you wanna cash out that time)
You save up the penalty but you'll need to pay for legal fee when refinance after 3 years (so another few k to pay after 3 years, with cant guarantee to get BLR-2.3%)


2)refinance with same bank
1st,2nd year interest 5.05% then BR-1.95%

1st and 2nd year interest extra = RM211k x (5.05%-3.25%) = RM3798/years x 2years = RM7596
3rd year interest extra = RM211k x [(BLR-1.95)-(BLR-2.3%)] = RM738.5/years
So for option 2 the extra interest for 3 year = RM7596 + 738.5 = RM8334.5

But option 2 will have new 5 years lock in period again. If you wanna count in another 2 year lock-in interest extra for total 5 years = RM9811.5
And one more things to consider,do you think after 5 year you can get offer as BLR-2.3% or better?
And RM9811.5 haven't include the legal fee for refinance after 5 years.



3) refinance to another bank to enjoy BLR-2.3%
You'll have to pay RM12.5k for legal and penalty, but this RM12.5k is about to break even after 3 years.(extra interest RM12k+ for option 1)
And you no need to pay any legal fee to refinance again after 3 years.
And long term, BLR-2.3% of cause option 3 will save more for you.

Above calculation is using simply method only, Base on RM211k without reducing principle calculating in. Well even calculate in the different is not that much also.

So question back to you, which one is better

Thanks for your analysis. But there is some typo error from me for option 1. The loan began 2 yrs ago and now paying for the 3rd year so it means the next coming year i will be getting BLR-1%. The 211k is balance amt left and therefore i'm considering whether it would be better to refinance the loan or stick to it. Pls advice.

This post has been edited by enson1985: Apr 21 2009, 02:55 PM

assumed average blr is 6.5% throughout for calculations.

option 1
211k finance
1st year 5.5%(calculation starts from 3rd year)
rest 5.5%
1349rm/month for 23years

option 2
211k finance
1st and 2nd year 6%
rest 4.55%
1211rm/month for 25years

211k finance
1st and 2nd year 6%
rest 4.55%
1268rm/month for 23years

option 3
if 12.5k pay separately.
211k finance
throughout 4.2%
1137rm/month for 25years

if 12.5k include into refinance
223.5k finance
throughout 4.2%
1205rm/month for 25years.

the calculations based on monthly compounding interest.

up to you which is the better one, but it seems that for the moment option 2 is the most hassle free yet reduce monthly sufficiently. it might be best to wait for lock in to finish on the current one then refinance to the other bank but its all a gamble as you would not know if you could get that package anymore.

2 cents

This post has been edited by mouldybread: Apr 21 2009, 03:55 PM

Thanks bro. Ur 2 cents help a lot. Haha... so can u tell me the formula of calculating the loan repayment amt?

For eg Car Installment

[ Principal + (Principal x Int x Tenure period) ] / Tenure Period

Loan RM50,000
Int 2.5%
Tenure Period 5 yrs

[ RM 50,000 + (RM50,000 x 2.5% x 5yrs) ] / 60mths = RM 937.50/mth

So wat is the formula for reducing balance and diff rate of int for beginning year?

thanks
i dont think i could give you a direct formula
try using excel, it helps

however you could use the following for a 25years constant interest rate

6% int
645monthly/100k

5% int
585monthly/100k

4% int
528monthly/100k

interpolate as necessary.

this does not work for different interest rate in different years(ie 1~3yrs=6%, rest=4.5%), you will have to use excel.

hope this helps

Option 2.
Loan amt 211k, tenure 25yrs.
1st yr, 2nd year = BLR - 0.5% = RM1234/month
Thereafter = BLR -1.95% = RM1073/month

Total Repayment >> $325,563.88
Total Interest >> $114,563.88

Comparing option 2 and 3
It is BETTER if you name the banks. Some banks are well known to have some stupid clauses.
If you are looking at long term and don't mind the RM12500 penalty, Option 3 should be better than option 2

Loan amt 211k, tenure 25yrs
1yr till the end = BLR - 2.3% = RM967/month

Total Repayment >> $290,392.21
Total Interest >> $79,392.21


So... option 3 saves you ~RM 300/month for the first 2 yr and RM100/month after that

Also equals RM7200 savings for the first 2 years & RM3600 for the next 3 years. Total savings of RM10800 for the first 5 years (usual lock in period)
But a total savings of RM 35k for the whole tenure.

If you choose option 3 now and you refinance again after 5yrs, you lose RM1700 due to the legal fee & penalty of RM12500 you paid.
If you choose option 2 now and refinance again after 5 yrs (if the interest rate is low then), you dont lose anything. But if the interest rate is not that attractive that time, you lose for not chosing option 3.

Hmm..... i wonder if above analysis is correct or not, feeling a bit high after medication.
Make your own choice la... but in short the RM12500 you paid for option 3 will not be, erm, 'earned' back within the first 5 years if COMPARED with option 2. But if compared with option 1, you definitely earned it back ... probably by many times. (Sorry, too lazy to calculated option 1)

Thank you everyone!!!