Cost Of Interest. One of the reasons mentioned for high debt in Malaysia is cost of interest. The well to do pays less because they reduced their cost of interest. The lesser well off pays more because of cost of interest. Malaysian tend to view affordability by how much they are paying per month, nevermind the number of years paying off interest charges. I believed there are also schemes where we just need to pay interest charges monthly without paying the principal.

Another scenario is leveraging. Unless one needs the funds for aggressive leveraging, then shorter term loan will reduced interest incurred for normal people. It also instill in consumers to purchase only things that they can afford.

What ground-breaking revelation were you expecting?

P.S. Fairy tale on John was more or less developed based on your situation - 100k in a flexi loan.

LOL Obviously I'm not as successful as you; I'm not the one with excess money in flexi.

sorry to keep you waiting... but don't blame me, as I had given a clue how the story will conclude.

It's just that the whole "I won't reply to someone who has a professional motive" and the whole dragging our feet along with "Be patient, Little Grasshopper..." thing made it seem like you had a big counter point against what was said. At the end of the day your reply to the whole thing could have been summarised in a few short sentences:

"wild_card_my is correct. However, in the case that John is not disciplined with his money, then there is a bigger temptation for him to divert from the plan of paying a higher instalment and spending the money elsewhere. John may end up digging a bigger hole for himself in the long run. For the financially smart people who do the math, it wouldn't be a problem. But what about the average Joe?"

Another point to ponder : how do average joe can get rm100k cash?

yeah, was bored reading the usual stuff... so on a lazy Sunday, wrote the fairy tale.

Another possible scenario is that John, a determined man who can sized up any situation quickly (he's in an executive position with 5-figure pay), had already known what he want, and his plans.

He will stick to his plan, and take a 400k, 15-year loan. Whether it is flexi or not. He will just ask for the best discount on the BLR. If it is a flexi with the best discount, it is fine with him.

Time is precious to him, no ideal chit-chat in the bank telling people how much other savings he have. Just signed the loan and off he goes.

He may have slowly accumulate it over many years... and now in a dilemma - weighing every investment decision against the higher interest that he will forgo in the flexi account.

Sorry, under normal 2-3% of annual increment, no matter how good the self control are, as long as burden with 1 loan, rm100k won't really can get within short period of time.
That story is John took a xx amount of loan and directly have rm100k.
I like to look for flaws on a story and any of pretty table that boasting how well a company is doing.

I have to read back, and checked what I wrote.


"Customer John has extra money above his normal savings. He can put in an extra 100k towards a new house for himself and his family, and take a lesser loan of 400k. And with his monthly salary, John can finish paying the loan in 15 years."

That's why he can afford to take the 500k option, and at the same time put the 100k into the flexi as excess payment from day 1.

thank you for your advise. I'll be sure to be self discipline to make the most out of the flexi loan "power" and not let temptation overcome me

erm.. i m not average? (maybe)
high income earner with a thrifty personality.

For simplicity i'm going to assume i reinvest all the yearly cash coupon.. i have done more complicated calculation where i withdraw those cash coupon, rate of return dropped by ~1%

i was quoted 21600 premium for 6 years (total 129600), at end of year 30 i m getting back between 285160 (assuming funds earn 4.75%) and 473400 (assuming funds earn 6.75%)

again for simplicity i'm going to ignore the interests earned from year 1 to year 6 and calculate returns using 129600 input and 285160-473400 at year 24 (30-6)

this gives a return of between 5.5% [ 129600(1.055)^24=~473k ] and 3.3% [ 129600(1.033)^24=~285k ]

but now that i typed it out, i see the negative point in this, the market (fund) perform 6.75% and I m only getting 5.5% and market perform 4.75% i only get 3.3%... this means hong leong uses my money to invest and takes a cut of around 20% of the profit!

bloody hell!

so it depends on individual i suppose, do you think you can get involved in the market and match hong leong's performance of 4.7-6.7% returns?

If were to dump money in insurance companies, I'll dump money in stock market, spend 1 day and choose the most active counter and test my luck.

1. "The well to do pays less because they reduced their cost of interest."

This is not always true. The richer man may buy a more costly house, and pay 10% downpayment. It will be the same as another man who buy a less costly house, and also put in 10%. So in terms of percentage, the cost of interest would be the same to both.

What should be looked at is still the savings.

Basic living expenditure is more or less the same across the board. So "discretionary income" (that is income above this threshold of basic living expenditure) plays an important role. The man who is earning more, would have more discretionary income.

Now, how he spends the discretionary income will finally determine how much of the salary will remains as savings.

Poverty level (not textbook definition, but my own definition) is when the salary just meets the basic living expenditure, with hardly any left as discretionary income. No savings at the end of the month.

Now, a man drawing a much higher income can have no savings at the end of the month too, if he spends all his discretionary income. (This person is also kais pagi, makan pagi... in poverty level but thinks he is 'rich'.)

So, we can safely conclude the above statement is not always true; since the man who pays lesser interest is the one with more savings, thus higher downpayment and a lower loan.

2. "Unless one needs the funds for aggressive leveraging, then shorter term loan will reduced interest incurred for normal people."

I'm not sure what it really means... and whether it is somehow related to "...high debt in Malaysia".

A house loan has 3 parts: a) tenure, b) size of the loan, and c) monthly installment.
And 2 external parts: the down-payment and house price.

House hunting is a continuous process - a continuous adjustment of the last 3 parts:
Installment, down-payment and house price.

To get at a reasonable tenure and loan.

Leveraging, or financing or tenure/loan is the result from adjusting the 3 adjustable variables.

Installment & downpayment is from savings, which is from salary.
House price is from housing policy.
Financing is from banking policy.

So if only can use the highest loan and longest tenure to secure a house, put blame on self first, before cussing government, housing developers and the banks (which is indirectly BNM).

1 question. What do you guys think about those investment + insurance plans. Like AIA takaful A-LifeLink-i where you get insured (sum covered) and also investments/savings. Or should I just take a medical card and put my money in other investment vehicles?

depends on how discipline you are at managing your investments...

depends on whether you need life insurance at this juncture...

most people nowadays are going for investment + insurance. doesn't mean you should.

j.passing.by

An enterprising man will utilise longer tenure loans plus max loan. This is based on the surmise that whatever savings, extra funds he has, will be put in good use, so to say to reinvest for returns much higher than cost of interest from the loan itself.

Whereas for those not into investing / business , will find it to their better own interest to pay off their loans as early as possible. Thus shorter tenure will ensure that discipline has to be maintained.

So it comes to own evaluation on whether to go for shorter or longer tenure, each with its pros n cons.

That's the problem I noticed with the older generations of this subforum. They have lived their life, made it ok or big, and thought that theirs is the only and best way to manage their finances without any ability to take any opinions from any other sides, especially the ones who are are the front of mortgage/finance planning like myself. I attribute it to stubbornness.

As for myself, my firm stance is always about having the flexibility of paying more or less depending on your needs. But they dragged it down to the slugfest of finishing your loans as early as possible VS investing the extra cash flow into investment schemes that generate more returns.

The old guys may have wisdom, but they lack creativity and are very stubborn. Their advice is also sometimes outdated since they lack knowledge or understanding of the newer products in the market. One of them even suggested that a forummer's insurance policy be cancelled after already paying for a few years.


This post has been edited by wild_card_my: Dec 3 2014, 10:16 AM

wild_card_my
I would appreciate if dont involved me with personal issues. Old people brought you up..what analogy are you using ?

Nothing personal, it was just a general observation of the way things are. I wasn't reffering to anyone in particular and of course not you. I was just glad that there are those who can see the benefits of a different viewpoint, thus producing a healthy discussion and exchange of opinions, like the one you posted earlier.

If you haven't noticed, in the past few posts there's been an argument to finish paying up your loans early. As a mortgage broker I argued that having a flexi account and the flexibility to schedule your payments the way you like is a definitely plus because partly you could have a better cash flow and invest accordingly just like you mentioned. What you would do with the increased cash flow would entirely depend on your situation and needs, there is no one fix-all solution.

But I noticed the elderly didn't take too nicely to my argument and started to call delaying your loan repayments is a stupid thing to do, without even accepting opinion and arguments that there may be better ways to invest the money instead of repaying the loans.

My observation, which may or may not be inaccurate was that the elderly are more inclined and stubborn about they way they see things, without any consideration of other people's situation or needs. A younger person's risk criteria is definitely different than an older one, thus their methods of money management cannot be the same.

If you havent noticed by now, it wasn't a jab at you or anything, I apologize for the misunderstanding

This post has been edited by wild_card_my: Dec 3 2014, 10:43 AM