Because a mortgage has its interest calculated based on reducing balance. Given whatever the outstanding balance is, going forward would you want to pay the outstanding balance based on BLR - 1% OR BLR - 2.4%?

At that big a difference between the old offer than the new offer, it is easy to tell that the client would benefit in paying their remaining outstanding balance by first refinancing it to lock-in the lower rates of BLR-2.4%. I'll show you again just for kicks ya:

Going forward without refinancing, the client is poised to pay



By refinancing today, of the outstanding balance amount plus refinancing cost, the client will pay



So by refinancing, the client would save:

Past interest paid is "sunk cost". It has been paid. You can't recoup no matter how. Like cf28 said "past is past". We should only look forward

Since it is a Sunday, I will use supersound's example to illustrate to TS the simple calculation (not trying to convince supersound because he feels he is never wrong )

Original loan = RM200k
Interest = BLR -1%
Year = 2005, tenure = 30 years finish paying in 2034
After 10 years on 31/12/2014 = principal paid down to RM150k. Interest paid RM70k (as assumed by supersound)

Now TS wants to refinance RM150k
Refinancing interest = BLR - 2.4%
Tenure = 20 years. Same finish paying in 2034


Scenario 1 - Don't refinance. Continue existing loan

Interest already paid = RM70k (cannot change because already paid)
Loan amount = RM150k, Interest rate = BLR-1% = 6.85% - 1% = 5.85%

What is the total interest payable from 2015 - 2034 ? Based on loan calculator = ~RM105k. Monthly instalment = RM1,062


Scenario 2 - Refinance.

Interest already paid = RM70k (cannot change because already paid)
Loan amount = RM150k, interest rate = BLR-2.4% = 6.85% - 2.4% = 4.45%

What is the total interest payable form 2015 - 2034 ? Based on loan calculator = ~RM77k. Monthly instalment = RM945


Conclusion : By comparing the 2 scenario, the monthly instalment is reduced to RM945. The interest saved will be RM105k - RM77k = RM28k. It should be more than able to cover the refinancing cost.

What I calculated above is the same as what wide_card_my presented. Simple calculation which any people with SPM maths passed can calculate

This post has been edited by Showtime747: Dec 14 2014, 09:05 AM

No wonder banks are making more and more money and people are getting poorer. Because interest paid are considered never paid before on the first loan when flip to second loan

If TS don't refinance, banks will be making RM28k more from 2015-2034

As I said, I am not here to convince some non-finance-sensible person. I think my calculation will be enough to help TS decide whether to refinance or not

Nope, that's a fact. Because in 2005 BLR only 6%, so after -1(or 1.2%), it is only at 5% and it do go lower in the mean time.
He run out of excuse, that's why he is seeking help and using childish and other harsh words to insult me.
I never really against refinance as long as the difference are big enough after including all(first loan's interest paid which all over here say that's not interest, legal fess), like my friend's, it is worth for him to refinance as he took fixed rate loan.

You do know that when BLR increases, and if you want to maintain tenure, your instalment needs to increase too right?

My company develops our own calculators for our consultants to use with our clients, and one of the most basic formula is the calculation for the PMT (installment) of FV (future value) for a reducing balance loan. There are 3 variables when it comes to calculating the FV [future value](remaining outstanding balance of the future, which you would like to be 0, that is when you would have finished paying for the loan).

Do yourself a favor, open up excel and type this:



You will notice that it would be asking for at minimum 3 variables:-

A: Payment [pmt](installment amount)
B: Rate [rate](Interest ate)
C: Number of payments in a set of tenure [nper](number of months, since the installment is set to be payable every month)

*The items in the squared brackets are the same items you put in your excel if you need to see it for yourself*

So if you would like to maintain the tenure (240 months), but the interest rate has increased (from 5.00 to 5.85%), you would then need to increase the installment accordingly.

But here you are yelling about 5% 5% 5%, without realizing that as the interest rate for the client climbed to 5.85%, so will the installment as long as he intends to maintain the tenure (which mean he does not prolonging it).

---

Everyone else reading this thread... You guys can decide for yourself who is right and who is a monkey. I don't know why uncle is acting the way he does, but I've presented my arguments in the best way possible. On the other hand all he ever does is to call me a cheater, and all his replies are without any substance. Well it is his right to make himself look stupid. But I implore that everyone read all the posts carefully to decide which side is talking about facts, and which side is filled with unreasonable hatred towards an array of entities; and if you have any doubts, do post your questions here.

If you have decided that he is a poison to our little community, please do your part and link this thread whenever he swoops in to give his unsolicited advice. This will give him a piece of his own medicine. I hate doing a witch hunt, and it would sadden me to continue putting people down, but I also believe that no bad deed can go unexposed, especially if he insist on continuing with his denials... the best way to make it stop is to let the masses decide.

Have a good Sunday, people.

This post has been edited by wild_card_my: Dec 14 2014, 09:17 AM

I think I got put there average later on at 5.25%, but you ignored it.
Again, as long as you refuse to change it to 5% and redo the calculation, I'll treat you as still want to cheat.
To make cheat successful on this matter, a person just need to choose the highest interest rate to show how bad it was on the first loan and use the lowest to show how good it is by doing refinance.
So no need to bring up other rubbish, only a cheater that have agenda will keep on bring up other rubbish to continue cheat and mislead.

He insulted you ? His real name is there. His telephone number is there. You can always ask your lawyer to contact him if his comment is false

On the other hand, you are hiding behind the computer using a fake name to call him a cheater. Unless you stand by your words and pm him your real name and real details

I am still learning about all this kind of things. But shouldn't we use 6.85% as the current rates as the TS wanted to refinance this year?
From what I understand in :


I would like to see your version of calculation.

Sorry. Kind of headache . I am still a student. So learning this kind of things is useful.

Thank You

This post has been edited by Ramjade: Dec 14 2014, 09:42 AM

I will tell you how he got 5%. In 2005 (which is when the loan by TS was signed), the BLR was 6.0%. TS's rate is BLR - 1%, so the effective interest rate at the time is 5%.

What he is misunderstand about reducing balance concept is that the interest is calculated upon the current outstanding balance, at the current interest rates, which is as you calculated, BLR (6.85%) - 1% = 5.85%.

There are 3 variables when calculating for a repayment for your housing loan, these are the variables needed to calculate the tenure, interest rate, and installment needed to finish paying off the loans [use the =FV(....) function in excel]:-

a. rate
b. tenure
c. payment (instalment)

As such, if the interest is increased as we have shown above, and if we don't increase the installment, then the tenure would increase. To maintain the tenure to the original remaining length of 240 months in my example, you would then need to increase the payment. If we use 5% all the way like he wants me to, then the tenure would definitely be increased because the rate is now 5.85%.

Even my face is there... be warned though, when you see me on my new Youtube series about personal financial-management, you would see a chubbier, happily married guy.

This post has been edited by wild_card_my: Dec 14 2014, 09:53 AM

So if you increase the payment, you still get to pay at 5%?

5% is TS's initial loan interest, BLR-1%.
For loan takers, we need to add on 1st loan's total interest paid and all the cost involved and the new loan(refinance is taking a new loan also)'s total interest paid.
Also, all the calculations are 100% accurate as BLR are changing every now and then. Some banks will ask you to increase/reduce repayment amount while some won't.
When BLR increase and you still paying the same amount, principle deduction are lesser. But BLR reduced and still paying same amount, principle deduction will be more.
With past 10 years of relatively low BLR, the 1% difference actually are not significant even if have. Some taking refinance will prolong the tenure(bank officers are very generous on this for offering longer tenure, unlike the cheater here never mention on this) which will result to paying more even with lesser monthly payment.
If you were to refinance, do consider take out some savings(be it FD or EPF) and dump it lump sum, which will be better way, if you just merely want to see lesser interest paid.
Calculation are dead simple, just use any table provided by banks, do the maths(1st loan from start till end, flip to new loan and add all interest paid with all legal fees included) and you will know.
Legal fees you need to pay by cash and cost rm5-10k. Better use that to settle principle rather than make people rich.

Not at all, you need to increase the installment (repayment) BECAUSE the rate has increased to 5.85% and you would like to maintain the tenure to the original end date (240 months from today, December 2034)

Since the interest rate has increased to 5.85%, and if you DO NOT increase your installment, you WILL NOT finish paying the loans off on December 2034, the loan would be extended.

I think you get it wrong.
When BLR increased by 0.25% from 5%, that's 5.25%, so at 5% you pay A, at 5.25% you should be paying B. But some banks will keep quiet as this is more to their advantage. Last time when I took Public Bank's loan(got BLR-1.2%), when BLR increase(WEF 1st June), I only received the letter opt for increase payment on 29th May evening and shall be reply and return by mail before 30th May.

When it comes to who is willing to put his real identity on the line, he avoided replying to my post

It just shows to all the readers here 1 forummer has the credibility to stand by his comment (and the calculation agreed by others), while the other hide behind a computer defaming someone a "cheater".

For such simple financial calculation, I believe the readers here has the intelligence to differentiate who is credible and who is not

just don't waste time arguing with someone who's stubborn an unwilling to listen to reasons... really

So going back to this person's loan, the person already paid RM70k in interest. Shouldn't when you do refinance, your new loan starts with your new principle and not your old one?

Second, from the calculations done by Showtime747, he can save Rm20k+. But like you said legal fees = Rm5k-Rm10k. So TS will still save say RM10k-Rm15k right?

I am still confuse about the part where wild_card_my cheats others. He is using the current BLR which is right I suppose? We cannot use 5% anymore as BLR have gone up.

Guys/gals, just post the explanation and mathematics calculation about it.

Please refrain from name calling or called someone cheater or not.

Everyone can see the maths of it whether the calculation is right or wrong.
While if someone fail to understand the math, just let it be and ignore.

We discuss the maths and calculation in refinancing, not people.
Ty.

Showtime747 derived his calculation from my calculations poster earlier.

Essentially when i refinanced the loan i have already included the balance+cost-of-financing(legalValuationStampduty). So whatever savings you get is nett. After refinancing the installments are reduced by about RM100 a month for the next 240 months.

And you got it right, when you refinance the only numbers that matter are the current outstanding balance, interest paid earlier are part of sunk cost.

Haha.. i think he got either attitude problem or lack of attention problem...

I agree with u.

Remainder principal.. if refinance with lower interest, saving more than lawywr fee, proceed.

Different customer got different needs.

some refinance to get saving
some refinance for a higher value to get extra cash for their intended purposes with mortgage loan as collateralized lending is the cheapest.
some refinance for cash flow purposes, eventhough there might be no saving at all.. but for monthly cash flow restructuring.

so.. refinancing is a good product from bank, allowing more financial instrument option.

if supersound dun like refinance, then dun refinance lo..