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> Should one buy a house CASH or INSTALLMENT?

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TSuglybee
post Jun 4 2007, 10:02 AM, updated 17y ago

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I'm actually thinking it over, whether one should buy a house (that is going to be leaved in) by CASH or INSTALLMENT?

Reason why I asked is because of the interest incur for the loan

As an example, Let's say one can afford a house at RM200k CASH and his income tax has been very transparent, would it be better to save the extra interest?

I'm not very sure about the BLR and interest calculation. If possible, can someone kindly clarify. Let's say the loan is 90% of RM200k, so the total loan is RM180k. So if a tenure of 30 years, how much in total should be paid?

I also know that some say if one got money, one should clear it earlier to reduce the interest. So in addition to the example above, let's say the loan of 30 years is shorten to 20 years, how much savings will one get?
mushtaqtera
post Jun 4 2007, 10:07 AM

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i think u can get loan,but mayb h alf of it..the rest u can put it in unit trust...
laksamana
post Jun 4 2007, 10:22 AM

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L E V E R A G E

This is what you get when you have cash in hand, and knowing full well you can afford to buy an asset for cash. It's better to let that cash work for you i.e. earn interest, invest etc rather than lock it all down in one go. Use the power of LEVERAGE to borrow an amount you will be comfortable with, and invest the rest of your cash. This way you will always have some liquidity to fall back on in times of need.
yewkhuay
post Jun 4 2007, 10:31 AM

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QUOTE(uglybee @ Jun 4 2007, 10:02 AM)
I'm actually thinking it over, whether one should buy a house (that is going to be leaved in) by CASH or INSTALLMENT?

Reason why I asked is because of the interest incur for the loan

As an example, Let's say one can afford a house at RM200k CASH and his income tax has been very transparent, would it be better to save the extra interest?

I'm not very sure about the BLR and interest calculation. If possible, can someone kindly clarify. Let's say the loan is 90% of RM200k, so the total loan is RM180k. So if a tenure of 30 years, how much in total should be paid?
I also know that some say if one got money, one should clear it earlier to reduce the interest. So in addition to the example above, let's say the loan of 30 years is shorten to 20 years, how much savings will one get?
*
if those cash tht u hav is extra ( means u hav had emergency fund, reserved fund for spending n investment), then, y not? save on interest. but if i were, i will take up a loan which charge low interest in 1st few years ( say : 1.99% 1st yr, then BLR-1.0% , BLR-0.9% ...) then settle the loan within 5yrs (if there is lock in period ). then at least during the low interest period i can utilise the money for other investment that gives me return tht beats BLR. For investment wise, can ask for opinions from Sifus here.... icon_rolleyes.gif

Taking a loan of 180K with MRTA , instalment for 30 yrs, monthly instalment should be around 1150-1250 , if u need the amortization excel file, PM me ur email address, then u can use it to calculate how much interest u save by paying extra / cut short loan tenure + how much interest u paid in total. icon_rolleyes.gif

Glad to know tht someone can buy house with cash... notworthy.gif


TSuglybee
post Jun 4 2007, 10:42 AM

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Based on this calculator,
http://www.malton.com.my/quicktools/financialCalculator.htm

Property Price: RM200,000
Margin of Financing: 90%
Years of Loan: 30
Estimate Interest Rate: 6%
Total Loan Amount: RM180,000
Estimate Monthly Installment: RM1,079
Total Loan including Interest: RM1,079 * 12 * 30 = RM388,440
Total Interest: RM388,440 - RM180,000 = RM208,440 (extra to pay)

So let's say the loan of 30 years was reduce to 20 years because additional payment,
Estimate Montly Installment: RM1,290
Total Loan including Interest: RM1,290 * 12 * 20 = RM309,600
Total Interest: RM309,600 - RM180,000 = RM129,600 (extra to pay)

That is really a lot of interest to pay there...
TSuglybee
post Jun 4 2007, 11:00 AM

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My friend told me that when taking a loan, it would be better not to take the MRTA cause:
1) The amount is tied to the house / loan
2) The amount must be paid on lump sum

So what he suggested is to take Life insurance of the same amount and if anything goes wrong, the Life insurance is enough to cover the loan. The benefit is:
1) No need to pay one lump sum
2) The Life insurance is tied to him and not the house / loan
3) For some Life insurance, when it is matured some amount can be taken back

Is my friend right?
yewkhuay
post Jun 4 2007, 11:16 AM

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QUOTE(uglybee @ Jun 4 2007, 11:00 AM)
My friend told me that when taking a loan, it would be better not to take the MRTA cause:
1) The amount is tied to the house / loan
2) The amount must be paid on lump sum

So what he suggested is to take Life insurance of the same amount and if anything goes wrong, the Life insurance is enough to cover the loan. The benefit is:
1) No need to pay one lump sum
2) The Life insurance is tied to him and not the house / loan
3) For some Life insurance, when it is matured some amount can be taken back

Is my friend right?
*
2. can put into the loan as well

Yes, life insurance can use to replace MRTA , provided the bank allows, some bank ( which related to insurance ) they want u to take MRTA compulsary. scout around....


Added on June 4, 2007, 11:18 am
QUOTE(uglybee @ Jun 4 2007, 10:42 AM)
Based on this calculator,
http://www.malton.com.my/quicktools/financialCalculator.htm

Property Price: RM200,000
Margin of Financing: 90%
Years of Loan: 30
Estimate Interest Rate: 6%
Total Loan Amount: RM180,000
Estimate Monthly Installment: RM1,079
Total Loan including Interest: RM1,079 * 12 * 30 = RM388,440
Total Interest: RM388,440 - RM180,000 = RM208,440 (extra to pay)

So let's say the loan of 30 years was reduce to 20 years because additional payment,
Estimate Montly Installment: RM1,290
Total Loan including Interest: RM1,290 * 12 * 20 = RM309,600
Total Interest: RM309,600 - RM180,000 = RM129,600 (extra to pay)

That is really a lot of interest to pay there...
*
well, if u know how to invest ur money , the return will be higher than the interest tht u r paying in loans..


This post has been edited by yewkhuay: Jun 4 2007, 11:18 AM
scorgio
post Jun 4 2007, 07:45 PM

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If you have sufficient cash, ie. you have enough reserve for emergency & others already. Buy cash.

You not only save on interest but also the legal fee & stamp duty for loan.

For a loan of RM180k, u saved RM7k on the latter already.

In case u're in need of cash in future, don't worry. U can always mortgage the property for up to 90% of the market value.

It is always important to have a shelter above your head.


Added on June 4, 2007, 7:49 pm
QUOTE(uglybee @ Jun 4 2007, 11:00 AM)
My friend told me that when taking a loan, it would be better not to take the MRTA cause:
1) The amount is tied to the house / loan
2) The amount must be paid on lump sum

So what he suggested is to take Life insurance of the same amount and if anything goes wrong, the Life insurance is enough to cover the loan. The benefit is:
1) No need to pay one lump sum
2) The Life insurance is tied to him and not the house / loan
3) For some Life insurance, when it is matured some amount can be taken back

Is my friend right?
*
Ur friend is half right, half wrong.
If u take up MRTA for a loan of RM150k, the premium would be something around RM1500-2000. And it's a one-off payment.
While for life insurance, assuming u're 25 now. How much is the premium for RM150k insurance? And bear in mind u'll have to pay annually.

This post has been edited by scorgio: Jun 4 2007, 07:49 PM
lwb
post Sep 23 2007, 06:36 PM

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hi,

i like the discovery to the fact that a housing loan can double up the house initial value if taken to the max.
there're some good online calculators out there that help you see the amortization(the spread of money you pay/contribute to the loan) each month/year.

i don't know if you guys would agree with me.. if you're buying:
1. rental properties.. i'd go with the leverage idea and take a healthy loan (of course, due diligence is crucial as you don't want to end up on a loss each month after all cost are deducted)

2. own-stay property.. i'd go for the highest equity build-up, meaning i'd secure the least loan possible. well, here's the rationale.. if you think you have an investment/business that can consistently.. (when i mean consistent, it's something that you have to go year in, year out till the maturity of your loan) that can outstrip the annual interest cost that comes with the housing loan.. then you may want to apportion that fund/money accordingly.

the chances are.. imho, having a continuous 10% return for 30 consecutive years can be a bit unrealistic. and if you noticed, you'd pay the highest amount of interest to the monthly loan amount within the first 1-5 years of your loan duration..(so by the time you complete the lock-down period.. the bank should've sent you a thank you card for putting money in their pocket first)

that was why someone(an author) did quote that an 'own-stay' house is a liability.. (not an asset).

on a positive side.. if you went for full cash purchase.. any appreciation to the house, is already a positive capital gain for you.. since you don't have to apportion the cost of interest on a housing loan.. your capital gain comes close to nett value.

on the issue of MRTA.. do shop around as some banks make is as a compulsory to have a MRTA to go with the loan.
besides life insurance(which carries a higher cost).. an alternative is a term insurance..




 

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