Jun 20 2019, 05:04 PM
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QUOTE(wild_card_my @ May 2 2019, 02:10 PM)
Plenty of threads have been created about ASB financing in Kopitiam (mohon mods not move this to the Finance sub-forum as this is more of a chill thread), this thread is no different except that it starts without the ignorance by the threadstarter (me) of the ASB fund and ASB-financing. Many (either purposely or sincerely) mistook ASB-financing returns as the difference between the interest rate vs the yearly returns (distribution). Nothing can be further than the truth. The loan interest is calculated as a reducing balance, while the distributions (often mistakenly referred to as"dividend") is calculated on a yearly compounding basis.
In a way, ASB-financing is no different than buying a house with a mortgage. Both has a collateral which backs the loan, allowing the bank to approve the loans at low interest rates (4.4%-4.85% VS personal loans and credit cards with much higher rates). The main difference is in the collaterals themselves. To buy a house, you would bleed money to:
a) buy - SPA/LA/MOT/SD/Valuation/MRTA/10%-deposit
b) maintain - damages/rental-defaults/maintenance-fees/sinking-funds/cukai-pintu/cukai-tanah/fire-insurance
c) sell - RPGT/agent-fees/charge-to-discharge
No such thing with ASB and ASB-financing. You can invest in ASB just like any other unit trust, but at the same time you have the option of taking a loan to finance the investment:
a) There are no deposits required, you can get 100% financing
b) No legal fees involved other than RM60 for endorsement and stamping fees (not stamp duty)
c) Distributions are calculated on a prorated basis, there are no "distribution defaults" like when you are renting out your properties
d) No fees nor taxes to sell, there is a ready buyer - ASB is always ready to purchase the units and return your investment value to you in cash
Projections and assumptions:
1. Bank interest (financing) rate of 4.85% p.a - which may change according to the bank's base-rate (BR) movement
2. ASB expected returns of 6.5% p.a - which is lower than the historical lowest return of 7% a year for 2018 distribution
3. Loan and investment tenure of 35 years - maximum tenure, for 30 years old and below
4. Distributed units left in the ASB account to experience the effects of compounding
5. A small one-off insurance with the bank's panel insurance for RM350, capitalized into the financing
Total unit value after 35 years: RM1,812,450.97
Total loan repayment after 35 years: RM416,665.20
Bonus info. Total unit value after 35 years, but with cash-investment of the same monthly installment of RM992.06: RM1,528,086.67 . A difference of RM284,364.30 compared to investing using financing
In a way, ASB-financing is no different than buying a house with a mortgage. Both has a collateral which backs the loan, allowing the bank to approve the loans at low interest rates (4.4%-4.85% VS personal loans and credit cards with much higher rates). The main difference is in the collaterals themselves. To buy a house, you would bleed money to:
a) buy - SPA/LA/MOT/SD/Valuation/MRTA/10%-deposit
b) maintain - damages/rental-defaults/maintenance-fees/sinking-funds/cukai-pintu/cukai-tanah/fire-insurance
c) sell - RPGT/agent-fees/charge-to-discharge
No such thing with ASB and ASB-financing. You can invest in ASB just like any other unit trust, but at the same time you have the option of taking a loan to finance the investment:
a) There are no deposits required, you can get 100% financing
b) No legal fees involved other than RM60 for endorsement and stamping fees (not stamp duty)
c) Distributions are calculated on a prorated basis, there are no "distribution defaults" like when you are renting out your properties
d) No fees nor taxes to sell, there is a ready buyer - ASB is always ready to purchase the units and return your investment value to you in cash
Projections and assumptions:
1. Bank interest (financing) rate of 4.85% p.a - which may change according to the bank's base-rate (BR) movement
2. ASB expected returns of 6.5% p.a - which is lower than the historical lowest return of 7% a year for 2018 distribution
3. Loan and investment tenure of 35 years - maximum tenure, for 30 years old and below
4. Distributed units left in the ASB account to experience the effects of compounding
5. A small one-off insurance with the bank's panel insurance for RM350, capitalized into the financing
Total unit value after 35 years: RM1,812,450.97
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Total loan repayment after 35 years: RM416,665.20
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Bonus info. Total unit value after 35 years, but with cash-investment of the same monthly installment of RM992.06: RM1,528,086.67 . A difference of RM284,364.30 compared to investing using financing
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I have finished reading all 14 pages, so from my sumary here; (correct me if i am wrong)
From 200,000 of initial investment, return after 35 years = 1,812,450.97
Loan repayment is RM 416,665.20
So total gain is RM 1,395,785.77
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