QUOTE(prophetjul @ Dec 6 2019, 03:18 PM)
Compounding at 5% is better than compounding at 1.5% p.a
So how does amortization bring a return on investment?
Interest on the loans are paid based on a reducing balance. As you pay your installments, your interest payments get reduced.
On the other hand, you are probably already clear about compounding. For those who don't, compounding returns takes into account the
previously accumulated returns plus capital when calculating the upcoming return
So in general, people who keep on mentioning 4.85% vs 6.5% really has some understanding to do. For example of actual calculation: after 5 years of taking up RM200k financing, the 4.85% interest on a loan balance of RM189k yields a different number than a 6.5% on the now compounded RM275k value.
QUOTE(beLIEve @ Dec 6 2019, 03:19 PM)
what's the big deal about compounding return? EPF giving compounding dividend, but I'm getting less in the one declared this year (for 2018) vs declared in 2018 (for 2017). If the percentage drops, it has little meaning, at least, to me.
"what's the big deal about compounding return?" not sure if you are trolling by purposely being ignorant. But for the sake of professionalism, I will adapt Husnuzon, which is translated to "Bersangka Baik".
In any case, compounding interest is a very powerful force. "
Albert Einstein famously said that compound interest is the most powerful force in the universe. He said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it.”
Are we really going to talk about compounding returns in this thread?