I approached one of my couple clients, Chris (the husband & not his real name) and I told them that I was helping my other clients plan financially, I ask them whether they would like me to help them. Here is how the conversation about saving on housing loan interest went.
“Would you like to buy an AUDI TT for free after you settle your housing loan?”
They were very curious and our conversation went on like this. (This is an article I wrote in 2015 and is re-posted & re-edited.)
How to buy an AUDI TT for free after you settle your housing loan?
Chris: “Are you trying to sell me insurance or unit trust?”
Me: “Neither”
Chris: “I’m itching to buy an Audi TT & I’m not sure if this is a good time”
Me: “I could help you buy your AUDI TT for free after I help you settled your housing loan”
Chris: “How is it possible?”
Me: “Let me show you”
Chris: ‘Sure or not? I’m quite skeptical’
Read: Save RM1 Million On Your Own Or Do It By Buying A Property?
How To Save 50% Of Your Housing Loan Interest In Half The Time
This was their situation:
- Property purchase price RM2.5 Million (semi-D in Petaling Jaya area)
- Loan Interest Rate was 4.4%
- Loan Tenure (no of years to repay back the loan) was 35 years (420 months)
- Loan Installment is RM10,471/month
- Total Interest Paid for the whole duration was RM2,147,808
After implementing my advice:
- Total Interest Paid is RM 1,068,815, which is a 50% reduction in interest paid.
- They finish paying off their loan in 19 years and 2 months (230 months), which is 45% earlier (15 years and 10 months OR 190 months).
- He could buy 3 new AUDI TT worth RM285,000 with the interest savings. (Of course, AUDI TT’s price would have gone up, but still, if he did not apply this strategy, imagine the 3 AUDI TTs the bank managers would have driven off with)
Can you guess what did I suggest to him to do?
- Save an additional instalment of RM4,000/month into his housing loan
- Ensure their Debt Payment Ratio is still on a Healthy Level (<35%)
- Ensure their Total Saving Ratio is Healthy (>33%) & their net worth is still growing
This was what I suggested to him
Because they are ‘SAVERS’ (people who like to save money in their bank account), they could channel some of their monthly savings into paying off their housing loans.
But one has to take note to maintain a balanced lifestyle of not over-saving as you do not want to lose out on any investment opportunity. Here, it shows how big of a difference it makes over time.
1. Save an extra of RM4,000/month on their housing loan, making the instalment RM14,471/month. Here you can deposit the extra RM4,000 into a Current Account facility provided by most Malaysian banks by now, which can be used to withdraw later (in the event of emergency)
2. Currently their Debt Payment Ratio is only 27% & they can commit up to 35%. Debt Payment Ratio measures how much income is used to pay ALL Loans (housing loan + car loan + personal loan & etc) divided by your NET INCOME (Your Gross Salary net off EPF, Socso, EIS & PCB). Since they don’t have any car loan, personal loan or any other loan, then all their funds can be channeled to the housing loan.
3. By doing (1), they are able to save almost RM 56,551/year in housing loan interest (Total savings on housing loan interest = RM1,078,993)
4. The amazing thing of ‘Saving’ the extra RM 4,000/month actually improves their networth. You don’t actually ‘spend’ it, here is how it works
(Net worth is assumed that Current Market Value of the property grow at 4% per annum)
5. Interestingly, RM 3,731.25 of your RM 4,000 goes directly to pay off your principal. So it seems like you were force saving in your bank account, is just a different account call loan account
Read: Double-Up Your Property Investment With These Rules!
Save on housing loan interest, he calls off his purchase and postpones his booking
After I have shown them the above, he called off his purchase of his Audi TT & redirect his savings to clear off his housing loan interest. Postponing his purchase after he settled off his housing loan first, he is convinced the savings from the housing loan interest will be able to buy him a free Audi TT.
*Do take note that you should only do this for a property that you live in. For property investment, you may not want to use this strategy. Talk to your financial planner or a professional first before taking action.
*DISCLAIMER – All strategies listed here are not a recommendation nor advise. The article is written purely for the purpose of education and journaling only. The content of this article is an expression of my opinion and should not be taken as professional advise. If you are seeking professional advise, please consult me personally . You should do your own research and/or seek expert’s advice when overcoming your debt circumstances.
Read: 10 Ways to Spot Property Investment in Malaysia – A Property Investment Guide
About the Author
Ka Hoe is a Licensed Financial Planner having a “Financial Adviser Representative” (FAR) with Bank Negara and “Capital Market Service Representative License (CMSRL) – Financial Planner” with Securities Commission. He is also the Founder of J Advisory, a Personal Finance Academy that helps struggling Malaysians elevate their financial well-being with proven tools, systems and strategies. For more real-world case studies, you can reach me at my blog – https://jadvisory.asia/
