William is currently 30 and he just bought a RM 333 000 apartment at Batu Cave. He took a loan of RM 300 000 for a maximum tenure of 30 years (the loan maximum tenure is until he reach 60) and pay the remaining 33 000 in cash as the down payment. Below are the details:
Name : William
Age : 30
Apartment Price : RM 333 000
Down Payment : RM 33 000
Loan Amount : RM 300 000
Loan tenure : 30 years (maximum age 60)
Interest Rate : 4.5%
Monthly installment : RM 1 521/month
Total Installment Pay : RM 1 140 460 (total payment for 30 years)
As you can see, if the interest rate remains the same for the whole tenure, William will end up paying RM 1 140 460 as the total instalment. If you add up with the down payment he has pay earlier it means the apartment has cost him
RM 1 173 460.
What if he decided to wait for another 2 years? Which mean he buys the property when he is 32 years old. Let say the property value have increase at a rate of 8% annually which is actually kind of low (in reality the last time I check the property at Batu Cave increase at the rate of 12-15% a year). Below are the details:
Name : William
Age : 32
Apartment Price : RM 388 411
Down Payment : RM 38 411
Loan Amount : RM 350 000
Loan tenure : 28 years (maximum age 60)
Interest Rate : 4.5%
Monthly installment : RM 1 834/month
Total Installment Pay : RM 1 217 055 (total payment for 30 years)
Now as you can see if the interest rate remain the same the whole tenure, William will end up paying RM 1 217 055 on the installment. If you add up with the down payment he has pay earlier it means the apartment has cost him
RM 1 255 466. This mean he end up paying an extra RM 82 006 if he decide to delay buying the apartment for two years.
Table showing the difference:
|
WILLIAM |
BUY NOW |
DELAY (2 YEARS) |
|
PRICE |
RM 330 000 |
RM 388 411 |
|
DOWN PAYMENT |
RM 33 000 |
RM 38 411 |
|
LOAN |
RM 300 000 |
RM 350 000 |
|
INTEREST |
4.5% |
4.5% |
|
TENURE |
30 YEARS |
28 YEARS |
|
INSTALLMENT |
RM 1 521 |
RM1 834 |
|
TOTAL PAYMENT |
RM 1 173 460 |
RM 1 255 466 |
Ask your self is it worth it to delay? Not only that you have to fork out extra for the down payment, the loan tenure also will be reduce to 28 years maximum resulting you to pay RM 1 834 instead of RM 1 521 a month. The RM 313 a month different on installment if you invest in a unit trust that can give you an average of 10% return a year in 30 years will become RM 650 818. This means with the same cost of RM 1 834 a month you can get an apartment and also RM 650 818. The difference can be wider because in reality the property will surely increase more then 8% a year and the interest rate most likely to rise up. So make the smart decision by buying your house now.
By Mohd Sheyzal Bin Azman
sheyzal@yahoo.com
7 commentsback to post
#1Abiy21/07/2011, 10:28 am
The theory might be true but ib reality, ppl need time b4 they can come out with the deposit or income that qualify them
#2sheyzal21/07/2011, 3:43 pm
yup it’s true the purpose is to courage people to buy house ASAP.you can start by buying cheaper house or even a flat.some people especially the younger generation don’t see this.Some even pay RM800-900/month on their 1st car when it is better to pay for the mortgage. not to mention those who always keep changing their gadget when it is better for them to start saving for the down payment
#3IA25/07/2011, 3:42 pm
Way to go in scaring people into thinking that they HAVE to buy a house immediately! To buy a house, one MUST be able to afford the downpayment, monthly payment, as well as other costs that comes with home ownership. No need going into debt or over extend yourself to buy a house only to have it auctioned off later! You would lose all your equity and investment, money that could have been used to build up your net-worth!
Buying a house is a big financial decision – the debt-to-income ratio is important. One should not spend more than 30% of monthly income on housing loan repayment. One should have also built up an emergency fund of about 6 months income to cover likelihood of job-loss and other issues. What about a sinking fund for home repairs etc.?
The problem with the Malaysian mentality is that when buying a house, we look at long-term payment – e.g. 30 – 40 yrs! This will only result in crippling interest payment in the long run. For what? One can never have positive equity in one’s property in this way.
10-15 yr loan payment with a bigger downpayment for purchases would be more sensible. Go for flexi-loans that will allow you to pay off your home loan faster, so whenever you get financial windfall such as performance bonus etc, you can dump more payment to pay it off quicker, rathen than splurging on a new car, Coach bag or holidays to Bali.
Most importantly – don’t impulse buy houses just because people say home ownership is a must. Check your account balance every month before deciding what you can buy. Renting is not necessarily a bad idea. Kenalah ukur baju ikut saiz sendiri!
#4iMyn29/07/2011, 11:35 am
Well I guess thre is no absolute correct way to go about house ownership, like what IA said, ukurlah baju ikut saiz sendiri. Personally I’m not into property investment simple because I don’t now much about it (its risky) and I believe that the property bubble will burst in the near future. So, might as well save up more money from now on for the down payment.
My goal is to have a house to stay in not much as investment, so the property price burst will give an oppertunity to buy property to actually stay in.
but of course if you have a lot of extra money every month, property is a good way to multiply your money.
#5sheyzal29/07/2011, 12:10 pm
buying a house should be our priority whether you buy it for investment or to stay in it.like I say if you don’t have the money just buy a flat.I f you can’t afford the 10% down payment well there is a lot of method to get money for that one way is to borrow from your close relative but if you a BUMIPUTERA I’m sure you have encounter before at the show house where you actually don’t even have to pay for the 10% as the developer usually use the bumiputera discount of 7-10% as the 10%.meaning if it is a 7% bumiputera discount that they offer you only have to come out for the remaining 3%.If the house is 300K 3% is only 9k.if the developer actually offering 10% bumi discount then you only have to come out with a down payment which usually not more then RM 2k.If you decide for the property market bubble then you should bare in mind when will it happen?if you can really predict it then you are the luckiest men in the world but even with the fear of that really happen here the prices keep rising what if the bubble only happen in 10 years time? even if it can drop the price by half in 10 years I’m sure the price have rise more then double. But as to say to ukur baju di kain sendiri when buying a house I totally agree whith it.If you in situation where you already can afford to pay the installment only you should buy the house.
#6iMyn29/07/2011, 12:27 pm
Yup, I guess the keyword here is “in the situation where you can already afford the installment”. Whether or not the bubble comes, is another story. But for now, i think I cannot yet afford a morgage and I’m pretty sure I’m not alone. My priority now is to increase income and therefore need the money.
#7sheyzal29/07/2011, 11:13 pm
yup thats right if you aleady can afford it better buy don’t wait for your dream house coz I can confirm a dream house will cost much more.the other thing to remember is the cost to furnish the house will keep rising if you delay.If you have bought a house and suddenly having problem to pay for the full loan you can always sell it or rent it.
If that is not a good reason then how about the shrinking size of the house itself.One of the method use nowdays to make sure that people can still buy a house is buy making smaller size house.so a 300k house in the same area in 2010 will mostly be bigger then the house that going to be built in the future at the same neighbourhood.
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