Tuesday, October 04, 2005

Repaying home loan


We bought our first home and took up a RM164,000 home loan in the midst of Asia Financial Crisis, 1998. The interest rate then was about 11.64%. Based on the original plan it would take us 20 years to finish off the loan. The total repayment amount would be RM429,359, i.e. RM164,000 principal and RM265,359 interest!!

This is how we repay our 20-year home loan in 7 years.
  • On the third year of the home loan we made a RM10,000 repayment. Should the interest rate not move in our favour and remained at 11.64%, such repayment would cause an interest savings of RM52,040, equivalent to a reduction of three years of repayment period.
  • On the seventh year, we took out our EPF/ KWSP's second account to repay the home loan. Should the interest rate not move in our favour and remained at 11.64%, such repayment would cause an interest savings of RM80,258, equivalent to a reduction of seven years of repayment period.
  • The economy indeed moved in our favour. The interest rate dropped from 11.64% to about 6.40%. With this, we saved further RM62,507 interest expenses or a reduction of three years of repayment period.
What we learned from the experience regarding our home loan is that...kill it when it is big or it will be too late for huge savings of interest cost.

Check out the actual numbers from the Excel file attached. The first, second and third sheets are our original home loan plan, the actual repayment and the comparison. The fourth sheet is the Home Loan Repayment Planner for you to model your repayment plan.



For our FPM's Home Loan Planner, a more complete home loan calculator and repayment planner compounding monthly, check out here.

Let us know what you think and how we can improve the Planner. Just leave your comments below.
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