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.

10 comments:

Anonymous said...

Hi

The home loan repayment model is very useful but I think in the spreadsheet for "your loan planner", I think you accidently left out the negative formula for the repayment columns. This actually will not make any sense as the number of loan amount would actually increases. I hope you can rectify this problem.

Thanks.

Chen Tong said...

Hi, thanks for bringing up the issue.

If I understand correctly, what you can do is to key in the monthly payment at cell "C8" as negative number (as outflow). As such the repayment column will be negative and the loan balance will reduce.

I reckon it is a bit counter-intuitive to key in monthly payment as negative number. I will change it with other changes that I intend to make...soon :-)

Thanks.

Me said...

Well, that's a nice spread sheet.
But what u've said about how you actually make your loan repayment shorter wasn't anything interesting. It was all because the interest rates went down alot, almost half. Anyone who has extra money would have pay back more in any lump sum at any point of time if they understand the effect of compounded interest.

Anonymous said...

Hi,

I think this is a very useful spreadsheet to let us plan our home loan repayment. Looking at the current home loan package, banks are providing flexible home loan (multi-tier). just wondering if it is possible to made the interest rate column more flexible? This will give us the real picture and help us in planning our repayment.

Anonymous said...

Can the spreadsheet be made so that we can enter the figure of the repayment fixed by the bank?

Chen Tong said...

Hi. I think it can be done though it will take a while. I have been working on other things. Will get back to this project as soon as possible...

Thanks for asking.

jeffry said...

at MRP Advisory Services Sdn. Bhd. we got the software, come on, check it out in the office.

modify loans said...

lucky you for having a discount!
since there is an economic crisis.

Nathan said...

just wondering if it is possible to made the interest rate column more flexible? This will give us the real picture and help us in planning our repayment.

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