By Ally Che
Hi, my name is Ally Che, a professional property negotiator and affiliate Registered Financial Planner (RFP). This is my third article published in Apartment Penang.
There are many companies offering service to housing loan borrower (at a charge of course) to reduce their total loan interest payment and shorten total loan period. The question is do we really need this service?
To answer above question, we need to know how banks calculate interest of housing loan.
I actually notice there are some homeowners who do not know how to calculate interest of housing loan, so I think it is good to share the formula here. The formula is simple and can be used in most scenarios.
Currently the BLR is 6.05%. Assuming:
Loan package = BLR - 2% => Annum interest rate = 6.05% - 2% = 4.05%
Outstanding amount = RM100K
Interest for 1 day:
4.05% / 365 X RM100K = RM11.10
Interest for 30 day:
4.05% / 365 X RM100K x 30 = RM332.88
Simple, isn’t it?
Now we know how to calculate interest of housing loan, we could know how much of our monthly installment goes to interest portion
From above formula, it is clear to save interest; we either reduce the interest rate or reduce the outstanding amount. To reduce the interest rate, we either refinance or write to bank reduce the interest rate. If your loan already passes the lock in period, the bank will normally agree to reduce the interest rate, because they do not want you to refinance. However, please be aware, the lock in period restarts when you accept offer from bank to reduce the interest rate.
The other method to save interest is we pay more to reduce the outstanding amount. Please ensure you are following instruction in loan agreement when you pay more to reduce the outstanding amount. However, the instruction is easy to understand and you could always confirm with the bank.
So now, do you think we need to engage third party service to save interest of housing loan??
The myth of engaging 3rd party service to save housing loan interest
By Ally Che