Hi! My name is Moghan Karuppiah, thank you for visiting my Mortgage reduction Blog. In this blog i'm going to show you how yo can save thousands of Ringgit from you homeloan through Mortgage Reduction.
What your Mortgage loan officers aren’t telling you
Want to find out how to reduce your mortgage interest effectively at a shorter time?
Paying more than you should
ARE YOU THROWING AWAY THOUSANDS OF RINGGITS UNKNOWINGLY?
Good news! You don’t have to sacrifice too much, putting back thousands of cash back to your pocket. For instance, refinancing is one of the many strategies applied to lessen the burden. You may be paying lower monthly cost but it will actually take you a longer period to get rid of your mortgage debt, and this will result in more interest being paid eventually.
Doing it right
The key in dealing with your mortgage debt is to apply the right strategy at the right time. First, you must know the utmost importance of the co-relation factors involving the major four key components – Principle, Interest, Tenure and repayment.
Any changes in either the principle, interest or tenure will affect the repayment amount. When you pay less than the required repayment amount, the tenure will prolong. It happens because less of the payment goes to the principle. The question to ask yourself is, “Do you save any interest or shorten the payment period if you pay extra, more than the required amount from your hard earned salary?”
Remember this guiding principle – nothing will change if none of the four components remain unchanged.
101 on repayment
Repayment is made up of two parts: Principle and interest. The paid principle will reduce the amount borrowed while interest is paid for the use of money. Financial institutions may charge interest either on daily rest or monthly rest depending on the package offered.
At the early stage of the amortization schedule, the payment made mostly goes to the interest portion, with less amount reduced from the principle. Over a period of time, the payable amount to the principle is gradually increased while interest decreases. this is the reason why financial institution locks you up for the first five years.
Term loan is a common type being offered locally. A facility comes with regular monthly installments. Repayment is fixed for a specific period of time. It consists of the loan amount plus the interest.
What happens to your extra payment depends on which loan package you have committed. The loan agreement is the only legal document that could work for you or against you. Understandably, you can make a choice to which you can exercise your rights.
The followings are the different packages as how the lenders manage your extra payment.
EXCESS PAYMENT:
FLEXI-LOAN
The concept of flexi-loan is easy in, easy out at any one time. Since the load is calculated on daily rest, it reduces he interest chargeable overnight. The advantage of flexi-loan is that you are allowed to withdraw the excess payment anytime you need. The truth is that the extra payment is being allocated in your current account. You will be given a cheque book or ATM card for your convenience. Normally, RM10 is charged for the current account. The excess payment in the current account will not reduce any of the Interest chargeable unless the borrower used the total amount to make a full settlement or to contra off the outstanding , towards the end of the term.
ADVANCE PAYMENT
You may have paid one lump sum including some extras irregularly on top of your repayment amount, believing that it could reduce the mortgage interest and tenure. But those extra amounts of the payment are allocated in a separate account, called suspense account. It has no relationship with the pre-determined amortization schedule in the banking system. The money in the suspense account will be used to pay the installment in the event that you overlook or are unable to pay. There is no effect over the original interest and principle payable ratio. Hence, there is no saving of interest.
PRINCIPLE REDUCTION
Sounds familiar? Quite a popular choice, majority believe it is logical that when we make an effort paying an extra lump sum to our principle amount the interest will be reduced accordingly. It makes sense. Principle amount has been reduced as said. But the tenure remains the same. Hence, the repayment amount is less. But if you continue paying the same amount originally despite the payment amount being reduced, all surplus money will be diverted to suspense account. It can be used for future repayment or off set the outstanding towards the end of the maturity, as stated in the load agreement.
PARTICAL PREPAYMENT
According to the Banking information on Housing Loan provided by Bank Negara and Association of Banks, you can shorten the loan tenure and save on the mortgage interest substantially if partial prepayment is made during early years. Nevertheless, some financial institutions may imposed restriction of the prepay amount or a penalty. The more prominent question is how would you know that your prepayment amount does not end up in suspense account, current account on principle reduction schedule?
CASE STUDY:
Loan Amount: RM250,000
Interest Rate : 7.5% (Monthly Rest)
Term : 30 years
Repayment : RM1748.04
Total Payment : RM629,293.06
Total Interest Payable : RM379,293.06
If the above borrower were to deposit RM20,000 into principle reduction wrongly assumed as partial prepayment, the borrower would have saved only RM30,343.44 on interest without any shortening of the original tenure instead of saving RM123,798.57 with tenure shortened by 82 months.
With the same amount of prepayment under two different allocations, the borrower could have lost RM93,455.13 unknowingly.
Imagine how long you will take to save additional RM93,000 if you were to put aside your money gradually from your salary every month with great discipline and sacrifice.
Can you do it yourself?
Here are some questions to think about if you want approach the bank on your own:
1. Do you know how to generate an up-to-date amortization schedule for your loan to ensure that the outstanding balance printed on your account statements is correct?
2. Do you know how to compute the interest you can save and how many months of repayment being shortened with the new prepayment that you intend to reschedule?
3. How will you know that the lender has dully executed your prepayment request as promised?
4. Do you know how to interpret the prepayment clause printed in your loan agreement?
6. Do you know how to ensure that your mortgage lender does not delay your request intentionally?
7. Dow you know that delay in execution of prepayment can result you in paying many months of extra interest?
8. What would you do if your request has been denied or delayed without legitimate reasons?
9. Do you know how long you have to wait for the next course of action?
10. Do you know the ideal prepayment amount that contributes to highest reduction of your total interest effectively?
Thanks
Moghan
http://www.bestmortgagereduction.com/
Friday, June 19, 2009
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