So as the economy downturn starts to take its toll on us financially, Bank Negara has decided to throw us a bone by offering a 6 month break from monthly repayments of our home loans. The fancy term for this temporary repayment break is 'moratorium'.
However, this repayment isn't exactly a full on repayment holiday. If we ceased the mortgage repayment during this 6 month break, we will still be hit with the monthly interest during the holiday. This is where a lot of us get confused because we tend to think that if we took this 6 month repayment holiday, our loan will simply be extended by 6 months. That is unfortunately, not the case.
Say I took a RM100,000 mortgage at 3.75% interest rate and to be repaid in 30 years (360 months). Based on a quick calculation, the repayment rate is about RM 463/month. Now, if I took the moratorium and not pay anything for 6 months, the monthly interest will be added onto my RM100,000 mortgage and total up to RM101,867 by the end of 6 months. From month 7 onwards, if I maintained my repayment at RM463/month, my last payment would have to be extended to 378 months. That is an 18 month period increase, not 6 months! Putting text into table, see below:
Month
|
No Moratorium
Continue payment RM463/month |
With Moratorium
6 month break RM463/month |
Mortgage Value
|
Mortgage Value
|
|
0
|
100,000
|
100,000
|
6
|
99,089
|
101,867
|
360
|
0
|
8,101
|
378
|
0
|
0
|
However, one wonders, would the power of compound interest work for me if I took the moratorium on my home loan and invested all that 6 month cash into an aggressive portfolio? Below is an analysis on my actual home mortgage (RM595,700 at 296 months of payments left):
It's clear that I will take the 6m moratorium break and invest all that extra cash into an aggressive fund.
No comments:
Post a Comment