How to buy an AUDI T.T for free after you settle your housing loan?
I approached one of my couple clients, Mr and Mrs Casey (not his real name) & told them that I was helping my other clients plan financially, I ask them whether they would like me to help them. Here is how the conversation went.
Casey : “Are you trying to sell me insurance or unit trust?”
Me : “Neither”
Casey : “I’m itching to buy an Audi T.T & I’m not sure if this is a good time”
Me : “I could help you buy your AUDI T.T for free after I help you settled your housing loan”
Casey : “How is it possible?”
Me : “Let me show you”
Casey : ‘Sure or not? I’m quite sceptical’
This was their situation :
- Property purchase price RM 2.5 Mil (semi-D in Petaling Jaya area)
- Loan Interest Rate was 4.4%
- Loan Tenure (no of years to repay back the loan) was 35 years (420 months)
- Loan Installment is RM 10,471/month
- Total Interest Paid for the whole duration was RM 2,147,808
After implementing my advise
- Total Interest Paid is RM 1,068,815, which is a 50% reduction in interest paid.
- They finish paying off their loan in 19 years & 2 months (230 months), which is 45% earlier (15 years & 10 months OR 190 months).
- He could buy 3 new AUDI T.T worth RM 285,000 with the interest saved. (Of course AUDI T.T by then would have inflated, but still, if you have not done it, imagine the 3 AUDI T.T the bank managers would have driven off with)
Can you guess what did I suggest to him to do?
- Save an additional instalment of RM 4,000/month into his housing loan
- Ensure their Debt Service Ratio is still on a Healthy Level (<35%)
- Ensure their Total Saving Ratio is Healthy (>33%) & growing their networth
This was what I suggested him to do
Because they are ‘SAVERS’ (people who like to save money in their bank account), they could channel some of their monthly savings into paying off their housing loan. But one have to take note to maintain a balance of not over-saving as you do not want to lose out any investment opportunity. Here, it shows how big of a difference it makes over time
- Save an extra of RM 4,000/month on their housing loan, making the instalment RM 14,471/month. Here you can deposit the extra RM 4,000 into a Current Account facility provided by most Malaysian banks by now, which can be used to withdraw later (in the event of emergency)
- Currently their Debt Service Ratio is only 27% & they can commit up to 35%. Debt Service Ratio measures how much income is used to pay/service ALL Loans (housing loan + car loan + personal loan & etc) Since they don’t have any car loan, personal loan or any other loan, then all their funds can be channel to housing loan.
- By doing (1), they are able to save almost RM 56,551/year in housing loan interest (Total savings on housing loan interest = RM1,078,993)
- The amazing thing of ‘Saving’ the extra RM 4,000/month actually improves their networth. You don’t actually ‘spend’ it, here is how it works
(Networth is assumed that Current Market Value of the property grow at 4% per annum)
**Interestingly, RM 3,731.25 of your RM 4,000 goes directly to pay off your principal. So it seems like you were depositing in your bank deposit account , is just a different account call loan account
After I shown them the above, he called off his purchase of his Audi T.T & redirect his savings to his housing loan. Postponing his purchase after he settled off his housing loan first, he is convince the savings from the housing loan interest will be able to buy him a free Audi T.T
*Do take note that you should only do this for property that you live in, for property investment, do consult me first as it needs a different strategy (as it is investment in nature)