Tag Archives: loan

What is mortgage teaching us?

Mortgage is one of the loan that having the longest loan tenure, lowest interest rate and most neglected commitment. I guess it is partly because it can be extend to 30 years or even 35 years and its monthly payment is so low. There are even countless advice teaching us how to choose a suitable loan package, how many percent of our salary should we direct to mortgage payment and how much we can afford.

For the past one year, I have been looking around for a place for my parent who are now staying in Malaysia. This was not in my retirement plan before because investment income is more important to me. To me, having investment income actually more stable than buying a house now. For example, if you are paying RM 989.74 a month for your RM 200,000 mortgage for 30 years, you are paying in total RM356,307.44. The interest of the mortgage alone has cost you RM 156,307.44 over 30 years( see image below, calculation from http://www.calculator.net/).

mortgage cost

At the other hand, RM 240,000 invested in an investment vehicle with 5% will give us RM 12,000 yearly and cover that mortgage for years to come. Currently, my savings is still quite low after paid off my student loan. I am still in the stage of saving money to accumulate at least certain amount of capital before I can try my hand on investment. There are many resources on the web now that provide basic knowledge on investment, teaching us what is stock, option,mutual fund, index fund, etc…  I am planning to spend some time on learning all these basic before I start putting in my own money into any market.

Renting or buying is always a debate topic when we are talking about housing. One simple rule of thumb when you are deciding whether to rent or buy a place is the property price. It is wise to rent when the property price is high and it is wiser to buy a house when the property price is low. How to decide whether is the current property price high or low? It depend on you, if you think you can afford the house, it is low, else it is high. It might sounds like a irresponsible advice here but it is also true because everyone situation is different. Only you yourself can decide whether you can afford a house, keep in mind that buying a house involves cost during the transaction and also renovation cost before you are even in the house.

Renting a house will not give you all this cost and you are free from all the hassle that come from owning a house. Another benefit come with renting house is you can choose your neighbor. If your neighbor happen to be some crazy people that like to making noise during the night, you can easily move to another place when your rental agreement expired.

 

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Filed under Debt, Passive Income, Save

How To Clear Your Debt Quickly?

//An old post of mine, a lot of things can happen in 3 years. ^^

Debt, the word that I believed most of us doesn’t like its existence in our life (unless you are the fan of “Good Debt, Bad Debt” and you are obviously holding a lot of good debt).

What I am going to talk about in this post is bad debt/consumer debt. This category of debt includes credit card debt (swipe your card, buy that 48 inches LCD TV now, the discount only last 3 more seconds!!!), car loan (buy the biggest car you can afford that impress your friend and get stuck in traffic jam every morning during peak hour….), student loan (this loan category is a tricky one, it can be a good or bad investment, and I will put my thought on it later).

Face Your Debt

Obviously, the first step in clearing your debt would be know and acknowledge your debt situation. Consolidate the amount you owed on each debt category from the highest interest rate to the lowest. Remember not to put any emotion when you are doing this activity, there is no point to put the blame on yourself on the past mistake you made, what you should be focus now is make the decision to correct that mistake.

Pay The Highest Interest Loan First

There are many suggestions floating around the Internet on how to prioritize your debt repayment. Some suggests you pay off the debt with the smallest amount to build up the momentum, and there is others suggest you to pay off the debt with highest interest rate. To me, the second suggestion made much more sense and that forms my debt repayment plan.

I am focusing on paying off my highest interest debt (student loan with an annual interest rate of 4.75%). I am holding a minor credit card bill right now but I am not so concern with it because it is a 0% installment plan. I just have to make sure I make the payment every month and I am safe.

Prevent The Leak

Fortunately, my spending habit was already quite frugal, I don’t pay interest on my credit card bill (there are not many product that target single guy), I don’t own a car (you don’t really need to own a car in Singapore and here is why), I cook my own lunch, cycle to work, sleep earlier (this not only helps your body to have adequate rest but also make your wallet thicker since you have less time doing shopping).

The initial amount of my loan is about SGD$15,000 each (Yes, I took up two loan to finance my study). I paid off a grand total of SGD$8,000 in the first 7 years after my graduation (July 2005 to July 2012) and that left me with a balance of SGD$22,000 in July 2012. And I decided to get serious to pay off that loan, I monitor my spending closely, increase my income when opportunity arises, cut down on unnecessary spending, grows my saving.

5 months later, I reached my first milestone in paying off my student loan, I paid off one of the two student loan on me and I am now officially down with just one student loan with the amount of SGD$11,000 (annual interested = 4.75%).

Get Serious

From that little story of mine, I would like to bring up my point in clearing debt quickly, which is get serious. If you are in a debt situation, no matter is it a credit card debt, a car loan, a student loan or even a housing mortgage, it is a debt that bank charge you interest every single day, it should be the first item on your priority list. You should not be in dilemma when choosing between your new fancy smartphone and your debt repayment; there is no point on deciding where to put your furniture when you house is on fire!!! Put out that fire of debt that is burning your early retirement house first before you decide what investment furniture you want to put in the house.

While you are on the way to clear your debt, help yourself by not taking up even more debt, especially credit card debt (this is by far the easiest way for an individual to acquire a consumer debt, just swipe your card and you are $2,000 in debt immediately…).

Also, don’t let those balance transfer deal confuse you. It didn’t make you debt go away, it merely change the ownership of your debt. You still need to know your debt amount, get serious in pay off the debt as quickly as possible. Balance transfer is just a short term solution to help you avoid incurs high interest (up to 28%)on your credit card. If you are currently paying 24-28% plus other charges on your credit card debt, then it might make sense for you to jump around the balance transfer deal while you are working to raise the fund needed to pay off those debts.

So here are the few things I think we need to know to clear debt quickly. The things outlined in this post might be proved too simplified or too complex for your situation, please leave your comment in the comment section if you came across with some great idea on clearing the debt.

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