If you are a home owner, you would have already known about the soaring interest rate on mortgage loans, which also causes fear among first home buyers. Property prices these days are shooting sky high and so is the bank interest rate. However, buyers still have the option of shrinking the interest by opting for the right payment method.
There are several types of payment methods available for home loans and among them are the conventional once-a-month payment and the Bi-weekly payment. Even though Bi-weekly payment is well-accepted in foreign countries, it is less widespread among Malaysians, and for most, it is still non-existent. The only bank that offers this as an option is UOB Bank.
Bi-weekly payment is a scheme which can aid buyers to cut down several costs when it comes to paying mortgage loans. So, how does the Bi-weekly payment method assists to lessen interest?
What’s The Catch?
The catch is, instead of paying once a month, buyers will be obligated to pay twice a month, once every 14 days. The buyer only makes a 12-month payment per year on a typical monthly payment, yet this method will make them pay 13 months of payment a year, which is 26 Bi-weekly payments.
The most essential fact is the loan tenure will reduce from 30 years to 25.5 years, with just one extra month of payment each year. So how much can buyers save on interest with this easy approach?
Let’s Do The Math.
Assuming that you are acquiring a property worth RM500,000, a serviced apartment, with 10% down payment and about 4.5% bank interest.
Calculation:
Loan Amount: RM500,000
Down Payment: RM50,000
Interest Rate: 4.5%
Monthly Loan Instalment
RM2,280
RM1,140 (x2)
Total Interest
RM370,830
RM335,210
Tenure
30 years
27.5 years
Based on the rough calculation above, with the Bi-weekly payment, buyers can pay off the loan 2.5 years in advance and can save up to RM35,620 on interest!
Steps To Make Things Easy:
Forking out additional payment per year is a big burden since most people depend on their monthly salary for the payment. Worry not, there is a simple way to overcome this.
Firstly, remember to have a separate bank account for the home loan payment and it is advisable to set a standing instruction for the deduction, every 14 days once. To be on the safe side, start your account with one extra month of payment.
If your monthly payment is RM2,280 (Bi-weekly: RM1,140 x 2), make sure you add in at least RM190 per month and make it RM2,470 (Bi-weekly: RM1,235 x 2).
After your 24-weeks deduction, you will have extra cash in your account just to cover for the next two payments to complete the 26 Bi-weekly payment cycle per year.
It is vital to discuss with your bank before deciding on your payment method, as banks will have different approaches on this matter. Overall, the Bi-weekly payment is a good way to reduce bank interest and a method that should be considered by many.
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