How to knock off 8.5 years of your loan tenure with 2 easy step approach?

loan

Owning a home for most of us is the single and largest commitment we have. Do you know that most Malaysians only pays minimum loan installment every month and this translates into paying nearly double your loan amount and serving all those interest to the bank.

Take for instance a RM300,000 loan amount with a 30 year tenure at an interest rate of 4.5%. If you pay the loan diligently until the whole tenure (taking interest rate constant) you will have paid a total of RM247,218.25 in interest. Well, this is what typical Malaysians are paying to the banks.

Sometimes, you just need to put a little extra effort into looking for ways to save those interest and this will definitely make huge impact on your savings. It is all about starting to do proper planning on your mortgages.

Taking the above example for instance, with a monthly loan installment of RM1,520 you can device savings strategies based on the huge range of mortgage packages offered by the bank. Different borrowers are suitable for different loan packages. You will have to find the one that can help you the most and please remember lowest interest rate does not necessary is the best loan package.

I will share with you 2 simple steps which you can apply which will save you tens and thousands in interest.

First Step. Choose a Bi-weekly payment package
Instead of paying monthly installment you can opt for Bi-weekly payment instead. This is very popular in the United States. In the US, you need to pay a consultant to assist in setting up the account but in Malaysia it’s free. Just walk right into the bank and get the mortgage officers assistance in applying for the package.

This is how it works.
Loan Amount RM300,000
Tenure 30 years
Loan Installment RM1,520
Total Interest paid RM247,218.25
Bi-Weekly Payment
Loan Installment RM760
Total Interest Paid RM204,722.54
Interest Savings RM 42,495.71
Loan Tenure 25.5 years

Instead of paying the usual monthly installment you can pay half the amount but twice in a month. By doing this you have already saved 4.5 years on your loan tenure or RM42,495.71 in interest to the bank.

The next question going through your mind is what is the catch? It is too good to be true. Well, in any packages introduced by any banks, they will not make a losing business. In actual fact, you will be paying 1 extra month installment every year. Bi-weekly payment is calculated every 14 days and based on a year with 365 days the borrower will make 26 installments in a year instead of 24. Most borrowers will not even feel a pinch in their wallet but look at the savings.

If you would like to save more than this, then follow my second strategy which is very simple.

Second Step: Pay More every month
As a general rule of thumb take 10% of your monthly installment which is RM150 based on the previous example and use the money as extra payment towards the principal of your loan. You will combine strategy 1 and 2 together.

Loan Amount RM300,000
Tenure 30 years
Loan Installment RM1,520
Total Interest paid RM247,218.25
Bi-Weekly Payment
Loan Installment RM760
Total Interest Paid RM204,722.54
Interest Savings RM 42,495.71
Loan Tenure 25.5 years
Extra Payment RM150
Bi-weekly Loan Installment RM835 (760 +75)
Total Interest Paid RM169,205.85
Total Interest Savings RM78,012.40
Loan Tenure 21.5 years

Based on the above calculations, if you add both strategies you already saved 8.5 years off your tenure years and also RM78,000 in interest payable to the bank. Isn’t this great?
Every loan borrower will be able to do this. You just need a little effort. In my years in mortgage consultancy I even manage to assist my clients to finish less than 10 years using money they already have. All these can be made possible with proper planning.

8 Comments on How to knock off 8.5 years of your loan tenure with 2 easy step approach?

  1. Hi Miichael,
    My name is Ben, I just apply Uob bank housing loan for my new property at Penang. with the mortgage planner statement banker show me Interest just saving rm1054.56 and 1 year tenure.?

    I apply for loan amount 300k, tenure 30 year with 4.45% interest rate.
    with bi weekly payment
    Loan installment – rm755.58
    Total interest payable -rm 242,961.70
    Saving against – rm1054.56
    Loan tenure – 29 ( saving 1 year )
    *Statement I mentioned this comment already sent to u email ( sylvia@miichaelyeoh.com )

    I hope hearing from u soon. Thx.

    • Hi Ben,

      I just check with my banker, UOB is not offering anymore this package. My apologies. What they have calculated only twice a month payment not bi-weekly. Thats is why saving very little. I will check with other banks but I think they don’t have this type of package. Banks want to earn maximum from us. Last time HSBC have when I was there.

      Will be meeting some bankers friend of mine this week.

      There are other ways on savings

  2. David Chan // 16/05/2016 at 6:36 pm // Reply

    Hi…would like to know do RHB & PBB provide this type of loan package?

  3. Hi,

    No more biweekly payment package for home loan these days? What if I personally pay the bank biweekly instead of monthly. Would it be the same as your technique 1 even without had that package with the bank? Specifically for MBB.

    Thanks in advance.

    • Yes no more bi weekly. You can do that but you will have to inform the bank everytime you bank in else they will not take in as prepayment to the loan. Alternatively, you can do a monthly standing instruction where every month you will pay extra on top of your installment. The system will automatically do for you every month.

      Hope this helps.

      • Thanks for your reply. What if I used full flexi loan? Is it possible to pay biweekly and benefited from your technique 1?

        Also, do you know if I can do standing order in MBB for biweekly?

        Thanks again.

        • If you are already using Flexi loan, it’s much better than bi-weekly. You can pay extra anytime without notice. In flexi loan to save much more you should consolidate all accounts here.

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