Secret of house loan

My wife read an article regarding house loan from a magazine recently and she tried to discuss with me on this morning. I read the article and found that it was a good article for discussion especially those have house loan with bank. The writer is kind to write the article regarding house loan and share some useful information in the article.

In the article, the writer commented that banker took advantage from the loan owner such as us. They claimed that the banker will charge us 2.5 times interest of the actual loan we borrow. I can not deny that the banker is taking advantage from us and this is why some people say banker is “legal” loan shark.

What choice we have beside borrowed from bank? Never think about loan shark if you do not want trouble in your life. We can not buy a property with cash unless you have prepared such huge amount for the property. Buying a property is no cheap and the cheaper is the low cost house. The market of low cost house is around RM30,000 but recently I did a strata title at Shah Alam, some people want to sale their low cost house at RM70,000. RM70, 000 to get a low cost house, do you want to invest? Difference places have difference price. Price of property seldom decreases. Another reason why people rarely pay cash for the property is because to avoid income tax to check on you.

The role of Banker in house loan

Bank is a place where we can borrow money legally to purchase property. Nowadays, there are many loan package, you can either choice fix interest rate or BLR interest rate. What is main difference of these 2 (two) package?

What is fix interest rate house loan?

Basically, fix rate interest house loan is a rate agreed by loan owner to banker and this rate can not be changed even through the inflation is high. Let me describe in example; the concept of this package is loan owner only know one figure to be paid to the banker for a certain period, such as monthly installment RM800 for 30 years. If you select this package, what you need to do is pay RM800 every month without fail before you get the penalty from banker. The advantage of using fix interest rate know your monthly installment wellDo not need to crack your head to seek for additional money if the interest rate is increase such as BLR packageSuitable for those has limited income group. The package is assisting them in budget their source income.

The disadvantage of using fix interest rate

The disadvantage is per described by the writer as below example:-

1. Total loan is RM250,000
2. Period of loan is 30 yearsInterest rate is 7.5% ( this is the lower rate I seem until this moment)
3. Monthly payment is around RM1750
   

From the article, the write did a analysis for 3 stages

The first 12 years, the owner (refer to above total loan) need to pay RM250K and the owner still owe the banker 83% of the total loan.The following 10 years and there is 22 years of the loan period, the owner need to have this huge amount of money (RM462K). When can to this stage, the owner only settle for 50% of the total loan.Do you know how money to settle above loan? The answer is RM 630K.

I realize and agree with the above analysis from the writer where if we select fix interest rate package and we are going to pay the property such as 2.5 times of our initial loan.
I did check with the banker recently and they printed out a copy of how the fix interest rate system work. I just realize that the first three year, you will pay the banker interest rate and they only reduce a small amount of the total amount of loan. I should picture the graph for interest should decrease along the period and graph for loan increase along the period. You must be asking me what I try to tell you all. The interest amount is decreasing along the period means the initial stage of the loan period, the loan owner only pay interest amount rather than total loan. These 2 (two) amount will be equal after a period such as 22 years as what the writer try to tell us. This is the strategy by the banker. You will be regret if you select this option package because it happen to my wife also.

Leverage banker

Here is my personal view and perspective regarding the writer comment on above matter.
For those people buy a house to stay and fall into the banker’s “trap” then you should follow the writer recommendation. Discuss with the banker again or appoint a qualified financial consultant specialize in house loan to reduce your high interest rate.

However, if you are buying a property to rent then we can not follow above recommendation. In this case, you need to utilize banker as your leverage to own the property and generate income for you. Why I say like this?

As I mentioned earlier, seldom people will buy a property by cash. So, the alternative is using bank money to generate money for you. How to do it?

Normally, we need to prepare 10% down payment for the property. Say the property is RM100,000 then 10% equal to RM10,000. You need such amount for property investment. After that, the next 90% should get bank loan to settle for you. Another advantages of using bank loan is the package usually come with the insurance. Subsequently, your property will be protected.

For property investment, I refer fix interest rate so that I can know how much I need to rent out my property. A basic guideline to generate income by property.

Now, let us see how the system works to generate income by borrow bank money.
Say you are paying RM200 per month for your house loan until 30 years and you are able to rent the property by RM150. This is telling you that the person rent your property is paying your house loan indirectly. This example you still need to top up another RM50. How about after 10 years, I can guarantee that your rent rate will increase according to growth of our nation economic but your monthly installment to bank is remain RM200. Can you see the profit margin you will gain from this package.

Perhaps after 30 years, your house rent increase to RM300 and you are gaining RM1,200 per annual without paying a single cent to the bank.

However, there is a risk where your property is vacant or no tenant then you need to pay the RM200 to bank. To avoid this problem, advertise your property when there is no tenant. Maintain the property well is vital to get higher rate of rent.

My conclusion is house loan package need to suit your demand. If you buy property to stay then use BLR package and settle as earlier as possible.

While if you buy a property for investment tool then you should consider my comment. Do not pay off because you are able to invest more properties rather that depend on one property.

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Divided Stock

I reach home early after submitted the documents to Land Office. My wife told me that share market index has been toughing 1300 points as shown on TV. She asked me is it a good timing to enter this bull market?

I have been involved in Malaysia Share market since from year 2003 and I can not say I am expert in this field but here I would like to share some experience to my wife and those whom interested in share market.

I still remember in year 2003, the index during that period was around 600 points and market can be considered bear; no people did the trading due to scare. I was influent by my general manager and senior manager. They used to discuss share market while during quarterly visit and subsequently, I also “enter” the game. Initially, I start with small capital and invest some shares which have been discussed by my 2 bosses. I did not know whether there was rumor and tips. But I really made money from them. Perhaps I was luckily during that period. Money can be easily earned within 3-4 days and I gained a handsome income from share market even market was down.

Good time has their limit. Year 2005, I just realized that my entire shares are dropping and some even drop until 50% from the actual price. After that incident, I ceased for a while and monitor the market. I read a lot of financial books and magazines and hopefully, I can recover back. From the reading, I noticed that all the while, I am doing gambling and the term their used is trading. We can deny that share market is a place where trading is occurred daily and share market similar in a huge ocean. Person like me is a “small” fish where easily can be eaten by giant fish. Greedy the main keyword if you want make money from share market. Avoid greedy behavior, set the percentage before you enter and more important when to “escape” from tsunami (market drop).

Education in financial is vital after that bad investment. I can conclude that whether the market is bullish or bearish, we also can benefit a handsome income with a condition-Plan. If you do not have plan, I personally advise that please do not follow this slogan “I jump, you jump”.

Even market is bull, I still prefer divided stock where this stock able to generate steady income to you without having heart attach (this is no a joking. It happens). Please do not fall in love with you stock and always in mind that stock is a leverage to generate income for you. Thus, before you able to invest for a stock, please investigate the company. You must know what the company background, their cash flow and account statements. Share market is a gambling game. You need to read a lot of financial books and magazine rather just heard from rumor if you really want in share market.

The reason I bought divided stock because I can sleep well without worry the price drop or increase. Ok…Below are some good divided companies.
Berjaya sports Toto
Public Bank
Maybank
Digi

As Warrent Buffatt mention in his book, you are buying business and no the share. Please bear in mind….my dear investor.

Queue for gaming

“Buy me Big $120 small $10 for xxxx” This is part of the dialog from yesterday Singapore movie regarding lottery gaming. I believe that most of the people are involved in this “investment” games.

Apparently, lottery gaming can be grouped into legal and illegal gaming. Legal gaming is well protected by government. You do not need to worry police will catch you because government gain a lot from this sector. You need to pay tax once you win the prize. So, your money is well declared and you also can put as source of income in your income tax form. This is no the “black money”.

However, no all the number can be purchased especially the number is “hot”. I mean demanding number or lucky number where all the people are chasing for that particular number. So, the possibility to buy the number is low. The other alternative method is by illegal group. You can easily locate them in rural area. A lot of people do “investment” in here. The method of this illegal group runs their business very similar to direct sell system. They have their “well train” outlet or broker. They are smart in using technology as their leverage to communicate such as fax, internet, PDA and etc.

This illegal activities occurred every way, every moment especially there is football tournament either local or international level. Every game they are bet and the amount involved is not small. Police attempt to catch them but it like the story cat and rat. Never have end story.

Asia community treat lottery gaming as part of their life. 3 times per week and they never miss ever one game. I really respect their loyalty to their “investment”. We used to advice people to save 10% of your income but this smart group are using this 10% or more to “invest” in their future. The worst part some borrow money from loan sharp to buy lottery. The sad story I think I do not need to tell you here. You can image what can happen to their family.

Human always is the intelligent creature in this world. Some people use this gaming weakness as their business tool. You know what they create. Analysis the lottery number by using statistic software. Is it part of leverage? Ha…ha..ha..please comment.

Back to yesterday movie. These 3 Singaporean pals involved in illegal gaming and finally two of them were caught by enforcement. I do not know whether I shall greet them as businessman or not. You know what these 2 gentlemen did this the jail. They asked one of them friend to buy lottery on behalf of them. How they get the number? If I tell you, perhaps you also will laugh but it happen because I saw it on last weekend.

They pray to the tree, rock and whatever they think that the spiritual can give them lucky number. The worst part is pray to Malaysia boundary stone. What is happening to our people? Damn crazy.

Government used to advise to invest but people has wrong concept of the investment. None of us has take action to cease this immoral activity. It like drug because once you get in and you are found difficult to escape. Believe me. I also part of them previously.

Let me calculate for you. I take $1 per game @ 3 games per week @ 4 weeks per month @ 12 months per year. You know how much you spend? $144 per annual. This is just a $1 investment but I believe most of the people invest more $1. Am I right? How many times you will? Ask yourself.

The second secret I would like to share with you is do you notice that lottery share used to give high divided or bonus to their investor. You know where source of income is. I honestly tell you my dear lottery friend; the money is from your pocket money.

Wake up….wake up….my dear lottery friend. We still have a week to welcome New Year, so take this opportunity to review back what you have done for the past. Cease invest in this immoral game. Keep your hardship income for your family. Prevent before cute. Happy New Year 200 :)