Could you afford to buy a house?

The reason why I am so eager to share my knowledge with the youth and young adults is because generally most of them are not aware of the future they are heading to in this high cost of living environment. Let me present you a scenario so that you would have a better understanding of what I mean.

A general double-storey link house in Kota Kemuning in the Klang Valley would amount to approximately RM500,000. Imagine you make a down payment of RM100,000 and take a 30 years housing loan with a principal amount of RM400,000 with an interest rate of five percent, your monthly instalment would be around RM2,147. If you were to service this loan for 30 years with the stated monthly instalment amount, your total loan repayment would amount to a whopping RM772,920 (RM2,147 x 12 months x 30 years). In fact, you are paying a total interest amount of RM372,920 (RM772,920 minus RM400,000) and that is almost a 100 percent of your principal loan amount. 

Items:                                RM

House Value:                     500,000

Downpayment:                 100,000

30-Years Housing Loan: 400,000

Interest rate:                         5% 

Monthly Instalment:          2,147

Total Repayment:              772,920 (Principal + Interest)

Total Interest:                    372,920

It literally means all your salary increment and other bonuses you might get in future will be used to pay the interest amount of the home loan you make. That is why it is a rat race for many as they find themselves not having enough money despite their salary increment, extra income and bonuses.

The above calculation is based on CIMB normal housing loan package at BLR -1.6 percent on October 5, 2011. The BLR rate was 6.6 percent on that date which makes the interest loan to be five percent. You can change the figure to suit different scenarios (different principal amount, interest and number of years of repayment) by using the CIMB housing loan calculator available on CIMB website. Just google ‘Home Loan Affordability Calculator - CIMB Bank’ and you will be directed to the page.

The post: 'Do you have RM200,000 CASH by 30?' will be shared later this week. 

The above is for educational purposes only! Readers should conduct their own research and make their own decisions.

You may contact me at writetogeorgeleong@hotmail.com or 017-6593817 for financial consultation :)