What If You Spread Instalments Over Loan Tenure?
Loan Moratorium Financial Impact : Spread Instalments Over Loan Tenure
Here is the financial impact of spreading the instalments over the loan tenure, step by step.
We will use the same scenario as the rest – a NEW RM 500,000 loan with an interest rate of 4.25% per annum, and a 30-year tenure.
Step 1 : Calculate The Instalment Deferred
First, you need to know how much money the 6-month loan moratorium is going to put in your pocket :
Okay, now we know that the loan moratorium will let you keep RM 2,459.70 of your money every month, giving you just over RM 14,750 to use during this COVID-19 crisis.
Step 2 : Calculate The Compounding Interest
During the 6-month loan moratorium, you will NOT be paying the bank a single cent. So the banks will generally charge you compounding interest – interest will be charged on the interest accrued to date.
The bank will charge you about RM 10,720 in accrued, compounded interest at the end of six months.
At the end of the 6-month loan moratorium, the bank will add this EXTRA interest and restructure your loan, and you resume paying your new monthly instalments.
Step 3 : Calculate The EXTRA Interest For The Full Term
To calculate how much it will cost you at the end of your 30-year loan, you need to use one of the many loan amortisation Excel templates or online calculators.
Just fill in the details, with and without the extra interest, and you will get the total interest at the end of the 30-year loan.
For your convenience, here is the table we came up with :
|No Moratorium||With Moratorium|
|Loan Principal||RM 500,000||RM 500,000|
|Loan Period||360 Months||360 Months|
|Extra Interest||–||RM 10,719.06|
|New Loan Principal||RM 500,000||RM 510,719.06|
|New Monthly Instalment||RM 2,459.70||RM 2,512.43|
|Total Interest||RM 385,491.80||RM 393,756.02|
|TOTAL||RM 885,491.80||RM 904,475.08|
|DIFFERENCE||Baseline||+ RM 18,983.28|
If you opt-out of the loan moratorium, you will end up paying RM 885,491.80 by the end of the loan.
If you take the loan moratorium, you will pay RM 904,475.08 – an additional RM 18,983.28.
Step 4 : Calculate The Nett Cost To You
That sounds like a lot, doesn’t it? But wait a minute – did you forget the money you pocketed in beginning?
If you kept it in your house, under your mattress, you will end up paying interest on it for 30 years at 4.25% per annum.
But if you use 6-month instalment to invest (Seed Money), you can potentially MAKE MONEY from it. Take a look :
|EPF (5% pa)||ASM (5.5%)||ASB (8.5%)|
|After 360 Months||+ RM 31,218.74||+ RM 65,935.86||+ RM 76,556.51||+ RM 187,318.44|
|Seed Money||– RM 14,758.20||– RM 14,758.20||– RM 14,758.20||– RM 14,758.20|
|Gross Profit / Loss||+ RM 16,460.54||+ RM 51,177.66||+ RM 61,798.31||+ RM 172,560.24|
|Extra Interest||– RM 18,983.28||– RM 18,983.28||– RM 18,983.28||– RM 18,983.28|
|NETT Profit / Loss||– RM 2,522.74
– 0.63% p.a.
|+ RM 32,194.38
+ 3.86% p.a.
|+ RM 42,815.03
+ 4.54% p.a.
|+ RM 153,576.96
+ 8.14% p.a.
Now, putting it into FD will result in a LOSS, so you should only do that if you plan to keep the money in reserve for emergencies, but want to minimise the loss. It will cut down the “cost” from almost RM 19K to just RM 2.5K.
But if you invest into anything more than the bank interest rate (we used 4.25% as an example), then you stand to make really substantial gains after 30 years.
- EPF : Nett profit of RM 32,194.38, which is more than double the seed amount (+118%).
- ASM : Nett profit of RM 42,815.03, which is almost triple the seed amount (+190%).
- ASB : Nett profit of RM 153,576.96, which is over 10X the seed amount (+941%).
Next Page > What If You Extend Loan Tenure By 6 Months?
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