One of the hot topic last month concerning a lot of mortgage loan borrower when there was an article (by other) circulated describing how two (2) simple move could save you a lot of interest. As usual, approached by colleagues, friends, relatives, Facebook friends & etc. “How could this possible?”, “Is this true?”. As I’ve verbally explained to some and this article was meant for all. Sorry for the delay.
It depends! If you are changing to Bi-Weekly mode if there’s this option (with Malaysia’s Bank), and you are making the payment according to the instalment calculated based on bi-weekly payment, you saved “peanuts”.
In order for what mentioned in the previous article to work, you need to do as what the article suggested, you pay Bi-Weekly by dividing your monthly instalment into half and pay every 2 weeks. This sounds true as one month consists of 4 weeks, but one year consist of 52 weeks which will be equivalent to 13 months. Logically this will definitely shorten your loan in term of years as you make extra payment each year. After 12 years, you have made payment for a year extra. As describe in my just previous post, understand the meaning of Daily Rest, each early or extra payment you make will definitely save you interest.
Link to my previous post : https://ethanetteh.wordpress.com/2015/05/07/understand-your-mortgage-loan-save-thousands-of-ringgit/
Secondly, you should do the bi-weekly payment correctly. If your instalment due in 1st of July and the instalment amount is RM 1,500.00, Please do not divide the instalment into half and make the payment on RM 750.00 with the balance being paid on 15th of July. If you are doing this, not only Bi-Weekly won’t save you interest but will in fact increase the amount of interest you are paying. The article actually requested you to pay your RM 750 on 15th of June.
For me, just take note of three important points here. First, most of us make instalment every month because the income basically also coming in every month, be it salary or even rental. It makes more sense to manage your instalment that way as well.
Secondly, I agree with the extra payment made each instalment in order to save on interest as this really works. (kindly refer to example in the previous post).
Thirdly, kindly utilise the Flexi-Loan and Semi-Flexi Loan account that you have applied for. Many insisted on Full Flexi-Loan but later to be found out never utilising it but paying the monthly maintenance fee. Whatever extra money placed in this Flexi-Loan account has indeed assisted to save on interest.
Any doubts? Email to ask@ethanteh.com
We have a working MS Excel Spreadsheet that could simulate effect of extra payment. Kindly drop me email if you are interested.
For convenience of all, MS Excel file is attached. : Amortization Complete Worksheet V2
