Facts of Life - Debt

What is the greatest & heaviest debt on earth today? It is simply the "MORTGAGE"

What is mortgage?
A mortgage is the pledging of a property to a lender as a security for a mortgage loan. While a mortgage in itself is not a debt, it is evidence of a debt. It is a transfer of an interest in land, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the real estate when the terms of the mortgage have been satisfied or performed.

In other words, the mortgage is a security for the loan that the lender makes to the borrower.

In layman term, its a legalized documents of "I owned you" from us to the bank.

Question - Do You Really Know?

Many loan borrowers would know to go to the bank to ask for a loan when they are decided to own a house/property. But in reality do you really know :-

1. how to analyze a loan offerred in the advertisment?
2. how to analyze a loan quotation?
3. how to analyze the Letter of Offer?
4. how to analyze the Loan Agreement?
5. how to analyze the Loan Statement?
6. how to analyze the Principal Reduction?
7. how to analyze the Advance Payment?
8. how to analyze the Excess Payment?
9. how to analyze the Late Charges?
10. how to analyze the Revision Of Interest Rate?
11. how to analyze the Current Mortgage Information?
12. how to analyze your Mortgage Life Planning?
13. how to set your Mortgage Reduction Objective?
14. how to pay off your loan before your Children Higher Education?
15. how to pay off your loan before your Retirement?
16. how to shorten up to 90% Repayment Time?
17. how to shorten up to 90% Mortgage Interest?
18. how to own More Properties?
19. how to own Larger Properties?
20. how to live a DEBT Free Lifestyle?
21. how to live a Financial Independence Lifestyle?

Facts - Cost Of Mortgage

Generally, a mortgage cost is equivalent the Principal amount + the Interest imposed by the lender.

To understand your Mortgage Cost, below calculation illustrated how much actually a borrower has to pay to the lender (banker).

To Calculate your Mortgage Cost; it simply (example)

• Monthly Installment RM 1,748 x 360 (Loan Period 30 yrs) = RM629,293
• Total Paid: RM 629,2932 - RM250,000 (Loan Amount) = RM379,293
• Your Mortgage Cost : RM 379,293

Hints: We are paying more than 200% of what we are acquiring.

Is Your Property Investment a "Real" Investment?

It is "Yes" when: Selling price > *Property Total Cost

• When the property was sold,
• Property was sold higher than total cost,
• Rental is higher than monthly repayment,
• the gain on sale is greater than bank FD.

Most of the time it is "No" because: Selling price =< *Property Total Cost

• Gain on paper without selling out the property,
• Selling equal/lower than the property total cost,
• Rental is equal/lower than the monthly repayment,
• the gain on sale is equal/lower than bank FD rates,
• Investors serving higher interest.
  

*Property Total Cost = Property buying price + other cost (Legal fees, regulatory duty, taxes, bank charges, interest rate, brokerage fees, administrative fees & etc.)

Hints: Do not always think, property investment is a guarantee investment !

The Below Sound Familiar To You ?

• After paying for so many installments (1~3yrs), why I still own so much?
• How much interest actually bank charging me?
• Don’t know how the repayment was calculated?
• Daily rest has lower interest incurred compare to monthly rest?
• “x” bank offer lower interest rate, good to go for refinancing!
• BLR rate has adjusted lower but why my installment didn’t reduce?
• I have no idea how much I still own to the bank?
• How many type of housing loan offer by the commercial bank?
• I can’t start my installment but just paying interest to the bank?
• My lender allow me to offset my interest by deposit more $ into the acct !
• I am not sure how much I have paid? B’cos it has auto-debit system!
• I have paid a lump sum and my lender told me my tenure has shorten!

Would you get a satisfactory anwer for the above from your lender?

Fact - How The Interest Being Charged - Part1

"After paying for so many installments (1~3yrs), why I still own so much?"

The above tabulated a quick glance of a RM250,000 mortgage with 7.5% interest rate over 30 years of loan period. It illustrated how much a borrower paid to it installment, the portion to the interest, principal, loan balance amount and it percentage.

Hints: Don't be surprised, it is a standard, wisely used by all the banker around the globe.

Fact - How The Interest Being Charged - Part2

The above graph illustrated a mortgage profile how is your render actually charging you on the interest over the specific tenure.

It answerred the previous question:

"After paying for so many installments (1~3yrs), why I still own so much?"

This graph show the interest has calculated base on the reducing method. Thus, an initiate paid installment has huge amount going into interest portion and only small portion into the principal.

Hints: To clear your mortgage toward the end of the tenure (e.g. last 3 years) is not a wise decision.

Fact Of Life - War Of Debt ...

When you have taken a mortgage...and yet If you do not have an

OUT-OF-DEBT PLAN

rest assured you are under the influence of someone else's

INTO-DEBT PLAN !

Why we need an Out-of-Debt plan to war againts the Mortgage?

• Comfortably retirement,
• Support children higher education,
• Own more/larger properties,
• Sustainable cost of living,
• Beat againt the inflation rate,
• Financial independence life style.

Assuming 6% inflation rate inflated 20 year later...

• Cost of 3 meals today RM20 will be paid RM64.
• Expenses for a year RM48,000 will be paid RM153,942.
• Purchasing power of RM500,000 will become RM145,000

Fact - Wrong Way Of Prepayment

There are 10 out of 100 borrowers are attempt to Prepayment.

It often, many borrowers would drawing their hard saving money to make an early payment (Prepayment). It objectives to reduce the heavy interest. But...

Oftenly unknowing the right way of prepayment, end-up many borrowers throwing away thier thousand of extra dollars into interest to the mortgage render. Favourably, the render put it as Advance Payment.

Hints: Only 1 out of 100 attempt does it right !

Fact - Right Way Of Prepayment

The right way of Prepayment will bring a huge interest saving of $133,215 out from the total $190,104.



The Right way of Prepayment will shorten repayment tenure of 181 months from 348 months.



The Right way of Prepayment will bring you out-of-Debt before your retirement age.


Hints: The earlier start of Mortgage Reduction, the sooner you will be Out-Of-Debt.

Mortgage Life Planning

Every mortgager is deem necessary to understand his/her owns mortgage life, once they have taken up any mortgage. It is important for the mortgager understand their explosure of the mortgage. A simple of Mortgage Life Planning Analysis must be drawn and anlayst.

The above illustrated a borrower who has 2 mortgages with 30 years tenure which to be matured on Y2030 & Y2034 respectively.

As of Y2007, he is 32 years old. To reached the mortgage maturity, he will be at the age of 56 and 60 respectively. This would mean he could not go for retirement at the age 55.

Secondly, he has two children at the age 1 & 5. The children will be approached their higher eduction at their age after 18. This translated to heavy burden to their father at his age of 46 at first stage and 50 at second stage.

Thru, understanding his mortgage life. The borrower would able to deploy the right mortgage reduction plan to shorten the tenure. Thus, satisfy his children education and earlier retirement.

Hints: You must know where you are, in order to directively bring you to the destination.

Mortgage Reduction - Where To Start ?

STEP 1 : Make the necessary documents available for analysis. (Photocopy)

• Letter Offer (from bank)
• Letter of 1st installment commencing date
• Loan Statement

STEP 2 : Request the consultant to run an analysis base on above documents.

• Analyst on Original Loan status

STEP 3 : Request consultant to draft the enquiry form to request info from the bank.

• Enquiry Form from Current Loan Status
• Send the enquiry form to the bank

STEP 4 : After obtained latest loan account status. Request consultant for

• Mortgage Life Planning Analysis
• Recommendation of Mortgage Reduction plan

Hints : Email me, if you have any query and need consultation. (It is Free !)