How to calculate housing and car loan interest?

Perhaps you may not aware the way our car loan interest and the housing loan interest are calculated differently.

Housing loan interest is calculated based on the principal of the loan that you have and the interest is not fixed. Principal of your loan is the amount of money that you still owe the bank.

Car loan interest is calculated based on the total amount of loan that you have and the interest is fixed.


Housing Loan

For example, you borrow $50K from a bank at 5% interest rate for 5 years.

1 year housing loan interest:

• $50K X 5%
• $2,500 (Yearly)
  

First month housing loan interest:

• $2,500 / 12
• $208.33 (First Month)
  

Depending on the monthly installment amount that you have, let’s say $1K per month, you will reduce your principal from $50K to:

Renew Principal $ after first payment:

• $50K – ($1K - $208.33)
• $49,208.33 (New Principal)
  

The second month interest will then be calculated based on this new principal amount, $49,208.33 and every month you will be reducing your principal amount.

Second month housing loan interest:

• $49,208.33 X 5% / 12
• $205.03 (Second Month)

Let’s do the math by yourself using excel or use the following housing loan calculated, that you’re will end-up to pay $943.56 monthly and the total interest paid is $6613.70

Total car loan interest rate:

• $6613.70 / $50K X 100%
• 13.23% (Total Housing Loan Interest Rate)
  

Car Loan

On the other hand, you have car loan of $50K at the interest rate of 5% for 5 years term.

1 year car loan interest:

• $50K X 5%
• $2,500. (Yearly)
  

First month car loan interest:

• $2,500 / 12
• $208.33 (First Month)
  

The only difference between the housing loan versus car loan is the car loan interest rate is fixed for every month. Therefore:

First month car loan interest:

• $2,500 / 12
• $208.33 (Second Month)

Let’s do the math again and the total amount that you want to pay including the interest for the entire loan is ($50K + $2,500 X 5 years) = $62,500 and monthly payment will be ($62,500 / 5 / 12) = $1,041.66 

Total car loan interest rate:

• ($2500 X 5 years) / $50K X 100%
  
• 25% (Total Car Loan Intereset)

As you can see the car loan interest is 1.9 X higher than housing loan interest (i.e. 12.23% X 1.9 = ~25%) 

Conclusion

Because the car loan does not reduce the principal amount and the interest is fixed through the year, therefore the interest is higher than the normal housing loan interest calculation provided the interest rates are the same.

So usually what people do when they have housing loan is try to reduce the principal amount as early as possible either by flexible-loan package or early extra payment. It doesn't work for car loan because the interest is fixed and the total interest that your are going to pay is 1.9 X higher than housing loan interest.

You may also want to know that the car value is depreciating every year after you buy it. Think of it, is this making sense to buy a car or house?

Tax Deduction Incentive for Property – Should I go for it?

The recent news for Malaysian that they may now eligible to claim up to RM10K tax deduction for the loan interest that they pay. I have summarized this news below:

• Applicable to all types of properties (i.e. landed house, flat, apartment or condominium)
• Applicable to those who buy the property between March 10, 2009 and Dec 31, 2010.
• Applicable to one property only and to those who buy the property for living (non-rental) purposes only.
• If you’re eligible, you can enjoy this tax deduction incentive for 3 consecutive years.

So, the question now is should we buy property during this economy crisis especially with this kind of incentive?

Few things that you may want to consider:

What if the property value drops after you buy it? Isn’t that possible during this bad economy?

[In my opinion]: I don’t think it will drop. Worst come to worst if it drops, I believe in long term the property will still appreciate down the road. If you scare, you have till Dec 31, 2010 and you can still wait and see the market condition before making any decision.

What if the developer cannot finish the construction as promised after your down payment?

[In my opinion]: Yes, I do think this can happen especially for those not reliable developers. Even for the reliable one, we need to be careful also during this bad economy. So if I were to buy, I would prefer to buy those existing finished construction properties. I don’t dare to buy any still under-construction property, do you?

Summary

If you’re jobless now or financially not stable, I don’t think you should buy any new properties for the sake of this incentive program. If you have already planned to buy property for quite some times and you’re not jobless now and financially stable, I think you should definitely make use of this tax deduction incentive. Good luck!

Lifting Heavy Object Can Cause Prolapsed Hemorrhoid

I just want to share an experience that recently I had been infected with "Prolapsed Hemorrhoid". This is due to the fact that I’m lifting a very heavy object. I wasn’t aware there is such thing in this world until it happened to me. So, be careful next time if you want to leave a heavy object, think twice!

I’m trying to explain in the layman term. As you can see in the picture, "Internal Hemorrhoid" or sometimes it is called "Internal Piles" is the internal artery inside your anus and when you’re lifting heavy object, it pressures the blood downwards until it is prolapsed out of the anus. So it turns out a lump around anus as big as a blueberry. It is actually a blood clot and don’t ever use needle to break it or else you will get infection.


How I cure Prolapsed Hemorrhoid within 2 weeks?

1. Eat a medicine called "Daflon". 2 pellet at a time, 500mg per pellet and twice a day after meal.
2. Eat a lot of fibre and drink a lot of water.
3. Don’t rush while shitting and let the gravity does the physics.
4. Eat grape seeds supplement.
   

I hope it won’t come back to me anytime soon as long as I keep my eating habit healthy and don't push too hard while shitting. :D It is not a fun experience. :( Fore more information, please visit hemorrhoid in Wikipedia.