Senthil Kumar asked 9 years ago
Good Morning KC Lau,
I last emailed you in 2014 to ask your opinion child Insurance and settle of housing loan. now it been 3 years since. I happy to inform that i have taken Child Insurance (Education & Medical Card).
However i have not settle my housing loan as currently its be technically paid by my tenant. I am currently in dilemma and i would like to ask for your opinion on the matter.
my current car is a 2003 Waja and its been giving me some problem this year, i have spend close to RM 6K repair it and now getting intermittent repair cost 100-200 per month to repair it. Due to this i am planing to get a new C-segment Car (Vios / City) as based on my commitment i don’t think its wise to stretch my finance in this current economy by getting a D-Segment car (Camry / Accord) which will cost me additional RM1K.
I have also plan for upgrade the car later to a D-Segment in 5 -6 years and use the currently purchased car for work use only and use the D-Segment car for other use (family, long distance travel)
Firstly, its that a good plan (i current travel a bout 70 km per day for work)
Secondly, should i just put a 20% down payment and take a 9/7 year loan or 10% down payment and used the balance 10% to pay my housing loan. This is because, from what i gather the Car loan is a bout 2.4-2.7% interest rate while my housing loan is 4.35%.
Additional Information : Current Commitment
Current ntet Pay : RM 7500
Additional Income : RM 1060 (Rental – Management Fee)
Housing Loan 1 : RM 863 (currently paying 1200)
Commercial Property : RM 2000
Child Insurance : RM 800 ( Edu=500 , Investment link = 300)
My Medical : RM 300
Utilities : RM 500 (Water, Electricity, Astro & Phone Bill)
Future Commitment : 1400 (Maid & Child Tadika)
Please advice which of the 2 i should do or if you have any other suggestion
P/S:
I have omitted expense managed by Wife Salary & Bonus
Combine Daily Expenses and Sundries (Totaling Max RM 1500 per month)
Annual Payment (Car Insurance , MLTA , Wife Insurance) ~ RM 10K
2nd House Flexi Loan : RM 2800 (Currently deducting only RM 1200)
KCLau Staff answered 9 years ago
So the question is that you can choose between these:
– Pay 20% down payment for car loan
– Pay 10% down payment for car, and the remaining to settle mortgage principal.
In actual interest, the car loan rate of 2.4% is a flat rate, which is in different calculation compared to mortgage interest. If you understand the time value of money, by using financial calculator, the car loan interest comes up to be about 2x the flat rate. So in this case, car loan will cost more interest compared to housing loan.
If just based on the difference of interest rate, you should go for higher down payment for car purchase to reduce total interest charged.
If it is based on how well you can make use of the money, say if you can invest and get 10% return, which is much better than the interest for car loan or mortgage, then you should take maximum loan, and invest the cash on hand to maximise the return for your future.