Factors affecting loan repayment

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Most people cannot afford to pay for their property purchase outright with their savings and will usually need a bank loan to finance their purchase.

The factors that affect a housing loan are: interest rate, tenure and penalty.
Interest Rate

Lets look at the table below to see how interest rate will affect your monthly repayment.

Assume a $300,000 loan for 30 years.

Interest Rate (%)Monthly repayment ($)
1964
21,109
31,265
41,432
51,610
61,799
71,996
82,201
91,414
102,632

Tenure

Typically a young borrower will take a longer tenure to service the loan because the monthly instalment is lower. However this may not be advisable because the longer the tenure, the higher the total interest payable will be. To reduce the total interest payable, the borrower can do a lump sum partial repayment, refinance to a lower interest package or reduce the loan tenure. We will use the following table to illustrate this.

Assume a $300,000 loan at 3% p.a over the entire tenure

Tenure (years)Monthly repayment ($)Total Interest Payable ($)Total Interest/ Principal (%)
55,39123,4367.81
102,89747,61815.87
152,07272,91424.30
201,66499,31033.10
251,423126,79042.26
301,265155,33251.78

Question: Assume you bought a property for $400,000 and took a $300,000 loan for 25 years at a constant interest rate of 3% p.a. Over these 25 years, you had spent $60,000 on renovations. If you sold the property for $600,000 at the end of the loan tenure, did you make any profit?

 

 

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