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On Buying A House

My elder brother gave me some advice about buying rumah last weekend.. he mentioned these steps

Step 1 : Check how much you have in the your EPF acct 2 - you can withdraw all of it - use this
as down payment plus whatever you have
Step 2 : Calculate how much you can afford to pay for the monthly installment
Step 3 : Search for a house size that meets your family's current needs + room for additional 1 kid
Step 4 : Try to make sure the loan repayment is less than 10 years (lesser the better)

If you cannot achieve Step 4 adjust Step 3 - because remember this is not your last house

Say your repayment is 8 years. Before 40 you have a house, which you can sell and use the proceeds to upgrade to the next house using the same steps only this time you have a bigger down payment.

The main advantage of these steps is you pay less interest. If you take a loan of 20 yrs ..for the first 10 years.. you will only be paying interest. The interest for a 20 yearr loan is usually equal to the value of the house. So imagine giving your hard earned money free2 to someone else (riba la nih). Say if something happen in the 10th year (you cannot afford the repayment). You want to sell your house. You find out that the remaining loan balance is almost the same price of the house initially. You decide to sell. If there is no value appreciation on the property, you gain nothing and you are homeless.

If you take say the 8 year repayment and on the 7th year something happens. You check your loan balance and only about 30% of the house value in unpaid to the bank. You decide to sell and you find you have 70% of the house value in your pocket. That is some breathing money. So the proposed steps is kind of a saving. As opposed to the normal way, you hand over all your money to the bank before the 10th year.

I haven't done the numbers yet. But you can try and see what I mean.

The key points to remember:

1. My first house is not my final house
2. I upgrade my house as my family grows
3. Pay as much downpayment and shorten the repayment period - less interest out
4. I buy what I can afford - not what I can afford monthly (because my monthly pay is never certain down the years)
5. Don't take the bankers advice to take the maximum loan.. it is their business to take every cent you have
6. I buy assets not bank loans - as long the bank holds the grant its not yours

If you are smart you might own your dream home when you retire.

(Maybe we should apply to be employees of the Kelantan State Government where they give housing loan interest free.. is this true?)

posted by edii @ 2:54 PM