Suppose you borrow RM500,000 to buy a house with a loan interest rate of 4.5% per year and a repayment period of 35 years. Can you Calculate how much interest you will pay in total over these 35 years?
1. Calculate the monthly repayment amount:
You can use a loan calculator for this, or use the formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = Monthly repayment amount
- P = Loan principal (RM500,000)
- i = Monthly interest rate (Annual interest rate / 12, i.e., 4.5% / 12 = 0.045 / 12 = 0.00375)
- n = Number of repayment months (Loan term in years * 12, i.e., 35 * 12 = 420)
Substituting the values into the formula:
M = 500,000 [ 0.00375(1 + 0.00375)^420 ] / [ (1 + 0.00375)^420 – 1]
The calculation results in approximately: M ≈ RM2,497.26
2. Calculate the total repayment amount:
Total repayment amount = Monthly repayment amount * Number of repayment months
Total repayment amount = RM2,497.26 * 420 ≈ RM1,048,849.2
3. Calculate the total interest expense:
Total interest expense = Total repayment amount – Loan principal
Total interest expense = RM1,048,849.2 – RM500,000 ≈ RM548,849.2
Conclusion:
Therefore, with an annual interest rate of 4.5% and a loan term of 35 years, you will pay approximately RM548,849.2 in interest.
Why Home Loan Interest Isn’t as Costly as It Seems
When people see the total interest paid on a 35-year home loan, their first reaction is often shock.
“That’s too expensive!” “The bank is making a fortune off us!”
But is that really the case?
The key misunderstanding comes from looking at loan interest purely in absolute RM terms, without considering the Time Value of Money (TVM).
A ringgit today is not the same as a ringgit 35 years from now. Inflation, investment opportunities, and economic growth all impact money’s real value over time.
If you focus only on the total interest paid without factoring in TVM, you could be missing a crucial aspect of financial management. Instead of seeing a home loan as just an expense, savvy investors view it as a tool for leveraging assets, preserving liquidity, and maximizing returns.
Understanding this concept is essential for making informed property investment decisions. Are you managing your finances with the right perspective?
