Most people will always want to have their very own property. Your spouse (mother-in-law included) or future wife will make sure you “buy”!
This article will look at the financial aspect of renting and buying a property.
By looking at their respective numbers, we can find out whether is it worthwhile to buy, rent or whether you should quickly settle your housing loan, if you choose to buy.
Let’s start by looking at a typical property purchase using the following information:
Purchase price: RM500,000
Loan amount: RM450,000
Financing period: 35 years
Interest rate: 4.5%
Let’s then find out the interest you have to pay for a loan period of 35 years.
For this purpose, we use PropertyGuru’s Home Loan Repayment Calculator: http://www.propertyguru.com.my/mortgage/calculators/mortgage-repayment
From the above, you will have to pay a total of RM444,455 interest over the financing period of 35 years! The total repayments (principal and interest) comes to RM894,455 for a loan amount of RM450,000.
If we include the legal fees/stamp duty (incurred during purchase), maintenance fees, annual quit rent/annual assessment and upkeep of the property over the years, the amount you have to pay will be a lot more!
Important: To reduce the high amount of interest payable to your bank, it is always recommended to repay the housing loan as fast as possible!
Key Question: In 35 years time, will the present property (RM500,000) be worth more than RM900,000 (i.e. a capital appreciation of RM400,000)?
Now, let’s look at the amount of rental you have to pay if you were to rent a property for 35 years.
If we assume an average rental of RM18,000 per year, the total rental (over 35 years) will be RM630,000.
Compare buying and rental
If you choose to buy, you will have to pay a total interest of RM444,455 and other expenses mentioned earlier.
If you decide to rent, you have to pay a total rental of RM630,000 and own no property in the end. On the bright side, you do not have the monthly burden of repaying the RM450,000 principal loan amount over 35 years as compared with the buying option.
Buy or rent?