If one has thought about refinancing car loans into home loan, it has proven that he or she has pretty enough smart juice in the brains to look for loophole in our life. This is part 2 of 2. Click here to see part 1 and a successful case study 1.

Case Study 2

Thanks to Paul Kuan from Malaysia who write to us about his own case and share us some tips on how to save a huge money by playing some tricks in life to refinance car loans and pay off of the house loan.

With 30% down payment, Paul purchased a RM200,000 house two years ago. He has taken up RM140,000 home loan at the fixed interest rate of 6.8%. In Malaysia, there are many home loan packages where you can choose to take any of them. Some offers BLR – 2% for first year and then BLR + 2% for the subsequent year. Paul does not want to take the risk as BLR is over 10% during 1997 and 1998 in Malaysia.

Paul started to pay his home loan since 2009 and has been paying nearly RM1,000 every month for his home loan. After two years, he found that the balance of the home loan is still RM136,108.74, which is just around RM4,000 lesser than the original loan amount while he has paid almost RM24,000 during these two years.

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According to the chart above, Paul would have to spend another 28 years to pay off the remaining loan and the total of 30 years payment will be RM328,570.29. At the same year in 2009, he purchased a brand new Honda Civic. 80% of the loan has been paid off and the outstanding amount is around RM30,000. Using car loans to pay off home loan spark his mind and he decided to do the maths.

What Paul has saved?

Paul brings his Honda Civic to get a quote for refinancing. The banks allow him to refinance at RM100,000 at the interest rate of 2.5% because he has good credit history, stable income, and the car is consider quite new.

The calculation for the cost to refinance the car loan: RM100,000 new loan – RM30,000 remaining loan = RM70,000. Paul is able to generate a RM70,000 cash. He pay off the principal of the home loan with this RM70,000 and the remaining home loan left will be paid off in 5 years time with roughly the same amount of monthly loan payment, but this time the total loan payment will be RM54,717.74. See the chart below.

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In exchange, Paul would have to start over again to pay the car loan. The calculation will be:
Car loan interest = RM100,000 x 2.5% x 5 years = RM12,500. Thus, the total amount to pay is: RM12,500 + RM54,717.74 + RM100,000 loan amount – RM30,000 (previous loan amount) = RM137,217.74. With the same amount of monthy payment, this little action to refinance car loans into home loan has save him RM328,570.29 – RM137,217.74 = RM197,352.55, where he can buy around 2 brand new Honda Civic. What he gets is not only the huge savings, he can pay off both loans in just 5 years time without have to struggle with them for 30 years.

Most of the people in our life finding what they want, and still, many people can’t find what they really want even at the age of 40. If you love life, don’t waste time, for time is what life is made up of. For time is what the loan make the most profit too.