You plan to buy a RM 80,000 single-story terrace house in a new housing estate.

As
you will only be able to pay RM 12,000 as down payment, you will need to secure a
housing loan. You went to two banks to enquire about the housing loan and both
banks offer loans based on a flat rate. The schemes are:
i. Bank A offers an interest rate of 4.0% per annum for the first 5 years. From
the 6
th
year onwards, the interest rate will be Base Lending Rate (BLR) after 5
years is 6.0% per annum.
ii. Bank B offers a housing loan which is based on BLR + 1.25% throughout the
period of the loan. The current BLR is 5.25%.

You will be able to repay RM 1000 monthly. Assuming that all interest rates
mentioned above are simple interest rates, answer the following questions:

Question (a)
Write the down payment as a fraction of the price of the house.

Solution

12000 3_
80000 20

Question (b)
How many percent of the price for the house need to be secured through a loan?

Solution

As we are able to pay RM 12000 as down payment, then the amount needed to be
secured through a loan is:
80000 12000 = 68000

So, the price of the house needed to be secured through a loan i percent is:
68000
80000
Question (c)
Calculate the repayment amount for Bank A and Bank B respectively.

Solution

To get the repayment amount, we must add all the interest charged and the amount
of loan.


Bank A Bank B
The amount of interest for the first five
years is as follows:
(4% RM68,000 5) = RM 13,600

The amount of interest after the first five
years is as follows:
As the interest rate will be Base Lending
Rate(BLR) +1.5% and the projected BLR
after 5 years is 6.0% per annum, the
interest rate offered is 7.5%.
Let y be the years,
(7.5% RM 68,000 y) = RM 5,100 y

The total repayment amount 5+y years is:
RM 13,600 + RM 5,100y + RM 68,000
= RM 81,600 + RM 5,100y ---------(i)

Every month Im able to pay RM . So,
In + y years Im able to pay:
RM 1,000 12 (5+y)
= RM 12,OOO(5+y)
= RM 60,000 + RM 12,000y-----(ii)
The amount of interest is as follows:
Let z be the period of the loan
(6.5% RM 68,000 z) = RM 4420z

The total repayment amount for Bank B in z
years is as follows:
RM 4,420z + RM 68,000-------------(i)

Im able to repay RM , monthly. So, in z
years, Im able to repay:
RM 1,000 12 z = RM 12,000z-----------(ii)

In order to get the value z
(i)=(ii) RM 4,420z + RM 68,000 = RM 12,000z
z = 8
368
/
379

Substitute z = 8
368
/
379
into (i)
RM 4,420 (8
368
/
379
) + RM 68,000 = RM
10,7651.72

Therefore, the total repayment amount to Bank B
is RM 10,7651.72.
#


In order to get the value y,
(i)=(ii) RM 81,600 + RM 5,100y
= RM 60,000 + RM 12,000 y

RM 6,900y = RM 21,600
y = 3
3
/
23

Substitute y = 3
3
/
23
into (i)
RM 81,600 + RM 5,100 (3
3
/
23
) = RM 97565.22
Therefore, the total amount of
repayment to Bank A is RM
97565.22.
#

















Question (d)
In how many months would the loan amount be settled?
Solution







Bank A Bank B
According to solution in question
(c), the loan will be settled in 5+y
years.
y= 3
3
/
23
, so, 5+y = 5+ 3
3
/
23

= 8
3
/
23

total months the loan amount will
be settled is:
(8 12) + (
3
/
23
) = 97
13
/
23
months
= 98 months
Therefore, the total months the
loan amount will be settled is 98
months.
#

According to the solution in question (c),
the loan will be settled in z years.
z = 8
368
/
379

total months the loan will be settled is:
(8 12) + (
368
/
379
12) = 96 + 11
247
/
379
= 107
13
/
20
months
= 108 months
Therefore, the loan amount will be settled
in 108 months.
#

Question (e)
What was the total interest charged by each bank?

Solution
Bank A Bank B
The total interest charged was:
(4% RM 68,000 5) + (7.5% RM
68,000 3
3
/
23
) = RM 29565.22
#

The total interest charged was:
(6.5% RM 68,000 8
368
/
379
) = RM
39651.72
#



Question (f)
What would the last repayment amount be for each bank before you fully settle your
loan?

Solution
Bank A Bank B
13
/
23
RM 1000 = RM 565.22
#
Therefore, the last repayment amount for
Bank A is RM 565.22.
#

247
/
379
RM 1,000 = RM 651.72
#
Therefore, the last repayment amount for
Bank B is RM 651.72
#






Question (g)
Which loan would you take? State reason for your choice.

Solution
Types of bank Bank A Bank B
Repayment Amount RM 97,565.22 RM 107,651.72
Period of the Loan 98 months 108 months
Total Interest Charged RM 29,565.22 RM 39,651.72
Last Repayment Amount RM 565.22 RM 651.72

I would take loan from Bank A because its repayment amount is lesser than those
from Bank B. Moreover, total interest charged by Bank A is also much more lesser
than the total interest charged by Bank B. Apart from that, the loan can be settled in
just 98 months which is shorter than the period offered by Bank B. The last
repayment amount for Bank A is also cheaper than those in Bank B. So, by choosing
Bank A, Ill be able to save a lot of money compared to if i choose Bank B.