How to squeeze your housing loans to maximise your returns?

First things first. Decide whether you are planning to make money or save money from properties. If you answered “Save money from properties”, this article may not be suitable for you. I’m here to share with you how you can use your property loan to make money for yourself. In fact, I know some people who have such proficiency of earning via this method that they have retired within 5 years of starting!

Some will disagree with the information that I am about to share with you. If we were to  take all potential variables into consideration, it would be an endless task.

However, should you use this method with care, you should be able to maximise the returns from your loans and make lots of money from your property while still keeping it!

To understand how this works, let’s go through a couple of basics. In general, does a property appreciate or depreciate in price? Now, how about a property loan? The answers are quite obvious. A property should, one hopes, appreciate in value whilst your regular monthly payments will reduce the amount outstanding on the loan secured against it.

So looking at the diagram above, how can you make money from your loan? As your property appreciates in price, and your loan reduces, the amount of equity (in other words, cash) in your property increases. In this situation, there is an easy way to access that tied-up capital: refinancing. The banks will also be aware if your property has increased in value, and majority of them will be more than happy to increase the loan amount, assuming that you can demonstrate you can afford the increased loan, and there is sufficient equity in the property. This way, you still own the property and are able to cash out some money from it. Ideally, it would be best not to increase the loan tenure whilst refinancing, even if the new monthly payments are a little higher, as this will end up costing you more in the long run.

Here’s an example of how this works. Let’s take a property worth RM300,000, with a loan of RM270,000. We assume that the property does NOT appreciate with time. The illustration below is with a fix loan of 6% p.a. (per annum).

Looking at the table below, you can easily take out RM20,000 every five years. However, you should only do this for your investment properties which are bringing you good rental yields. If you are able to rent your property out for seven percent and above, you can be rest assured that your tenants will be paying for your profits while you cash-out on your property at least every five years.

However, there is never a guarantee that property prices will ALWAYS go up, so it is unwise to overextend yourself completely. The clever investor will always keep a rainy-day fund to ride out dips in the markets.
With that in mind, happy investing!

Property Details	0 years	5 years	10 years	15 years	20 years	25 years	30 years
A. Property value	300,000	300,000	300,000	300,000	300,000	300,000	300,000
B. Down payment (10%)	30,000	30,000	30,000	30,000	30,000	30,000	30,000
C. Balance (A – B)	270,000	270,000	270,000	270,000	270,000	270,000	270,000
Financing Details
D. 25 years' loan	270,000	243,000	206,000	157,000	90,000	0	-
Unrealised Capital (C – D)	0	27,000	64,000	113,000	180,000	270,000	-
E. 30 years' loan	270,000	251,000	226,000	192,000	146,000	84,000	0