Tutorial 3: Housing and Automobile Decision

1. Irene bought an apartment for RM250,000 and paid a down payment of RM50,000. She
is taking a 20 years loan at a nominal sum of 6% per annum on monthly rest from a bank.

a. What is the monthly installment?

P/Y = 12, END
PV = 250,000 - 50,000 = 200,000
N = 20 x 12 = 240
Y/I = 6
PMT = 1432.86

b. What is the outstanding balance after paying for 12 years?

P1 = 1
P2 = 144
Outstanding balance after paying for 12 years = RM 109,034.40

c. What is the principal paid at the 60th payment?

P1 = 60
P2 = 60
The principal paid at the 60th payment is RM580.96.

d. What is the total interest paid (P1-P50) at 50th payment?

P1 = 1
P2 = 50
The total interest paid at 50th payment is RM 47123.56.
2. Fong had just visited the launch of new condominium project and he is very keen to
purchase a unit. The developer price for the unit that he had set his eyes upon is
RM450,000. If he were to sign up within the next three days, he can enjoy 10% cash rebate.
Fong quickly called you and seeks your advice on certain matters. Assuming he intends to
take up a 25-year loan with a 80% margin of financing at an average lending rate of 6.25%
p.a.
a. What would be his monthly installment?
P/Y = 12, END
PV = 450,000X80%x90% = 324,000
N = 25 x 12 = 300
I/Y = 6.25
PMT = 2137.33
His monthly payment would be RM2137.33.

b. How much of the third installment went towards reducing the principal and how much
of it went towards interest expense?

Balance = 322643.47
Principal = 454.53
Interest payment = 1682.80
The third instalment went towards reducing the principal byy RM454.53 and the interest
expenses iS RM1682.80.

c. Assuming he intends to fully settle his loan after 10 years, how much does he need to
repay the bank? Today already start pay - 10 yrs later - he decided to pay all (at the 10th
year!)
P1= 120, P2 = 120
Balance = 249273.42
He needs to repay the bank RM 249,273.42

d. If he had continued paying throughout with the same terms and conditions , how much
interest expense would have been incurred by Fong?

P1 = 1
P2= 300
Interest payment = 317198.17
Total interest expense from month 1 to month 300 is RM317,198.17
3. Suppose you borrowed RM30,000 on a loan at a rate of 8% and must repay it in 3 equal
installments at the end of each of the next 3 years. How large would your annual payment,
how much of the first payment would represent interest, how much would be principal?
P/Y = 1
PV = RM 30,000
N=3
Mode = END
I/Y = 8%
PMT= RM11641.01
P1 = 1
P2 = 1
First payment interest = RM2400
First principal = RM9241.01

My annual payment is RM11,641.01, and the interest on the first payment is RM9,241.01, and
the principle is RM2,400
4. Johnny has just graduated from college and is eager to start his working life. To
commute to his office he needs a car. He is planning to buy a Myvi which will cost him
RM48,000. His parents are willing to help him to pay a down payment of RM5,000. He is
applying a loan from Mbank which will incur an annual interest rate of 3.55%. The tenure
of the loan is 7 years.
Amortization is only applied in housing loans in Malaysia (no PV no FV anything else
- The main reason is to maximise profit
- Use the straight-line method - the interest earned is higher than the amortization

a. What is his monthly installment for the car?

Loan = 48,000 - 5000 = 43,000
Interest rate = 0.0355
Total months =7 X 12 = 84
Monthly Installment
= ((loan x % x yrs) + loan ) / total months
= ((43,000 x 0.0355 x 7) + 43,000) / 84)
= 639.11

b. If his starting salary is RM2,500 nett per month, how much is his non- mortgage debt
service ratio? Can he afford the car?
- Monthly divide by monthly is no need to x 12 (no necessary to make it annually
Non-Mortgage Debts Service Ratio
= total non-mortgage loan repayments / annual take-home pay
= 639.11 x 12 /2500 x 12
= 0.26
= 26% (25.56%)

No, he can not afford the car as the non-mortgage debt service ratio exceeds 15%. However, if
the person didn't have other commitments he still can afford the car loan. This will affect the
future ability to apply for another loan. He suggested lengthening the car loan period to 9 years,
applying for another cheaper car to decrease the loan payment or increasing the down payment to
lower the DSR ratio.
- But in real life - the fresh graduates - the bank might approve your request in applying
for the loan (if DSR is low - even the non-mortgage DSR is high

Theoretically speaking, the ratio is not healthy and he cannot afford the car. However, if he
really wants the loan, it is possible if he doesn’t have any other commitments. But in future, it
will affect his DSR which means a lower ability in getting more loans. Suggestions: increasing
downpayment, lengthen car loan period to 9 years, choose a cheaper car model.
5. Mark has identify a RM75,000 Toyota Vios to be his first car. He is planning to pay a
down payment of RM5,000. Harris has got an offer from a bank that charges him an
annual interest rate of 3.00% for the hire purchase loan for a duration of 5 years. He would
like to take up the offer. Determine the monthly installment that Mark needs to pay for the
car.

PV = 75,000-5,000 = 70,000
I/Y = 3%
Total months = 60

Monthly Installment
= ((loan x % x yrs) + loan ) / total months
= ((70,000 x 0.03 x 5) + 70,000) / 60)
= RM1341.67

6. Michelle wants to know what price home she can afford. Her annual gross income is
RM45,000. She owes RM750 per month on car and RM250 per month on study loan. She
knows she can get a 5.5%, 30 years mortgage. She expects to make a 20% down payment.
What is Michelle's affordable home purchase price?

Debt service ratio = total annual loan repayments / annual take home pay
35% = (250x12 +750x12 +x) /45000
3750 = x

3750/12 = 312.50 (per month)

N= 30X12 = 360
I/Y = 5.5%
PMT= 312.5
PV = 55038.05

55038.05 /80 X 100 = 68797.56

Michelle affords to buy an RM68797.56 house.