Lets us assume house loan rate fix at 5%, by borrowing RM100,000 at 5% interest rate with 20 year tenures. You are need to pay RM859.96 and total RM7,919.47 in one year. If you manage to use the RM100,000 to make a return of 8%, then you are safe.
So should we refinance our house to get a loan and invest in somewhere else? It is depends on how much return you can get back from your investment.
Lets us consider some bad scenarios, what if BLR go higher? then how much is the return that we need to survive?
Assuming Borrowing RM 100,000 and loan tenure is 20 years.
5.0% house loan rate, you need to pay RM 7,919.52 per year (=8.0%)
5.5% house loan rate, you need to pay RM 8,254.68 per year (=8.3%)
6.0% house loan rate, you need to pay RM 8,597.16 per year (=8.6%)
6.5% house loan rate, you need to pay RM 8,946.84 per year (=9.0%)
7.0% house loan rate, you need to pay RM 9,303.58 per year (=9.3%)
It is unlikely for house loan rate to go higher than 7.0% unless it is on bull market, if so, then your investment should be able to make more than it. So if you able to make a return from your investment more than 10% per year, you are actually using bank money to make money and this is how the rich doing.
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