EVER come across the terms “monthly rest interest” and “daily rest interest’”? These are terms you should look out for when shopping for a loan. They are basically calculation methods used by financial institutions to charge payable interest. Before we take a look into the differences of the two, it is essential we address the definition of “rest”.

Unfortunately, in this scenario, “rest” does not refer to relaxation. It is simply defined as the time frame at which the principal amount is reduced as you repay the loan.

The mechanics of calculation between the two are highlighted below:

I. Monthly rest interest

The interest of loan is calculated based on outstanding balance from the previous month.

II. Daily rest interest

The interest of loan is calculated based on the outstanding balance from the previous day.

Let’s take a look at the basic framework of how these two modes of calculations can affect what you pay to banks.

Interest calculation

“Ali has a home loan of RM500,000. The interest rate is set at 5% per annum with a tenure of 20 years. Based on the amortisation formula, Ali’s monthly instalment adds up to approximately RM3,299.78. Ali proceeds to pay his first instalment on the 15th of the month.”

A table of calculation breakdown is done based on the scenario above to give you a better picture.

• Monthly rest interest (Refer to Table 1)

• Daily rest interest

For the daily rest calculation, we have to first calculate the interest charged from 1st interest charged from June 1 to June 15 (Refer to Table 2)

Now let’s calculate how much is paid to the principal after paying off the interest from June 1 to June 15 (Refer to Table 3)

Now, let’s calculate the remaining interest for the rest of the month (Refer to Table 4)

To calculate the total interest paid for that month (Refer to Table 5)

Comparison of monthly rest interest versus daily rest interest (Refer to Table 6)

*Note : The number of days in a year used in daily rest interest calculations will vary from bank to bank. In this illustration, we used a total of 360 days in a year. In reality, banks may use a total of 365 days in a year to work out the daily rest interest calculations.

From the illustration above, Ali saves a grand total of RM4.37 when he pays his instalment on the 15th of the month. Based on the daily rest interest calculations above, you will see that the earlier payments are made, the more you save.

The savings of interest payable may not be significant in the short run (just RM4.37 in this illustration). However, the effect is compounded in the long run when you factor in the larger sum of principal reduced down the line.

Are daily rest interest rates really better?

It’s important to note that this is not a one size fits all scenario. The daily rest interest mode of calculation could also be a double-edged sword. Take a look at the habits below:

1. Clears off monthly instalments in advance.
2. Willing and able to make extra payment towards monthly instalments.

If your payment habits match the above then the daily rest interest mode of calculation is certainly beneficial.

However, if you don’t repay your instalments on time, you can end up paying more due to late payment penalties. Remember, the late payment penalties go up every day based on the daily rest interest, albeit at a marginal difference.

Conclusion

Pragmatically speaking, the daily rest interest serves as the superior choice due to its equitable calculations of interest payable.

Additionally, it is clear that your payment behaviour plays a big role in how much you save/lose. There are also several other factors to look out for, such as preference of flexi or non-flexi loan, lock in periods and other hidden fees or charges.

– To find out more about the best home loan interest rates in the market, visit www.loanstreet.com.my

– Loanstreet.com.my is a website that helps Malaysians compare and apply for loans online, free of charge.

Source: Loanstreet

Regalia Suites, a luxury development located along Peel Avenue in Georgetown, Penang. Just a short drive a way is a wide choice of schools, restaurants, grocers, shop, shopping mall such as Gurney Plaza and Gurney Paragon, eateries, hospitals, clinics, banks police stations and post offices.

There are only 2 suites per floor. Each unit comes with a junior suite attached on the same floor, with a separate entrance. A dual-key condominium is popular amongst investors, as the junior suite can be rented out to cover partial of the mortgage.

Security features are extensive with 24-hour guardhouse, CCTV surveillance and 3-tier card access security system. Lifts will only travel to the suites designated by the access card. It also offers ample amenities to ensure that you live absolute comfort and convenience. With a gym, landscape garden and children’s play area, there is plenty to do for the whole family.

Project Name : Regalia Suites
Location : Georgetown, Penang
Property Type : Luxury Condominium
Built-up Area : 7,386 sq.ft – 11,225 sq.ft.
Total Units: 15
Land Tenure : Freehold
Developer : Regalia Property Group

Location Map:

Villa Rose, 4 units of 3-storey semi-detached houses along Lebuhraya Raya Rose in Pulau Tikus, Penang. This residential area is also known as the home to an array of wealthy businessmen.

Property Project : Villa Rose
Location : Lebuhraya Raya Rose, Pulau Tikus, Penang
Property Type : 3-Storey Semi-detached
Tenure : Freehold
Total Units : 4
Developer : Regalia Property Group

Epic Residence, a residential development located along Jalan Sungai Nyior in Butterworth, Penang. This is a project by Epic Valley Group, comprising 40 units of 2-storey terrace and 4 units of 2.5-storey semi-detached houses. It is only a short drive from Econsave Hypermaket and Harbour Place development by PJD Group.

Property Project : Epic Residence
Location : Butterworth, Penang
Property Type : 2-Storey Terrace/2.5-Storey Semi-detached
Tenure : Freehold
Total Units : 40 (terrace), 4 (semi-d)
Indicative Price: RM 600,000 onwards (terrace), RM800,000 onwards (semi-d)
Developer : Epic Valley Holdings Sdn Bhd.

Location Map:

And so it is true. Property consultants’ laments about the property market consolidating and transactions slowing down have now been confirmed by the National Property Information Centre (NAPIC) in their first quarter numbers for this year.

Although the findings are six months backdated as it is already August, the government agency’s figures are about as accurate as one can get about the state of the sector, down to how many transactions being done.

Most states recorded overall drop in the number of property transactions for the different sub-segments, namely, residential, commercial, industrial, agricultural, development land and others. The trend of decrease is definitively evident.

The president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Siders Sittampalam says he is not surprised.

“It confirms what I said, that the Malaysian property market is consolidating. It is not a slump which is characterised by oversupply and declining prices,” says Siders. He is also PPC International managing director.

Based on the NAPIC report, the temperature for Kuala Lumpur, Selangor, Penang and Johor is distinctly cool.

In a nut shell, all four states recorded an overall drop in transactions with Kuala Lumpur seeing a 13.4% dive compared to the last quarter of 2013.

Penang recorded a marginal 0.3% drop while Johor, which enjoys one of the most buoyant market in the country as a result of Iskandar Malaysia, saw a 4.5% drop in transactions. Selangor had a 10% drop for the period under review.

Considering the interest in the property market the last couple of years, it can be concluded that this may be the first significant quarterly nosedive in the last four years.

NAPIC is currently analysing the second quarter numbers. Siders is not too hopeful.

“The market is not going to change a lot. The consolidation process is expected to remain for some time as there is no impetus. Positive economic conditions does not mean an immediate return of confidence in the property market. There is always a time lag,” says Siders.

The residential sub-segment

Residential transactions make up an average 75% of overall property transactions, according to the NAPIC numbers. All four states recorded a drop in transactions with Kuala Lumpur deals decreasing 15.7% against the last quarter of 2013. The number of deals completed this year is also lower than a year ago, confirming grouses by real estate consultants that the market has been softening since a year ago. Still on the Kuala Lumpur market, the number of properties below RM300,000 is becoming increasingly limited, which explains why transactions for such properties are decreasing.

Siders says there is “room for correction” in the overall high-end residential market.

NAPIC research shows that the greatest number of transactions are for properties priced between RM500,000 and RM1mil. Overall, the total value of properties transacted dropped for all price segments with the exception of properties costing RM1mil and above.

There are a couple of ways how one may read this – people are either holding on to their cash waiting for prices to fall or they may want to buy but have difficulties getting a loan.

Raine & Horne executive director Lim Lian Hong says transactions have been slow since last year, particularly in the secondary market.

“The drop (in overall market) may continue into the second quarter,” says Lim, adding that many properties have moved into the RM1mil and above segment.

Condominium units dominate the residential sector with transactions accounting for 70% of the market compared with 30% for landed units. Increasingly, developers are resorting to building high rise as this is more lucrative. Condo units are being priced about RM700,000 per unit this year compared with about RM600,000 a year ago.

Prices of double and 2.5 storey terraced housing continue to climb from an average of about RM700,000 a year ago to about RM900,000 in the first quarter of this year. A note of caution is needed here. These prices are average figures, not absolute numbers.

Commercial property transactions also showed a general downward trend in the city.

The softening market is evident in Selangor’s residential market.

“We are seeing a slowing down of transactions in Selangor,” says Lim, with transactions dropping compared with a year ago and against the last three months of 2013.

Volume is concentrated in the RM500,000 to RM1mil range. The indication is that developers are offering housing within this price range.

Most of the high-rise units transactions are concentrated in the district of Petaling although Selangor includes Klang, Kuala Langat, Kuala Selangor, Sabak Bernam, Gombak, Hulu Selangor, Hulu Langat and Sepang.

The pricing of average high-rise units have also risen ranging from about RM280,000 a year ago to about RM330,000 for the first quarter of this year, an increase of about 17%. This has to be read with the big picture in mind as units in Petaling are considerably higher.

Penang market

Last year’s downward trend has continued into 2014, Raine & Horne Malaysia senior partner Michael Geh, based in Penang, says.

“It is a general downward trend in terms of units transacted but prices remain firm,” says Geh.

Across the different segments, the largest decrease is in the industrial sub-segment followed by the residential sector.

Transactions of development land continue to remain robust, particularly in the Bukit Mertajam area and on the north east part of the island.

Transactions for commercial properties continue to have its share of interest.

The Penang market is dominated by both landed and high-rise units with condominiums contributing about a quarter to residential sales value. Most of Penang’s interest continue to remain on the island although there is growing expansion of the market on the mainland side, in the Butterworth area.

Johor excitement

The state of Johor continues to be “the most dynamic” as a result of the Iskandar-Singapore factor.

While other states showed signs of slowdown a year ago, Johor’s property market rose 10.5% in terms of the number of volume with total value of transactions rising nearly 60% compared to a year ago.

However, transaction volume and value have dropped 4.5% and nearly 35% respectively against October, November and December of last year.

To put things in perspective, in the first quarter of 2013, Johor’s property sales totalled RM4.7bil. It leapfroged to RM11.62bil in the last quarter of 2013. In the first three months of this year, it dropped to RM7.6bil.

Among the different sub-segments, land for development is the second most popular after the residential, an indication that local and foreign developers continue to like that market.

The most popular type of housing continues to be two- and 2.5 storey housing and single and 1.5-storey housing with the number of condominium and apartment units on the rise in Johor Baru. The question is how will Johor fare in the event of a slowdown in China?

Note: NAPIC research includes both primary and secondary sales. Prices are on an average basis while the number of transactions are absolute.

Source: StarProperty.my