The first rule to be discussed is related to mortgage loan. After practising and repeatedly making calculation for mortgage loan upon enquiry, I observed that anyone could quickly make a simple calculation base on this rule. A mortgage loan with tenure of 35 years (max) and effective interest of around 5%, the monthly instalment will be about 0.5% of the loan amount. Example, if you are about to get a loan of RM 500,000, the monthly instalment is about Rm2,500 per month. Not too sure if there’s any name for this, for easy of reference, I would like to call it as Rule of 1/200 (equivalent to 0.5%).
How can anyone do a quick check using this rule?
- Decide on affordability of repayment prior to purchase of property. Simply divide the loan amount by 200 and that will be your monthly repayment amount. Decide whether you are comfortable with the repayment amount or not.
- Prior to looking for a property, decide how much monthly repayment you are willing to pay. For example, if you decided to pay RM 2,000, multiply it by 200, and you will end up with RM 400,000. Since maximum loan margin for residential is 90%, you could look for a property around RM 450,000.
The Second Rule – Rule of 72. Many write up available for this Rule of 72, but many seems to have not really look into this quick reference. For me, most of the time, this will be used for estimating the viability of a investment. What does this mean?
Divide 72 with the return rate offered, that would easily estimate the time for your initial investment is doubled. I would like to use one of the simplest example, Fixed Deposit Saving. If you save RM 100,000 in a FD account with 3.6% interest rate, with the interest received added back into principal, your saving will be RM 200,000 in approximately 20 years. We get the answer 20 by dividing 72 with 3.6.
You can also use this to estimate your rate of return for investment. Example, my investment doubled in 10 years, therefore my rate of return will be approximately 7.2%.
2 simple rules for quick check. Perhaps with advancement of electronic devices, many will not find these rules helpful, I still like it the old way for quick check.