DEBT Perception - - The Good and The Bad - Part 2

Ok, now that we have differentiated good and bad debt, how do we make them to good use?

We all know that borrowing is actually cheaper now due to the economic downturn. In order to keep our economy from going into a recession, government all around the world including Bank Negara has been lowering interest rates and we are further expecting more reduction in this rates at the end of the year.


For those that have existing mortgages, this year may actually be a good year to refinance. Firstly, check with your bank if your loan is still within the penalty period for refinancing. If it is, then try to talk to your banker if they could lower the rate. You may be surprise that some bankers may be willing to reduce it for you. However, do not expect a drastic reduction (but any reduction is better then nothing right?). Do take not that, if you are requesting for a rate reduction, most banker may require you to extend your penalty period. So if say, you have 1 year left for your penalty period, the banker may one to extend it another 4 years in exchange for a lower rate. They are doing business after all and it is in their best interest that you stay in debt with their banks rather then rival bankers.

If your not subjected to penalty then you options is wide open. All you need to do is browse around and find the most attractive rates out there. However, do note of other hidden cost when transferring such as legal fees, stamp duty and valuation.

Some people may ask, "how much do you really save if i refinance my loan?".

The answer - a lot


Lets give an example, your loan is RM200,000 and the offer when you first took up the loan was BLR-0.5% (BLR = 6.5%). If you then switch to a new loan package of say BLR - 2%, your total savings on interest alone would amount to RM50,000. I based this figures on a loan repayment of 16 years. This would translate to a reduction in your monthly payments and hence the extra money would help you consolidate on your bad debt (example - credit card bills). If you are already debt free, then the extra money from lower monthly repayment can be used for investments to promote even more wealth (example - insurance, endowment, business opportunities etc).

This is one of the many ways of putting good debt to good use.