KUALA LUMPUR: Long-term housing loans may be seen as the solution to the housing affordability issue, but as one Khazanah Research Institute researcher highlights, the benefits may not be as advantageous as you think.
In an example provided in Theebalakshmi Kunasekaran's report entitled "Affordable Housing or Affordable Debt?" increasing the tenure of an RM500,000 housing loan from 35 years to 40 years would increase the total cost of financing by 17.4 per cent or RM97,428.
However, the monthly instalment would only decrease by 4.4 per cent or RM112.
A hefty price to pay for small monthly savings.
Disproportionately higher financing costs notwithstanding, longer debt commitment means you're tied to debt for decades, reducing financial flexibility and potentially causing stress.
This also translates to more of your payment going towards interest initially, delaying the buildup of equity in your home.
Longer loans may also come with slightly higher interest rates, further increasing costs.
Money tied up in mortgage payments also reduces the ability to invest or save.
Over time inflation can also make monthly payments harder to manage if your income doesn't keep up.
So, while monthly payments are lower, the long-term costs and financial limitations of long-tenured loans often outweigh the short-term relief.