All this while, I was thinking, once I graduate from University, I need to start paying back the study loan that I borrowed from the bank. So, I need to find a job to secure my income. Let’s say, I borrowed RM40,000 from the bank, with the average annual interests rate of 5%. I have 20 years to repay this loan, and I must repay at least RM100 every month. I’m planning another way: investment + repayment during that period of time. I hope more people would share opinions on improving this method for better plan.
Let say, I used RM600 from my salary for the investment + repayment. My repayment rate is 5% p.a. And, if I am able to achieve 10% investment return p.a. I am going to split my RM600 into two parts, not necessary to be equally, but how much should I invest and how much should I used for repayment?
The investment + repayment model
Basically, I start the plan by splitting my RM600 into two parts (RM x and RM y). RM x is for investment, with 10% investment return. RM y is for repayment, with 5% interests rate.
By compounding investment, my invested amount is accumulated. At the same time, my loan is repaid and the principle amount is reduced. At a certain point of time after N years, the accumulated invested amount will be equal or more than the principle amount of loan I need to pay. From that point onwards, I will be using my 10% investment return to repay my 5% interest rate. It will be like 10% – 5%, and the remaining 5% will be repaying the principle amount.
While I am using the investment return for the repayment, I am investment my RM 600 that I used to split at the beginning. But, this time, I am investing RM600 instead of RM x. At the end of the repayment, I have assets on hand and I have no debt.
Questions: What should RM x and RM y be? How should I justify it? By finding out the best return of investment? Or should I minimize the number of years for repayment? Or, else?