I remembered you told me that Stretching the Mortgage repayment
period incurs greater interest cost. If this is the case, why do some people still do it?

The may do it because of the following reasons: -

• Affordability.
• Financial flexibility (They may want to conserve cash for an unexpected rainy day or an investment opportunity)
• Investors seeking maximum return.

Investors seeking Maximum returns? How is that possible if they incur more costs?

It is possible through leverage.

He leases it out for $5,000 a month, or $60,000 per year. (Nett)

• Assume the person leasing pays the 10% property leasing tax ($6,000)
• Assume the person leasing pays the Conservancy and Maintenance (roughly $4,000 pa)
• Assume the person leasing pays the stamp duty for the tenancy agreement (~$400 to $500 pa)

Investor yield is 60,000 / 1,000,000 = 6%

• 60,000 / 200,000= 30% Gross.

If interest rates are 3% pa. That means, his cost of borrowing is: -

• ($60,000 – $24,000) / $200,000 = 18%

But if he has to pay both Interest and principle, that means he would have to pump in cash in excess of his interest costs of (3% of $800,000 = $24,000).

• $40,468 – $24,000 = $16,464 (in the first year)

His Newly calculated Net Margin would become: -

• ($60,000 – $24,000) / ($200,000 + $16,464) = 16.63%
  

Can you see that it has dropped from 18% to 16.63%

So if the investor borrows 90% and pays a 10% down payment, he would further increase his returns even if he pays higher interest rates?

• $4,296 per month repayment or $51,552 pa
• Or $51,552 – (4% of $900,000) = $15,552 pa in excess of interest cost
  

• (60,000 – (4% of 900,000) ) / ($100,000 + $15,552) = 20.77%.

The investor would then be able to increase his returns on invested capital to 20.77%.

So in this case, yes, stretching and borrowing more and using lesser capital will increase returns, subject to how much more interest he/she has to pay.

• Housing Loans ~ 3%

• CAR LOANS ~ 6%

• Personal Loans between (8% to 16%)

• Credit cards between (16% to 24%)

If you can utilize the money in a "GOOD DEBT" form of way. I.e. you borrow

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