http://homebloggerhk.com/?p=17070
Unreasonably High Return (Principal $330,000, end up$710,000 in five years)
Is it true??
A bank staff today sells me a product of Premium Financing from XXXX. The details are below:
Insurance amount $2.5M
First Deposit : $330,000 (I pay)
Loan : $2.17M ( from my friend’s bank)
Loan Interest : H+1.8% (~2% now)
Dividend : 4.38% (this year , accumulate to the insurance)
Redemption handling fee:
Year 1 5%
Year 2 4%
…..
Year 5 1%
Year 6 onwards 0%
If I subscribe, the interest paid every year is $2.17M x 2% = $43400
If I redeem the insurance after 5 years , assuming 4.38% growth every year, the Face value of the insurance will be :
2.5M x (1+4.38%)^5 = $3097608
The profit is = 3097608 – 2.5M – (43400 x 5) = $380608
The profit percentage seems : 380608/330000 = 115%
According to the bank staff, 4.38% is the lowest reward in recent years. However, the ROI seems unbelievably high, and the staff hasn’t explained the risk behind.
For me , i think of the following risks :
1. The fluctuation of Hibor rate and dividend
2. No cash reward but just interest paid during first 5 years
3. It is an insurance , not investment product , don’t know if such easy to redeem after 5 years
~qt