How to save payment on your mortgage, a trick you can do now

A friend of mine took a home loan a few years back. At that time the interest was real low. So he chose the floating rate option. However slowly his bank started moving the interest rate northwards and my dear friend kept on increasing his tenure for repayment.

loan

I am sure some of you must have done the same. Now let’s see what happens when you increase the tenure of a loan.

Example:

Borrowed amount = 50,00,000/-

Interest rate =           10.5%

Monthly payment =  55,270/- with a tenure of 15 years

Now let’s see what happens if the interest rate is increased by a mere 1% to 11.5%

Borrowed amount = 50,00,000/-

Interest rate =           11.5%

Monthly payment will be 58,409/- if you choose to pay within 15 years. So that way you will pay 3,139/- extra per month. However if you extend 15 years to 17, then your monthly payment will be 55,905 which is just 635/- extra. Now this is what most of you do and I want to show how you get robbed.

If you would have paid in 15 years you would have paid a total of 1,05,13,620/- . But since you are paying in 17 years you will pay 1,14,04,620 /-. So that’s an extra 8,91,000 /- that you will end up paying.

So if you want to save this money you will have to tell your banker to keep the tenure of the loan fixed and increase the monthly payment as banks usually tend to increase the duration of your loan automatically when there is a hike in interest rate.

In case the interest rate is lowered tell your bank to decrease the duration of the loan and not the monthly payment.

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I suggested reverse mortgage this time

IW12_RETIRE01_655412fIt was almost 8, raining outside. I was planning to pull down the shutters of my office, when the door opened and an old man walked in. He was in a white shirt and grey trousers. How old is he…65 may be.

‘Hello sir, what can I do for you?’ I asked. He stared for a second and asked, ‘Are you Mr. Chandra?’ ‘Yes..’. ‘I am Ramesh. I have heard about you from my friend and hence I have come to you for some financial advice today.’

‘See I don’t have much money and I’m just 4 years from my retirement. Once I am out all I will have is a monthly income of 10000/- and a house worth 20 million rupees (2 crores). I really don’t know how I am going to manage after my salary stops.’

Till now I was listening quietly. The 20 million rupees house rang a bell! ‘Why don’t you go for a reverse mortgage? See, you can easily opt for a reverse mortgage loan enabled annuity. The bank will give you a loan of around 60% of your property value. So..that will be what..1,20,00,000 ? The bank will then buy you an annuity with this money. This way you can get a fixed monthly income.’

His eyes were suddenly bright. ‘But what about my son? He will not have a place to live in after I die.’

‘Oh don’t worry Mr. Ramesh you can even buy an annuity with return of purchase price. Of course the monthly payment will be lower, but at least it will be easier for your son to repay the loan and repossess the house after your lifetime.’

Hmm, sounds like a good idea. He pushed the chair back, got up and gave me 300 bucks. ‘Well Mr. Chandra, you don’t know how much relieved I am now. You are really great’, and he walked out. 

If you are in similar situation you can also try the same. Just consult a financial expert regarding your specific needs before you proceed.

Photo Courtesy: The Hindu Business Line

How to get loans in emergency in India

 

Your father is very sick. Doctors say, he needs immediate medical care. You don’t have the money. What are your options? Read this:

You can take a cash advance from your credit card.

  1. If you are a salaried employee you can take a loan against your provident fund.
  2. You can go for a personal loan.
  3. Personal loans are of two types:

Secured loans: You need collateral here which you may lose if you fail to pay.

  • These loans are cheaper than unsecured loans.
  • You need to pay on time unless you want to shell out big money as interest.
  • You can keep your house, car, gold as mortgage.
  • The loan amount, duration of the loan, interest rate will depend on the collateral deposit, your credit score with CIBIL and your monthly income.
  • You need to have proper paperwork/documents to get your loan issued fast.

Unsecured loan: Go to a bank and ask for a personal loan. These loans will charge you high interest rate. However they need less paperwork and you get the money in your pocket quickly.

There is a even a new option available these days. It’s called peer to peer loan. In this case you borrow from an individual. However you do not approach him in person. There are companies who will help you to connect with your lender and the entire process is done on the company’s platform.

Can you suggest any other type of loan that people can take in case of emergency?