Everyone wants to reach their financial dreams or goals ensuring the protection of their CAPITAL for the safety and security of their FAMILY. But it is very difficult for a common person to choose the right vehicle necessary for them to achieve their financial goals. Because of this fear, many of us choose the wrong vehicle which takes us to a completely different destination or almost nowhere (which we realise at a point of time when it’s too late to start afresh). Everyone wants to gain HIGH returns from their investment without taking any RISK of capital. But it is practically IMPOSSIBLE to get OVERWHELMING RETURNS taking ZERO RISK, then how to make it possible? There are lots of scientific methods with which I can help you to get your dreams fulfilled. Consult me to know more.
Every parents wants to plan their children’s education as early as possible and almost all of them dreams to see their children pursuing the career they desire in their future and be ready to fulfill their dreams. But to achieve this we need PROPER PLANNING at PROPER TIME as the educational expenses are rising at an ALARMING RATE. If the amount of tuition fees needed to be paid to a certain private engineering college today is Rs. 1 lakh p.a, then it can easily be Rs. 6.75 lakhs p.a after 20 years (assuming inflation rate of 10%). You cannot plan to accumulate the required amount by mere savings because you need to OVERCOME the inflation and TAX deductions too. So, will your child’s dream go into vain? No, absolutely not. Consult me to know more.
A study reveals that most people in our country are not aware of RETIREMENT PLANNING at all. Even if someone have given a thought about it, then that also after 40 years of age when it is too late to PLAN fresh. Assuming you are 40 years old now and your family expenses are Rs. 10, 000 p.m, now if you retire at the age of 60 your expenses are likely to reach a whooping amount of Rs. 46, 000 p.m which will gradually rise to an insane amount of Rs, 2, 17, 000 p.m when you are 80 years old (assuming inflation rate of 8%). Now is it wise to leave the responsibility of your IMPORTANT after-retirement-plans on the hands of some pre-defined retirement products advertised to you, or do you need the help of an expert to INVESTIGATE your personal desires and PLAN specifically for you. Consult me to know more.
Uncertainties are an unavoidable part of our human life and death, accident, illness are built into the universe by design and can happen anytime, anywhere and to anybody. But unfortunately most of us consider “Life Insurance” as a means of getting “Tax Benefit”. And most of the time people even choose Life Insurance from their old and traditional belief that this is the ONE & ONLY trustable way to invest for their future. It has also been observed that most people even imitate their friends, colleagues or other family member for taking Life Insurance. But is your “life” exactly same as that of your friends, that you can imitate them fully without any second thought? Do you know the type and coverage of Life Insurance you appropriately need for your personal life? There is a scientific and systematic way to calculate this. Consult me to know more.
Everyone is well-aware of the rapid growth in medical expenditure now-a-days. We do not wait for government hospitals for treatment and move ahead towards private hospitals and nursing homes which bears a huge expenditure. Just think once that today you and your family have a proper health, but in the near future anything can happen and that can bring a disaster to your financial condition by damaging all your savings and investments all at once. You may be having a health insurance already, but are you sure of its capability in insuring you and your family needs properly?. You may also put the argument that your company is taking care of this matter completely and you need not to take any headache about it. But are you sure that the coverage will continue even after you retire? It’s the right time for you to THINK and ACT. Consult me to know more.
Easy availability of home loans has accelerated the process of owning your own house. Mr Chatterjee (fictional character) bought his house three years back. It was a smooth sailing and the home loan to him was Rs.37, 286 EMI to be paid for next 20 years. With the expected salary increment, the amount could have been easily borne. But it was not long before the shockers came.
Their bank called him to either increase the EMI or the tenure in order to compensate for the increasing interest rates, i.e., the Cost of Borrowing. In the last one year, he was asked to adjust his EMI and tenure for three times.
Only a miracle could have saved him now! So should he keep waiting for the bank to be merciful and reduce the home loan burden? This certainly won’t happen but Mr Chatterjee can make this seemingly impossible task possible by employing some thoughtful and scientific strategies.
As the saying goes ‘Know your enemy well’! Understanding the concept of home loan is important.
Home loan constitutes of the trio – Principal (the amount borrowed from the lender), Interest (the cost of borrowing, higher the principal, higher the cost of borrowing) and the tenure (the term for which the loan is taken, again, higher the tenure, higher the cost of borrowing).
Reducing any one of them will help us reduce the overall burden of home loan.
Banks may be offering you up to 85% of the cost of purchase of house but remember that the lesser you borrow, the lesser you pay back. Ideally your EMI should not go beyond 40% of your monthly expenses.
When you are servicing a loan at 11.25% interest rate, investing in PPF, Fixed deposits, FMPs, Liquid and Debt funds etc. at 7-9% does not make sense. Liquidate your low yielding investments and use them to make prepayments. Prepayments will reduce the principal directly and thereby reducing the total payback.
There can be prepayment penalty in some cases, usually in first 2-3 years of taking the loan if you make the complete payment. Partial prepayments are usually allowed without any penalty.
EMI is calculated by equally dividing the principal plus the interest to be paid in the specified time frame. While paying these monthly instalments some portion of the principal is also paid back. EMIs are decided initially by the bank as per the amortization schedule. As the interest rate on the loan is pre-decided and distributed accordingly, any further increase in the EMI will go to the principal repayment.
E.g. For Rs.40 Lakh loan @11% increase in EMI from Rs.41, 288 to Rs.46, 763 will bring down the total payment from Rs.99 lakh to Rs.78 lakh. Just by putting in Rs.5000 more per month can reduce the loan by Rs. 21 Lakh.
Hence cutting down on your restaurant bills and mall trips or diverting some portion of salary raise and increasing the EMI by few thousand rupees can bring in a lot of peace.
Either try to make prepayments or increase the EMI to reduce your tenure. If you are lucky to witness falling interest rates, choose to reduce your tenure and not the EMI.
In simple words, you will payback lesser amount in 180 months than you will be paying in 240 months.
Banks can offer different rates to attract the new customers. These rates can be lower than the old ones. Sometimes they are just teaser rates for first one or two years.
In other cases the old customers can also get benefit of such offers by paying some conversion fee. This conversion fee can be 1-2% of the outstanding balance. But if it can reduce your interest rates by 2-2.5% for rest of the EMIs, it can be worth considering.
Banks generally do not communicate such options, hence buyer should be keep in regular touch with the bank to avail any such facility.
‘Interest saving loans’ are linked to your savings account. The amount in your account is considered as the prepayment and the interest is calculated on the outstanding balance thereby reducing the overall burden.
Parking your emergency amount in such accounts can be helpful since you have the flexibility to use the money.
Refinancing means converting your existing high interest loan to new lower interest ones. This will mean foreclosing your existing loan with the current bank and purchasing a new loan with the new bank.
While you will have to bear the penalty (if any) for foreclosing the loan, at the same time there will be processing fee for the new loan as well.
The option can be worth considering if interest rates offered by the new lender are not just teaser rates for a year or two but will continue during the period of loan. Read the fine prints of the bank before you go ahead. Otherwise renegotiating the rates with the current bank is preferable.
Any one or a combination of above strategies can be helpful in taming the ‘Home Loan’. But before considering any of the above options a thorough analysis of your present situation and future expectations is necessary. E.g. Increase your EMI only when you are sure of increase in your income or there is no incremental expenditure coming up soon. Similarly make the prepayments once you have done sufficient emergency and risk planning.
So if miracles won’t happen, careful planning and staying informed can help you a lot.
We all spend a lot of time, devotion and hard work to earn money and secure our own and our family's future.
Almost all of us have our personal financial dreams but most of us are unaware of the right path that we should take to turn our financial dreams into reality.
roy's Finance is nothing but a way for all those who want to fulfill their financial dreams.
The main aim of roy's Finance is to make everyone financially aware in the right way and help everyone be in a better financial position.