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Old 15th April 2010, 14:07   #76
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^^ Cool. This is what the Bank's CC has never been able to clear up. Is this the same across all the banks or only nationalised ? Thanks bro.
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Old 15th April 2010, 14:19   #77
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Whichever bank, should be able to exactly tell you how much you will pay if you fore-close your loan.

Again, every bank, and every loan file will most likely have their own terms and conditions. Most banks do not charge fore-closure fees after a certain period of time.

There, if you have funds, you have to decide if to clear it off or continue.

Look at the amount you pay if you foreclose.

Next, look at the amount you will be paying henceforth if you continue on EMIs (to the end of tenure).

The difference here and its % should be able to help you make the decision accurately.
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Old 15th April 2010, 14:23   #78
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Originally Posted by prince_pervez View Post
^^ Depends. If you have a home loan which is fetching you tax benefits then why would one pay 2-3 times the EMI. Any ways the banks are smart enough to adjust the amount in such a way that their share of interest (earnings) are not hampered.
Its educational loan. If I pay 2X/3X EMI each month how will the banks readjust the calculation such that their share of earnings remain same?

The bank calculates the interest each month and adds it to the amount outstanding in my loan account. If I have paid more than my EMI in one month, that month when they calculate the interest, the total oustanding principal will be lesser?
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Old 15th April 2010, 14:23   #79
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Originally Posted by prince_pervez View Post
^^ Cool. This is what the Bank's CC has never been able to clear up. Is this the same across all the banks or only nationalised ? Thanks bro.
I got this clarification from LICHFL when i wanted to pre-pay a part of my housing loan, but later chose not to.

Guess it must be the same across all banks(because all these rules are framed by RBI and banks do minor tweakings to it), except for the penalty which might be slightly higher/lower by 0.25-0.5% in private banks.
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Old 15th April 2010, 14:28   #80
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Originally Posted by ashthedivx View Post

Let's do some calculations.

If you continue your EMIs, Intrest fetched from your pocket.
6670 * 30 = 200010 - 160000 = 40100

If somehow you decide to quit right now, Penlty to be fetched from you pocket. (Assuming you'll ending up paying at max 5% as penalty)
160000 + (160000 * 5%) = 168000 - 160000 = 8000

Now, According to you EMI I can judge you picked up a loan of 3 Lakh for the tenure of 5 years where in you have already paid a intrest of around 70-60 % of the total intrest.

My suggestion : If you are in hurry and would like to get off the debt right now, then only thank about getting out of it as you have already paid a major amount of interest for the loan you picked up for 5 years. Still, if you want to exit the debt you ain't will be in loss as you'll otherwise also end up saving around 32000 net. Take your call.
It is not that simple, right?
If instead of putting the 1,60,000 into repaying the debt, he invests it somewhere where he gets a return of 12% or more for the next 30 months, he would have made a profit by the end of 30 months. And if he gets tax benefits from that investment, it would be the icing on the cake.

This is the famous time value of money concept. The 6670 rupees that he will pay as the 30th installment, will have lesser value than those 6670 rupees right now. So, you cant really say that the sum of the 30 EMIs is equal to 2,00,100 today. It will be much less.
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Old 15th April 2010, 14:31   #81
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Originally Posted by aargee View Post
IIRC, he only said half, which means around 25L. It makes a world of difference borrowing 30L & 46L for a 15 year term; I'm under the impression that, for 7-8 years on a 15 year tenure, you keep paying only the interest & peanuts of principle.
Even if it is 25 L, it does not make much of a difference.

The point was, how long will the person take to have clear cash savings of 25-30 L ? I'm assuming it would take quite sometime before one gets there.

So, during that period - whatever 5-10-15 years, the property one is eyeing for right now at 'x' value will more than double up by then.

Thereby, the savings will never be enough to make a one shot payment for the same kind of property. Thats the whole theory anyways of investing now with a home loan, tax benefits aside.
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Old 15th April 2010, 14:40   #82
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Foreclosure: The legal process by which an owner's right to a property is terminated, usually due to default. Typically involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt.

foreclosure Definition

Foreclosure - Wikipedia, the free encyclopedia
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Old 15th April 2010, 15:50   #83
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Originally Posted by amitoj View Post
It is not that simple, right?
If instead of putting the 1,60,000 into repaying the debt, he invests it somewhere where he gets a return of 12% or more for the next 30 months, he would have made a profit by the end of 30 months. And if he gets tax benefits from that investment, it would be the icing on the cake.

This is the famous time value of money concept. The 6670 rupees that he will pay as the 30th installment, will have lesser value than those 6670 rupees right now. So, you cant really say that the sum of the 30 EMIs is equal to 2,00,100 today. It will be much less.
Well, tax benifits and other benifits are there and can't be denied in any case. To add on the benifits as he already paid a major amount of tax, he is nearly filling bank's pocket without using the loan initially being picked up.

However, to be precise there is no financial or pvt. instrument where-in one can have 12% guaranteed return. Though One can earn even more than 20% in the case of equity or mutual fund but that too ain't guaranteed. Regarding the tax part, it will be saved once you enter into a tax saving bonds/funds which further have a disadvantage of time period bounding and an uneven returns(In the case of MF).

For sure 6,670 will loose up the value at the end of tenure but still the mental satisfaction and debt-freeness ain't be compared to anything. And to reach up low-value level one has to bear 32K Interest as well.
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Old 15th April 2010, 18:18   #84
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Originally Posted by vivekiny2k View Post
I think the discussion has deviated in a couple posts, anyway, going back to the original point, living on the edge is a tendency that can not change whether you 10K PM or 10L PM.

This is one thing I feel good about recession because it has helped people understand the point of view of people like mine who spend based on needs, not on affordability. Advocating frugal living 2 years back wold have been subjected to laughter and disgust.

I think the most important factor in this is what we as children see in our family. You will see that regardless of how much kmoney they earn, most people who come from humble and conservative backgrounds do not indulge as much. It's difficult to say no to my son for a new fancy toy when I know I can afford 10s of them and when he is making the cutest faces, but if I buy it, it's going to have a long term undesirable psychological effect on him.
Very valuable post in this thread.
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Old 15th April 2010, 20:01   #85
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Default Loan calculations!

Folks,

I will briefly explain the loan payment schedule since I just secured a mortgage and have learned a few things, not to forget my economics class . Although I believe this post can be used elsewhere.

When you take a loan, you initially pay more interest because you have more money borrowed from bank. As you start paying it back, you interest reduces too. Bank splits it in equal amounts over the period of loan so you don't have to deal with high interest payments earlier. It's called an annuity where the total of payments over a number of years totals up to the future value of the loan amount given today (adjusted by the inflation or the market interest rate, whatever you may visualize it as). In other words,these three payments to the bank have the same effect (taken from example below, assuming constant 8% int. rate for next 10 years).

1. you pay back the bank 100,000 today.
2. you pay back the bank 1,213 every month. bank would receive this if it kept 100,000 in a monthly scheme that exhausts it in 10 years (annuity).
3. you pay back the bank 215,900 after 10 years. (amount after 10 years at a cumulative interest of 8% per year). bank would have gotten it if it kept 100,000 in a saving account.

EDIT: This is the value of time concept that Amitoj mentioned, directly dictated by current market rate. Usually referred as NPV (net present value) calculations.

The important thing to keep in mind here is banks calculate the interest at the end of a month. Which means if your payment is 15K pm, and you make a 30K payment, the balance directly goes towards your principal, and next month's interest will be calculated in the new reduced principal. that is the only way to improve on your payments. prepayment penalties are something that negotiated before taking a loan in order to be able to do this.

here is a typical loan schedule for 10 years. For 30 years your principal pmt will drop to peanuts. you can use Mortgage/Loan Calculator with Amortization Schedule to create a simple chart like this. your actual amounts may differ because of charges, fees etc.

Pmt Principal Interest Cum Prin Cum Int Prin Bal
1 546.61 666.67 546.61 666.67 99453.39
2 550.26 663.02 1096.87 1329.69 98903.13
3 553.93 659.35 1650.80 1989.04 98349.20
4 557.62 655.66 2208.42 2644.70 97791.58
5 561.34 651.94 2769.76 3296.64 97230.24
6 565.08 648.20 3334.84 3944.84 96665.16
7 568.85 644.43 3903.69 4589.27 96096.31
8 572.64 640.64 4476.33 5229.91 95523.67
9 576.46 636.82 5052.79 5866.73 94947.21
10 580.30 632.98 5633.09 6499.71 94366.91
11 584.17 629.11 6217.26 7128.82 93782.74
12 588.06 625.22 6805.32 7754.04 93194.68
13 591.98 621.30 7397.30 8375.34 92602.70
14 595.93 617.35 7993.23 8992.69 92006.77
15 599.90 613.38 8593.13 9606.07 91406.87
16 603.90 609.38 9197.03 10215.45 90802.97
17 607.93 605.35 9804.96 10820.80 90195.04
18 611.98 601.30 10416.94 11422.10 89583.06
19 616.06 597.22 11033.00 12019.32 88967.00
20 620.17 593.11 11653.17 12612.43 88346.83
21 624.30 588.98 12277.47 13201.41 87722.53
22 628.46 584.82 12905.93 13786.23 87094.07
23 632.65 580.63 13538.58 14366.86 86461.42
24 636.87 576.41 14175.45 14943.27 85824.55
25 641.12 572.16 14816.57 15515.43 85183.43
26 645.39 567.89 15461.96 16083.32 84538.04
27 649.69 563.59 16111.65 16646.91 83888.35
28 654.02 559.26 16765.67 17206.17 83234.33
29 658.38 554.90 17424.05 17761.07 82575.95
30 662.77 550.51 18086.82 18311.58 81913.18
31 667.19 546.09 18754.01 18857.67 81245.99
32 671.64 541.64 19425.65 19399.31 80574.35
33 676.12 537.16 20101.77 19936.47 79898.23
34 680.63 532.65 20782.40 20469.12 79217.60
35 685.16 528.12 21467.56 20997.24 78532.44
36 689.73 523.55 22157.29 21520.79 77842.71
37 694.33 518.95 22851.62 22039.74 77148.38
38 698.96 514.32 23550.58 22554.06 76449.42
39 703.62 509.66 24254.20 23063.72 75745.80
40 708.31 504.97 24962.51 23568.69 75037.49
41 713.03 500.25 25675.54 24068.94 74324.46
42 717.78 495.50 26393.32 24564.44 73606.68
43 722.57 490.71 27115.89 25055.15 72884.11
44 727.39 485.89 27843.28 25541.04 72156.72
45 732.24 481.04 28575.52 26022.08 71424.48
46 737.12 476.16 29312.64 26498.24 70687.36
47 742.03 471.25 30054.67 26969.49 69945.33
48 746.98 466.30 30801.65 27435.79 69198.35
49 751.96 461.32 31553.61 27897.11 68446.39
50 756.97 456.31 32310.58 28353.42 67689.42
51 762.02 451.26 33072.60 28804.68 66927.40
52 767.10 446.18 33839.70 29250.86 66160.30
53 772.21 441.07 34611.91 29691.93 65388.09
54 777.36 435.92 35389.27 30127.85 64610.73
55 782.54 430.74 36171.81 30558.59 63828.19
56 787.76 425.52 36959.57 30984.11 63040.43
57 793.01 420.27 37752.58 31404.38 62247.42
58 798.30 414.98 38550.88 31819.36 61449.12
59 803.62 409.66 39354.50 32229.02 60645.50
60 808.98 404.30 40163.48 32633.32 59836.52
61 814.37 398.91 40977.85 33032.23 59022.15
62 819.80 393.48 41797.65 33425.71 58202.35
63 825.26 388.02 42622.91 33813.73 57377.09
64 830.77 382.51 43453.68 34196.24 56546.32
65 836.30 376.98 44289.98 34573.22 55710.02
66 841.88 371.40 45131.86 34944.62 54868.14
67 847.49 365.79 45979.35 35310.41 54020.65
68 853.14 360.14 46832.49 35670.55 53167.51
69 858.83 354.45 47691.32 36025.00 52308.68
70 864.56 348.72 48555.88 36373.72 51444.12
71 870.32 342.96 49426.20 36716.68 50573.80
72 876.12 337.16 50302.32 37053.84 49697.68
73 881.96 331.32 51184.28 37385.16 48815.72
74 887.84 325.44 52072.12 37710.60 47927.88
75 893.76 319.52 52965.88 38030.12 47034.12
76 899.72 313.56 53865.60 38343.68 46134.40
77 905.72 307.56 54771.32 38651.24 45228.68
78 911.76 301.52 55683.08 38952.76 44316.92
79 917.83 295.45 56600.91 39248.21 43399.09
80 923.95 289.33 57524.86 39537.54 42475.14
81 930.11 283.17 58454.97 39820.71 41545.03
82 936.31 276.97 59391.28 40097.68 40608.72
83 942.56 270.72 60333.84 40368.40 39666.16
84 948.84 264.44 61282.68 40632.84 38717.32
85 955.16 258.12 62237.84 40890.96 37762.16
86 961.53 251.75 63199.37 41142.71 36800.63
87 967.94 245.34 64167.31 41388.05 35832.69
88 974.40 238.88 65141.71 41626.93 34858.29
89 980.89 232.39 66122.60 41859.32 33877.40
90 987.43 225.85 67110.03 42085.17 32889.97
91 994.01 219.27 68104.04 42304.44 31895.96
92 1000.64 212.64 69104.68 42517.08 30895.32
93 1007.31 205.97 70111.99 42723.05 29888.01
94 1014.03 199.25 71126.02 42922.30 28873.98
95 1020.79 192.49 72146.81 43114.79 27853.19
96 1027.59 185.69 73174.40 43300.48 26825.60
97 1034.44 178.84 74208.84 43479.32 25791.16
98 1041.34 171.94 75250.18 43651.26 24749.82
99 1048.28 165.00 76298.46 43816.26 23701.54
100 1055.27 158.01 77353.73 43974.27 22646.27
101 1062.30 150.98 78416.03 44125.25 21583.97
102 1069.39 143.89 79485.42 44269.14 20514.58
103 1076.52 136.76 80561.94 44405.90 19438.06
104 1083.69 129.59 81645.63 44535.49 18354.37
105 1090.92 122.36 82736.55 44657.85 17263.45
106 1098.19 115.09 83834.74 44772.94 16165.26
107 1105.51 107.77 84940.25 44880.71 15059.75
108 1112.88 100.40 86053.13 44981.11 13946.87
109 1120.30 92.98 87173.43 45074.09 12826.57
110 1127.77 85.51 88301.20 45159.60 11698.80
111 1135.29 77.99 89436.49 45237.59 10563.51
112 1142.86 70.42 90579.35 45308.01 9420.65
113 1150.48 62.80 91729.83 45370.81 8270.17
114 1158.15 55.13 92887.98 45425.94 7112.02
115 1165.87 47.41 94053.85 45473.35 5946.15
116 1173.64 39.64 95227.49 45512.99 4772.51
117 1181.46 31.82 96408.95 45544.81 3591.05
118 1189.34 23.94 97598.29 45568.75 2401.71
119 1197.27 16.01 98795.56 45584.76 1204.44
120 *1204.44 8.03 100000.00 45592.79 0.00

Last edited by vivekiny2k : 15th April 2010 at 20:10.
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Old 15th April 2010, 22:12   #86
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Originally Posted by Samurai View Post
A health problem in the family can throw all your careful planning to wind.
True.

Many times, unknowingly, parents are not covered under mediclaim. I think this is an instance of living on the edge, without realizing it. We would know only when the event hits us.

In my case, only three dependents can be covered under company's mediclaim. Wife is working and her company has covered her. So, I could cover my parents and my son. While she could cover her parents through her mediclaim. If and when I am not associated with a company (like resigned from one place but yet to join another or independent consultant etc), I don't even know what to do.

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Originally Posted by Spitfire View Post
It was a lesson learned and a lesson learned well. We save like our life depends on it now. And if I look at it closely it actually does.
Yes, we learn from our lessons and improve. But your last two statements - well, I did not get it fully. No matter how much important saving is, the small joys of life, isn't worth spending for?

Like some asked earlier, how would you decide whether to buy a toy for your kid or not?
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Old 15th April 2010, 23:26   #87
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Yes, we learn from our lessons and improve. But your last two statements - well, I did not get it fully. No matter how much important saving is, the small joys of life, isn't worth spending for?

Like some asked earlier, how would you decide whether to buy a toy for your kid or not?
Since I raised this question, here are two options from my point of view. You have confused two issues here.

1. You should buy it, for your own happiness. Because you want to see your kids happy, and small joys in life are worth it. Or sometimes you just want them off your back.

2. But you should not buy it, because kids need to learn value of money. They should not get everything they ask for, because that's not how life works. You would be setting wrong expectations for them.

take your pick
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Old 15th April 2010, 23:32   #88
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Originally Posted by vivekiny2k View Post
1. You should buy it, for your own happiness. Because you want to see your kids happy, and small joys in life are worth it. Or sometimes you just want them off your back.

2. But you should not buy it, because kids need to learn value of money. They should not get everything they ask for, because that's not how life works. You would be setting wrong expectations for them.
If saving is the objective, as if life depends on it, then it is always option 2, right?

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take your pick
How to do that, was my question.
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Old 15th April 2010, 23:39   #89
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If saving is the objective, as if life depends on it, then it is always option 2, right?
actually, I did not discuss affordability in either of them. you need to balance it with the disposable income you have, and decide. Life depends on savings, still you need to have some disposable income for small joys. don't go from one edge to another .

not to mention managing peer pressure and perception, I mean for kids. when you say no, you have to substantiate it. Why they can't have all the fancy gadgets their friends have. oh man, even the thought makes me exhausted.
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Old 16th April 2010, 10:10   #90
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Originally Posted by vivekiny2k View Post
Folks,

I will briefly explain the loan payment schedule since I just secured a mortgage and have learned a few things, not to forget my economics class . Although I believe this post can be used elsewhere.

When you take a loan, you initially pay more interest because you have more money borrowed from bank.
Excellent post vivek. People always think that they pay the interest first and then the principle while in reality its not so. One only pays the interest for the current loan balance at any point in time. Appreciate your patience in explaining it here.
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