Go Back   Team-BHP > Around the Corner > Shifting gears


Reply
 
Thread Tools Search this Thread
Old 29th April 2010, 21:37   #16
Senior - BHPian
 
jaysmokesleaves's Avatar
 
Join Date: Dec 2007
Location: Mostly Mumbai
Posts: 1,673
Thanked: 1,143 Times
Default

I dont know about the calculations but I will say this; if you can afford to prepay it. Do it!!
The feeling of not having to pay an EMI is better than the calculations. The "feel", is the calculation. All the calculator gurus might differ, but thats my 1 cent.
jaysmokesleaves is offline   Reply With Quote
Old 29th April 2010, 21:52   #17
Senior - BHPian
 
vivekiny2k's Avatar
 
Join Date: Feb 2005
Location: cincinnati, jabalpur,chennai
Posts: 1,241
Thanked: 163 Times
Default

Quote:
Originally Posted by mjothi View Post
+1.

All the institutions collect EMI with most portion going to interest. So, if you have been paying EMI for years (say 2 ro 3 yrs in case of 10yrs loan period), you would have paid interest upfront. So, why not utilize the money rather than paying back to bank?
it's simple calculation actually. you pay more interest because you owe more initially. you pay less later because you owe less. to figure out how much you pay in total, refer to loan amortization in the other thread about living on the edge.

Here is another angle that might interest you. As you pay your loan, you increase your ownership in the home. Here in US people sell that as "home equity" to get more cash. so at any point they own no home, and die with no significant assets.

in other words, use all you have while you are alive. We Indians have a tendency to leave a home for our children and will never do this.

another cool thing I have found is interest lock. my interest rate is locked at 5.25. if it goes down, i can refinance (for a cost). if it goes up, i still maintain my rate. I know nothing about how it happens in india, so take my comments with some salt.

Last edited by vivekiny2k : 29th April 2010 at 22:00.
vivekiny2k is offline   Reply With Quote
Old 30th April 2010, 00:45   #18
BHPian
 
Join Date: Jan 2010
Location: Surat/Mumbai
Posts: 201
Thanked: Once
Default

Quote:
Originally Posted by ntomer View Post
I faced a similar predicament last year. I have an outstanding of about 10L on my current home and have that much cash. After thinking long and hard, I decided against pre-paying that loan and instead made the down-payment on another home.

I am hopeful that within 3-4 year, my investment will be more than doubled and it'll be much more than what I could have saved in interest.

My two cents :-)

Nitin
This is what i read in the book, Rich Dad, Poor Dad.
Johnny_ is offline   Reply With Quote
Old 30th April 2010, 04:39   #19
Distinguished - BHPian
 
phamilyman's Avatar
 
Join Date: Jul 2007
Location: Gurgaon
Posts: 5,582
Thanked: 3,244 Times
Default

Sorry to pin prick your bubble but the only thing this hypothesis misses out on, is risk. On paper, we can take on unlimited leverage. In the real world, family will fall sick, accidents will happen, people will lose their jobs.

And the peace of mind of a reduced EMI (and hence lesser fixed costs) does have a value.

PS: Ofc, if the amount is insignificant compared to your annual take home, or you have a cash generating business,the above doesnt apply!
phamilyman is offline   Reply With Quote
Old 30th April 2010, 04:54   #20
BHPian
 
tacho's Avatar
 
Join Date: Jan 2005
Location: Herndon, VA
Posts: 125
Thanked: 2 Times
Default

This is way too complicated for me but I want to know what the OP meant by RD. I've heard of Fixed Deposit before, but RD?
tacho is offline   Reply With Quote
Old 30th April 2010, 09:29   #21
BHPian
 
Join Date: Jun 2005
Location: New Delhi
Posts: 613
Thanked: 116 Times
Default

Quote:
Originally Posted by phamilyman View Post
Sorry to pin prick your bubble but the only thing this hypothesis misses out on, is risk. On paper, we can take on unlimited leverage. In the real world, family will fall sick, accidents will happen, people will lose their jobs.

And the peace of mind of a reduced EMI (and hence lesser fixed costs) does have a value.

PS: Ofc, if the amount is insignificant compared to your annual take home, or you have a cash generating business,the above doesnt apply!
Thanks for the good advice buddy; but there are ways you can plan for these contingencies too. I have sizable medical insurance (6 lakh Gold cover for my family) and even more sizable accidental insurance (almost 75L - which my family will get in case of my accidental death). And in case of a job loss, I would be adequately covered by PF, gratuity, notice money etc and will be able to sustain similar lifestyle (including additional EMIs) for 1.5-2 years easily.

Thus I feel I am adequately covered and ready to take this risk. Of course you have a point when you say that a reduced EMI does bring peace of mind; but in my case watching my investments grow would be more satisfying :-)

Whadayasay?

Nitin
ntomer is offline   Reply With Quote
Old 30th April 2010, 09:45   #22
BHPian
 
rohan_iitr's Avatar
 
Join Date: Feb 2009
Location: Bangalore
Posts: 992
Thanked: 401 Times
Default

Quote:
Originally Posted by phamilyman View Post
Sorry to pin prick your bubble but the only thing this hypothesis misses out on, is risk. On paper, we can take on unlimited leverage. In the real world, family will fall sick, accidents will happen, people will lose their jobs.

And the peace of mind of a reduced EMI (and hence lesser fixed costs) does have a value.

PS: Ofc, if the amount is insignificant compared to your annual take home, or you have a cash generating business,the above doesnt apply!
In case of an emergency (sickness/accident), having surplus cash with you would give you more confidence and peace of mind, rather than having spent that cash to pre-pay the loan for reducing EMI.

@ OP, when the home loan is paid back by the borrower, the interest component is higher in the early years. Once you have already done the hard work of paying the interest, it is now time for you to reap the benefits by paying mostly towards the principal.

After paying off a significant portion of the interest, why would you want to pay back all principal earlier than required ?

If you have surplus cash, invest elsewhere (Gold, plot, mutual funds, FD etc). They will also give good returns.

Rohan
rohan_iitr is offline   Reply With Quote
Old 30th April 2010, 11:37   #23
BHPian
 
Join Date: Apr 2005
Location: Pune
Posts: 726
Thanked: 9 Times
Default

Quote:
Originally Posted by phamilyman View Post
Abhay - that is numerically true. However, tomorrow there may be an accident, there may be ill parents, you may lose your job. Do you still want to have a large fixed monthly outgo?

phamilyman, perhaps you did not read my post right. That advice of not pre/part paying my loan was given to me by a CA but I did not take it!
We did some part payment and finally last year we fully paid up the outstanding amount. In the uncertain job market, even if I lose my job today atleast I do not have to pay a single rupee per month to stay in my own home. That was the rationale behind it :=)

edit: to jaysmokesleaves *thumbs up*

Last edited by Abhay : 30th April 2010 at 11:40.
Abhay is offline   Reply With Quote
Old 30th April 2010, 12:00   #24
Team-BHP Support
 
benbsb29's Avatar
 
Join Date: Nov 2006
Location: Brisbane
Posts: 7,971
Thanked: 3,388 Times
Default

Quote:
Originally Posted by jaysmokesleaves View Post
I dont know about the calculations but I will say this; if you can afford to prepay it. Do it!!
The feeling of not having to pay an EMI is better than the calculations. The "feel", is the calculation. All the calculator gurus might differ, but thats my 1 cent.
Quote:
Originally Posted by Abhay View Post
In the uncertain job market, even if I lose my job today atleast I do not have to pay a single rupee per month to stay in my own home. That was the rationale behind it :=)
Well said, guys! Abhay has summed up what i felt as well, quite brilliantly!
benbsb29 is offline   Reply With Quote
Old 30th April 2010, 12:24   #25
Senior - BHPian
 
mjothi's Avatar
 
Join Date: Dec 2007
Location: Bangalore
Posts: 3,252
Thanked: 216 Times
Default

Quote:
Originally Posted by vivekiny2k View Post
it's simple calculation actually. you pay more interest because you owe more initially. you pay less later because you owe less. to figure out how much you pay in total, refer to loan amortization in the other thread about living on the edge.
You are right. I mean the same. You pay more because you had more outstanding. But, when you prepay, you have reduced the outstanding. Agreed.

But what happen to the interest you already paid? its the interest calculated on the initial amount believing that you will be utilizing for next tenure years. Now, by pre-paying, you have "wasted" that excess money.

I can understand the feeling when one stays in their own house and its fully yours. But the question is - advisable or not. And it depends on person to person.

What will happen if you lose your job, parents are ill etc etc? That's certainly not the end of the world. You can still rent it out and move for a lower rental house, you can sell those, etc.

What will happen if person dies? That's again covered by insurance if you had properly insured.

So, its only the "feeling" that says you are less liable now.

And at the end - how many people really "follow" advise
mjothi is offline   Reply With Quote
Old 30th April 2010, 14:12   #26
BHPian
 
Join Date: Sep 2007
Location: Faridabad
Posts: 180
Thanked: 18 Times
Default

For me I prepaid car and home loan. I took homeloan from ICICI ROI was 13.25 % and i was paying more interest than principle, also everybody knows how ICICI charges from its old customers.. So to have peace of mind it is better to prepay loan.
mandyrana is offline   Reply With Quote
Old 30th April 2010, 14:46   #27
Senior - BHPian
 
mjothi's Avatar
 
Join Date: Dec 2007
Location: Bangalore
Posts: 3,252
Thanked: 216 Times
Default

Quote:
Originally Posted by mandyrana View Post
So to have peace of mind it is better to prepay loan.
You can also transfer it to a public sector banks
mjothi is offline   Reply With Quote
Old 30th April 2010, 14:53   #28
Newbie
 
sanman18's Avatar
 
Join Date: Mar 2010
Location: jaipur
Posts: 21
Thanked: 0 Times
Default

Quote:
Originally Posted by tacho View Post
This is way too complicated for me but I want to know what the OP meant by RD. I've heard of Fixed Deposit before, but RD?
Here RD means Recurring Deposit.

Quote:
Originally Posted by Abhay View Post
phamilyman, perhaps you did not read my post right. That advice of not pre/part paying my loan was given to me by a CA but I did not take it!
We did some part payment and finally last year we fully paid up the outstanding amount. In the uncertain job market, even if I lose my job today atleast I do not have to pay a single rupee per month to stay in my own home. That was the rationale behind it :=)
As I already shown in calculations ,what we assume is that if we had money,then instead of prepayment the amount , we deposit this money in FD. So even if you have no money in future due to some reasons , then also you can certainly prepayment by the money deposit in FD
sanman18 is offline   Reply With Quote
Old 30th April 2010, 16:09   #29
Distinguished - BHPian
 
phamilyman's Avatar
 
Join Date: Jul 2007
Location: Gurgaon
Posts: 5,582
Thanked: 3,244 Times
Default

abhay,

aplgs if the tone sounded like u were wrong - i was more like giving a counter advise.

Tomer bhai,

maybe my savings are not at your level :-)

My question is about pf/gratuity - i've not worked long enough/researched enough to know how i can withdraw it. personally, i assume its in a time capsule to be taken out after 15 years

As for notice money etc - don't bank on it in today's age - though a friend got fired with 6 months pay, and rejoined a competitor (IT) at a better pay in 15 days. Yes, not everyone can be lucky.
phamilyman is offline   Reply With Quote
Old 30th April 2010, 16:17   #30
BHPian
 
Join Date: Jun 2005
Location: New Delhi
Posts: 613
Thanked: 116 Times
Default

Quote:
Originally Posted by phamilyman View Post
My question is about pf/gratuity - i've not worked long enough/researched enough to know how i can withdraw it. personally, i assume its in a time capsule to be taken out after 15 years

As for notice money etc - don't bank on it in today's age - though a friend got fired with 6 months pay, and rejoined a competitor (IT) at a better pay in 15 days. Yes, not everyone can be lucky.
You can withdraw your PF, if you are unemployed for 60 continuous days; and become eligible for gratuity if you have worked for more than 5 years in a company.

And what has finding next job has to do with notice money, I will get it anyways. My point was that with severance payments (notice money, PF, gratuity, encashed PLs etc.) I will be able to sustain a similar lifestyle easily for 1.5-2 years. Therefore it was a wise choice for me to invest the surplus cash rather than pre-paying the loan because I'll get better returns this way.

And in the worst case, I can always sell the second home, can't I?

Nitin
ntomer is offline   Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search


Similar Threads
Thread Thread Starter Forum Replies Last Post
The Cheap Loan or the Smart Loan - SBI Advantage Car Loan keyur Indian Car Loans & Insurance 208 5th July 2017 15:56
Good news: Pre-pay car & home loans without penalty thedreamcatcher Indian Car Loans & Insurance 17 24th December 2014 17:12
Buy car using cash OR Take car loan & prepay home loan? rajshenoy Indian Car Loans & Insurance 13 2nd August 2013 18:16
Loan query - is this loan deal OK (From HDFC) BenjiRoss Indian Car Loans & Insurance 100 2nd September 2010 16:51
Go for a loan OR pay upfront? Pros and Cons? nayshak Indian Car Loans & Insurance 31 10th May 2007 01:27


All times are GMT +5.5. The time now is 19:26.

Copyright 2000 - 2017, Team-BHP.com
Proudly powered by E2E Networks