Tuesday, August 4, 2015

Bank on common sense for that loan


I am no finance specialist but I do have common sense. Folks, when we are ready to decide to build our home, many of us do not have the start-up cash in hand to do so. So what do we do? We have to borrow. If you can borrow from a rich aunty and uncle, hats off to you, but this is not the norm. When borrowing, do your research as there are many hidden factors to con­sider. 



For example, some financial institutions only allow you to do a lump-sum payment once for the year. There are interest penalties with specific financial institutions if you make more than one lump-sum payment. 



A policy of unlimited lump-sum payments may be more useful to some borrowers than an institution offering a lower interest rate that has a one-time-a-year-



only-lump-sum-payment facility. I know this was one important factor to me when I did my research. That is why we did not go with a bank. 



The following is an example from the Trinidad and Tobago Mortgage Finance (TTMF) com­pany’s website to underscore a technique in paying off debt quickly:



“Assume a 30-year mortgage on $500,000, at an interest rate of eight per cent per annum and monthly installment of $3,668.82. Total interest to be paid over the life of the facility would be approximately $820,000.



• An additional monthly payment of $100 could yield a saving in inte­rest of approximately $96,000 and reduce the repayment term by just over three years.



• An additional monthly payment of $250 could yield a saving in inte­rest of approximately $200,000 and reduce the repayment term by approximately six years.



• An additional monthly payment of $500 could yield a saving in inte­rest of approximately $300,000 and reduce the repayment term by approximately ten years.”




Forget all the math involved and pay attention to the reduction of years. A simple increase by a few hundred dollars in one’s monthly installment reduces the repayment term significantly. This is further reduced by someone making frequent lump-sum payments on the reducing balance of your loan. 



But be balanced in your approach; don’t do so at the expense of not being able to live a little, dining out on occasion or buying your wife that fancy new dress because, trust me, you will never hear the end of it. 



I urge you to bank on your common sense and research the best options for you and your family when taking a loan and paying off that debt.



D Basdeo



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