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.