Description
The payment schedule of financial instruments defines the dates at which payments are made by one party to another on for example a bond or derivative. It can be either customised or parameterised.
The following document consists of some useful tips that may help you in saving some money on your loan. Please note these are useful based on your loan details and the prevailing market conditions at that point of time. Make sure they are applicable in your case before applying the same. 1) Understand your loan and structure of repayment Many people simply take loan as a contract where you pay certain number of installments against your loan amount. There is more to known about your loan, it is always better to understand the method of repayment and the computation of installment. For a standard housing loan you can use spreadsheet you downloaded from the website. You can consult some experts on other loan, especially your loan provider. This basic understanding will help you in knowing what exactly you are paying for. 2) Known your interest computation In standard loans interest computation is a part of the installment computation, if it’s not it would be wise to understand it before you take the loan. 3) Interest rate movement Fixed rate and Floating rate is the most popular topic of discussion for the loan takers. Even though most people known about it, Banks stills are successful in winning the game. They simply offer the most popular interest rate type. In most of the cases most popular may not be the best option to go with. Grab some news and you will likely to come to known what may the future trend of the interest rate. You can think wisely and select the correct option. This would be one of the most important decisions you will take while taking a loan. Selection of incorrect option may lead to heavy losses. However unfortunately there cannot be any rules to select the correct option. Correct option is based on individual judgment of the prevailing market conditions. 4) Terms & Conditions Understanding Terms & condition does not mean going through that thin fine lines. Though it may be required some time, mainly it’s about understanding the main conditions about your contract with the loan provider. Look out for the following a) Your contract type fixed or floating rate of interest. b) Option to switch between the two and charges for the same. c) Early repayment charges. d) Schedule change charges (Increase or decrease in installment amount) e) For floating type – when your interest rates gets changed and how (Upwards) f) For floating type – when your interest rates gets changed and how (Downwards) g) Tax laws - Benefit in taxation for interest and principal repayment. 5) When your interest rates gets changed and how (Point e & f) The rate of interest of your floating rate loan changes based on interest rate declared by your central bank (RBI in India). Based on change in the interest rates of central bank, banks change their rate of interest affecting your loan. They sometime do it after some regular intervals which may vary between each bank.
The more important point here is that banks increase the rate of interest rate after these intervals, however do not worry about reducing it if the rate falls. They wait for the loan provider to submit an application to reduce the rate of interest. This policy may be different between banks. Here it becomes important for the loan taker to submit this application on frequent intervals, whenever there is a fall in the rate of interest. One should not worry of how small the interest rate change is, as even 0.25% has a huge impact on your loan. Loans with huge amounts and longer term have higher impact. 6) Cost for your option Sometimes there is cost for the option you wish to choose. One example of same can be that generally fixed contract loans are more costly than the floating rate loans. This is because bank born the risk of interest rate movement. Sometime they become even costlier if a bank offers discount on floating rate. It’s important to control temptation at such movement and take a wise step. 7) Choosing a Loan provider As you are borrowing the money rather than investing it, one may be less worried about the provider. However choosing a correct provider may help you in lesser interest rates, avoid hidden charges (if any), rely of installment calculation, and be more secure about your security provided. 8) Reverse mortgage This is a term I recently came across even though it’s being popular for many years in the developed countries. It’s a kind of mortgage for pensioners. The borrower (pensioner) keeps on taking the loan in installments (pensions) and allows bank to recover the loan by selling the house after his/her death. The good part is surplus from sale is transferred to legal heirs and they also have an option to retain the house by repaying the loan. 9) Discuss (Suggestion) Always try to discuss and share about financial matter with closed ones. This may help is learning more and avoiding financial mistakes. Consult a financial advisor, however choose an advisor wisely as many claim themselves to be financial advisors even they know least about it. Few others bring their self interest over yours. 10) You are your best advisor No one understands your situation more that you. Even though you would like to consult and talk to people around you, always remember that you are your best advisor.
Most Important point Not all loans are bad. If you have taken a loan that is helping you to earn more it’s wise to keep or increase that loan. The above point won’t be applicable and you should think the other way round. Feel free to discuss with me as we learn from each other.
doc_634665332.doc
The payment schedule of financial instruments defines the dates at which payments are made by one party to another on for example a bond or derivative. It can be either customised or parameterised.
The following document consists of some useful tips that may help you in saving some money on your loan. Please note these are useful based on your loan details and the prevailing market conditions at that point of time. Make sure they are applicable in your case before applying the same. 1) Understand your loan and structure of repayment Many people simply take loan as a contract where you pay certain number of installments against your loan amount. There is more to known about your loan, it is always better to understand the method of repayment and the computation of installment. For a standard housing loan you can use spreadsheet you downloaded from the website. You can consult some experts on other loan, especially your loan provider. This basic understanding will help you in knowing what exactly you are paying for. 2) Known your interest computation In standard loans interest computation is a part of the installment computation, if it’s not it would be wise to understand it before you take the loan. 3) Interest rate movement Fixed rate and Floating rate is the most popular topic of discussion for the loan takers. Even though most people known about it, Banks stills are successful in winning the game. They simply offer the most popular interest rate type. In most of the cases most popular may not be the best option to go with. Grab some news and you will likely to come to known what may the future trend of the interest rate. You can think wisely and select the correct option. This would be one of the most important decisions you will take while taking a loan. Selection of incorrect option may lead to heavy losses. However unfortunately there cannot be any rules to select the correct option. Correct option is based on individual judgment of the prevailing market conditions. 4) Terms & Conditions Understanding Terms & condition does not mean going through that thin fine lines. Though it may be required some time, mainly it’s about understanding the main conditions about your contract with the loan provider. Look out for the following a) Your contract type fixed or floating rate of interest. b) Option to switch between the two and charges for the same. c) Early repayment charges. d) Schedule change charges (Increase or decrease in installment amount) e) For floating type – when your interest rates gets changed and how (Upwards) f) For floating type – when your interest rates gets changed and how (Downwards) g) Tax laws - Benefit in taxation for interest and principal repayment. 5) When your interest rates gets changed and how (Point e & f) The rate of interest of your floating rate loan changes based on interest rate declared by your central bank (RBI in India). Based on change in the interest rates of central bank, banks change their rate of interest affecting your loan. They sometime do it after some regular intervals which may vary between each bank.
The more important point here is that banks increase the rate of interest rate after these intervals, however do not worry about reducing it if the rate falls. They wait for the loan provider to submit an application to reduce the rate of interest. This policy may be different between banks. Here it becomes important for the loan taker to submit this application on frequent intervals, whenever there is a fall in the rate of interest. One should not worry of how small the interest rate change is, as even 0.25% has a huge impact on your loan. Loans with huge amounts and longer term have higher impact. 6) Cost for your option Sometimes there is cost for the option you wish to choose. One example of same can be that generally fixed contract loans are more costly than the floating rate loans. This is because bank born the risk of interest rate movement. Sometime they become even costlier if a bank offers discount on floating rate. It’s important to control temptation at such movement and take a wise step. 7) Choosing a Loan provider As you are borrowing the money rather than investing it, one may be less worried about the provider. However choosing a correct provider may help you in lesser interest rates, avoid hidden charges (if any), rely of installment calculation, and be more secure about your security provided. 8) Reverse mortgage This is a term I recently came across even though it’s being popular for many years in the developed countries. It’s a kind of mortgage for pensioners. The borrower (pensioner) keeps on taking the loan in installments (pensions) and allows bank to recover the loan by selling the house after his/her death. The good part is surplus from sale is transferred to legal heirs and they also have an option to retain the house by repaying the loan. 9) Discuss (Suggestion) Always try to discuss and share about financial matter with closed ones. This may help is learning more and avoiding financial mistakes. Consult a financial advisor, however choose an advisor wisely as many claim themselves to be financial advisors even they know least about it. Few others bring their self interest over yours. 10) You are your best advisor No one understands your situation more that you. Even though you would like to consult and talk to people around you, always remember that you are your best advisor.
Most Important point Not all loans are bad. If you have taken a loan that is helping you to earn more it’s wise to keep or increase that loan. The above point won’t be applicable and you should think the other way round. Feel free to discuss with me as we learn from each other.
doc_634665332.doc