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Home, Life, & Auto Insurance.

When the common bourgeois acquires a home loan, that is probably going to be their biggest financial commitment. Home loans are one of the smartest ways of transforming your dream house into reality. But as simple as procuring it might seem, it is equally hard to repay the EMIs when one gets bogged down the mire of overheads. One should make it a point to actualize the below points if they were to glide easily through repaying the EMIs.

Try to pay a higher EMI if possible:

There is no better way of ensuring to repay loans before the home loan tenure ends, except for this. By incrementing the EMI amount slightly, one can significantly reduce the number of months or years from the loan period. A debtor must ensure to invest their money in a sagacious manner, one which would generate sufficient funds to increase the EMI repayment.

Managing Funds:

The objective here is to maximise cash flows. One should compare their monthly payments with their monthly returns on investment. To put into perspective, if one finds that certain investments do not help in getting adequate returns, or cause more loss than profit, then it’d be prudent to pool in the money that goes into them towards repaying EMIs. Try to make investments that give a lucrative return of at least 12–15 per cent.

Try partial pre-payment:

The longer one takes in the prepayments, the higher the loan interest would be charged. Partial pre-payment is the most efficient method of lowering the loan tenure to decrease the loan obligation.  Out of the many benefits of partial pre-payment, the most predominant one happens to be the pre-payment amount, which can get as low as 10,000 INR. Income from property deals, hefty bonuses, big gains on stocks and shares, and many more of such incomes can be used for partial pre-payment.

Moving to a bank that charges lower interests:

Moneylenders often lower their lending rates at different time intervals due to their diversified interest rate reset periods. This is one opportunity for one to cull the bank with low-interest rates, and which can be achieved through something called ‘Balance Transfer Scheme’ of banks. Under this preference, the entire unpaid amount can be transferred to another bank with lower interest rates. But one should also keep in mind to not switch frequently as every time one switches to a different bank, they’d have to go through loan appraisal and underwriting processes. This is notwithstanding technical and legal paperwork. The moneylenders also levy a nominal fee, which usually is about 1 per cent of the total loan amount.

If one is able to put into fruition the above steps, then they’d be able to waddle their way out of these EMIs quite easily.

Annuities can be a confusing because they combine elements of insurance with characteristics more popularly associated with pensions. In the most common type of annuity, an individual pays a financial company a certain sum of money in return for a future stream of payments. These future payments are typically taken during retirement and serve as retirement income. Annuities can guarantee a certain number of payments (over a certain number of years), or they can guarantee payments for life (“life annuity” or “lifetime guaranteed annuity”) guaranteeing an individual monthly payments of income until the individual dies. This can provide security to a retiree, knowing they can’t outlive their income. The downside to this life time security is that one might spend a lot of money on a life annuity and then die shortly thereafter and receive very little benefit from the annuity. In other words, if you live beyond typical life expectancy, you do very well with an annuity, but if you die prematurely, the life insurance company that grants the annuity makes a lot of money. Such annuities are typically offered by life insurance companies because they are experts in calculating how long, on average, a person with certain characteristics (e.g. smoker/non-smoker, blood pressure, cholesterol, family health history, etc) is likely to survive and draw annuity payments.

For many people, thinking of Social Security (in the US) or Canada Pension Plan (in Canada) or a defined benefit pension–the traditional pension that many public employees and school teachers have–is an easy way to understand life annuities. In these cases, we make many small payments–through Social Security taxes on our income or through retirement plan contributions where we work–that serve to “purchase” the annuity. An annuity can also be purchased outright, however, before or after retirement. If one receives a large inheritance or other financial windfall, for example, one can purchase an annuity all at once with a lump sum. Similarly, if one has saved money in a 401k or similar defined contribution retirement account, one can use that lump sum to purchase a lifetime guaranteed annuity, effectively converting a large account balance into a stream of guaranteed, future monthly payments.

This video gives a (mathematically complicated) explanation of how to calculate the present value of a future stream of annuity payments:

Click here for actual pension calculators that give present values for pensions and life annuities using both actuarial and life expectancy methods. You can experiment with different numbers for interest, payment size, and inflation to see how they work.