Saturday, 10 June 2017

Financial Mistake #1

It was way back in the year 2008. I just had Ms. Achsah and we were literally spending all the money that I was earning. So my mom forced me to buy an apartment even though there was no need for it. We were not going to stay in it. And so after the big economic crash and just before the real estate crash, we booked our apartment with a hefty home loan.

RE price crashed after we booked it and the builder was selling similar apartments in the same complex at 85% of what we had paid (if only we had waited 3 months). Also the handover was delayed and it was handed over to us only by the end of 2010. So right through the economic crash of 2008 and layoffs happening all around me, I was sinfully waiting for my apartment and paying a pre-Emi on this. I was so naïve that even though my teammates were being laid off, I stupidly assumed because I was smart enough in my job, I will always have my job. But now, I know better and frantically saving / investing for my FI. My #1 goal now is to have enough liquid money (from MF & FD) to prepay the outstanding home laon. And I hope to achieve it in the second half of 2018.

Luckily after the apartment was handed over, we always had tenants, which is a good news (touchwood). But the rental income is no match to the EMI. I never thought of pre-paying the loan and let it run.

Then in 2015 when I realized our sad financial status, I took a stock of all the things I was doing. Not prepaying the loan was the top of it. I could have very well increased the EMI amount and my loan would have ended long back. So in 2015, I increased my EMI amount by about 30% and decided to let the loan run its course. I also made a solemn vow J to invest my surplus with the hope that the returns would be higher than the home loan interest. At this rate I hope to close the home loan by mid of 2022, a good 15 years after I first took the loan.  

The rental yield is 2% of the current value. The apartment price has not gone up much, hardly 20% increase in 10 years but since it right on the main road have decided to hold it. Also there is a sentimental reason. My mom is no more but it was she who forced me to buy it, so wanted to retain it in memory of her.

One more mistake I did was to take the home loan from HDFC and every time there is a interest rate reduction I have to pay a conversion fee on it and so far I would have paid atleast 5 conversion fees to them. Yes I do not remember how many times I have paid the conversion fees and that’s how bad I was managing my finances.

On top of it, after paying pre-EMI for 2 years and EMI for 7 years I have only paid 30% of the original loan and the major part of it is in the last two years after increasing the EMI.

And inspite of all this, I still dream to construct my dream home but have decided to venture into it only if I am able to fund it 100% from my investments. Whether I actually use the investments or partially use it and also get a home loan to get the tax benefit will be decided at the time of constructing. For now, I am dreaming of my home.

So here is it for all of you to read, #1 of the many financial mistakes I have made.

PS: I will be documenting the financial mistakes in no particular order.

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