Posted by: fathersez | January 24, 2008

The costly PF mistakes and blunders I have made, and why you should not repeat my mistakes – Part 3

The four mistakes we have talked about so far are :- 

         Not paying myself first

         Not forming or joining a correct peer group

         Not having a written budget and

         Not managing my career properly  

There are more.

The next one is “not getting a better or the best deal on my mortgages”. 

My first mortgage was taken sometime in the late eighties. At that time, I was holding a key management position in a PLC.  The bank officers came to my office and took my particulars. A week or so later, they returned, this time with a solicitor. They had the documents all prepared and all I had to do was to sign on the dotted line.  

Which I did. 

The only things I remember about this mortgage :- 

a)    The Bank

b)    The amount borrowed

c)     The term and

d)    The monthly installment  

In the rush of the feeling of importance, I did not know then nor did I find out what the interest rate was, or whether it was a competitive one. And I did not even read the loan agreement and the other documents that came along with it.  

This loan was prepaid in full about 75% or so into its term. 

One would have thought that I should have learnt from this experience. Unfortunately I did not. 

With this house now free of loans, our family shifted to another town. We took another fresh mortgage on this first house and used the funds to pay for the second house in the new town + the renovations.  

As I was no longer holding that so called “important position”, this time, I had to join the queue and apply for the loan.        

Again the only things that I bothered about were same 4 things mentioned earlier. Now, having learnt a lot more about PF from the blogs, I have calculated the “losses” from this second misadventure. 

Had I shopped around for rates, I would have reasonably easily gotten a 10% reduction. If I had taken the lower interest rate loan and paid the same installments, I would have a year less to go. 

What I should have done

a)    I should have done comparison shopping for rates and terms of the loans. This should not have been too difficult an exercise as we do not have too many banks in our country. 

b)    I should have read every document carefully before signing. Though in this case, no surprises have come up so far, I have given the bank powers to raise rates at their discretion etc. (Though my loan is a fixed rate loan).

PS:

I tried to refinance the loan sometime last year, but the bank’s lawyers again came up with clauses allowing them to raise rates at their discretion, despite the ads promising an absolutely fixed rate loan throughout the length of the loan period.

My wife and I have since then decided to sell off the house and pay down our liabilities.

Don’t repeat my mistake, please

The purchase of our home is usually one of our biggest commitments. Hence the mortgage would be one of our biggest and longest liabilities. This liability has to be shopped for carefully, comparing rates and terms.  

If we are a good credit risk, we should make the Bank work for its money. 

Advertisements

Responses

  1. Thank you for the tips!

  2. Ms. Xynix,

    You are most welcome. I sincerely hope that you will benefit from this post.

    Regards

  3. If you lend money – get it in writing
    If you lend money – get it in writing – create a loan agreement and promissory note.
    I’m sure that you heard the old adage never mix business with pleasure. Most people prefer to keep their personal and professional lives separate, particularly where money is involved. Poor business decisions or ventures can lead to a rupturing of a friendship and the same holds true in a money-lending situation. Many good friendships have been lost because money has been lent and then misspent or not repaid. But what about situations when there is no one else to turn to? You’re desperate for money and your best friend offers their assistance. Can you afford to turn him or her down? Or what about the reverse – one of your closet friends comes to you with a financial problem and asks for your assistance because they have no other options? Would you feel right turning them away? How can you avoid falling into the pitfalls of mixing friendship and money as either the lender or the borrower? Here are a few tips on how to approach a loaning situation between friends.
    • Eliminate All Other Options Before you accept money from a friend or offer money to a friend, make sure that there aren’t any other options you can pursue. Are there other lending companies that will work for your situation?
    • Have you cut back your expenses to the absolute minimum or are there some non-essential items that you can do without?
    • The most important thing to keep in mind is that borrowing from friends should be your last option, not your first. If you can get it from someone or somewhere else, then you should.
    • Treat it like a business arrangement. Use a company such as One 2 One Lending to document and collect your loan. A third party can prove to be very valuable in removing the emotions from a private loan.
    • Most friends don’t mind lending the money and helping someone out, but it can be very aggravating to believe that money is being misspent. If you’ve borrowed money from anyone your first priority is to pay that money back.
    And if you are the lender, don’t let your frustration build up – make your feelings heard and let your friend know. Introducing One 2 One Lending can act as your voice and maintain a professional relationship.

  4. […] The costly PF mistakes and blunders I have made, and why you should not repeat my mistakes – Part … The purchase of our home is usually one of our biggest commitments. Hence the mortgage would be one of our biggest and longest liabilities. This liability has to be shopped for carefully, comparing rates and terms. If we are a good credit risk, we should make the Bank work for its money. […]

  5. Not understanding your mortgage is the costliest mistake you’ll probably EVER make.

    check out this link:
    http://wealthbuildinglessons.com/2007/06/11/understanding-your-mortgage/

  6. LoD,

    Thanks for dropping by.

    Yes, this has been a mighty painful lesson for me.

    I hope at least my children learn from my mistakes.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: