Posted by: fathersez | February 6, 2008

A critical review of my loans

Though I keep track of my loan balances in my year end net worth computations, I have never really sliced and diced them to look at them from different perspectives.

Today I did just that.

The breakdown of my loans (by percentages) is as follows:

         2005      2006      2007
Investment Loans      26.00      14.00             
Overdraft                     6.00        7.00
Car Loans      14.00      25.00      33.00
Mortgages      60.00      55.00      60.00
Total     100.00     100.00     100.00
Loan increase     100.00      58.65     (16.95)
Months left on minimum payments: 90
Months left on present payments: 76

This is not good. The number of months left assumes that I’ll have the same earning power over the next 6 years or so may not be realistic. Though I have a couple of irons in the fire, they are still a little long shots at the moment.

More confirmation that my debt levels are not good is shown when I apply Moolanomy’s DTI ratio calculation.

The present payment is a whopping 39% of gross income.

My wife and I have decided to put up on our houses for sale. The rental returns we are getting is far inferior to the savings that we’ll make if the sales proceeds were to be applied to loan settlement. (We are lucky to have a truly wonderful and responsible family as tenants, so at least there have been zero headaches. My wife and I are also probably rated by them as great landlords as we have maintained the same rent for the past 6 years.)

If the property were to be sold and the net proceeds used to repay loans, our loan profile will change as follows :

Loans become: As % of 2007 total 29.39
Months left if I continue present payment: 23

The DTI now becomes a much more manageable 7.40%.

This will lessen the financial pressure for me as I yearn for a much better life / work balance.

We put up the house for sale about a couple of months ago. Perhaps we are making what “FMF calls the No: 1 reason why houses are not being sold” mistake.

My wife tells me that her instinct is that we would not sell the house and something else would happen that would change our financial plans for the better.

I don’t know. This is something that I also have to discuss with my two elder girls. The house has many good memories. This was our first home, all the houses before were rented. (The 3 younger kids were also born here).

What do you think? Am I doing the right thing? Your advice and views will be most appreciated.

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Responses

  1. I don’t know. It does sound kind of like Dave Ramsey’s “sell the car” strategy. It’s definitely something your wife and family should be on board with. Figuring out the important of being debt free, the potential value of the houses/rents, etc.

    It could be an excellent strategy. If you go into it, you should go the whole way—you’re selling the house for a great profit not just to get some money.

  2. Hi, Mrs. M,

    Actually this is an investment property. The house we live in is not affected in this equation.

    I am convenced we should sell, my wife is going along, but she feels that the house may not be sold.

    Let’s see how it goes.


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