Controversial Debate on Buying vs Renting a House

Posted on July 11, 2010December 24, 2019 by Jagoinvestor

There is a very good debate going on in the previous article I wrote about EMI and how it can change your decisions regarding Home loan and other Loans. A lot of readers have put their thoughts about the Home loan and whether they prefer Buying or Renting, we got a lot of readers who supported Buying and some said renting is better, the conversation went so in the flow that It was worth mentioning here and getting everyone’s point of view.

So please go through these views on Buying Vs Renting and put your comments and views on why you support Buying or Renting. The main points discussed where the opportunity cost, Emotional satisfaction and what are the prospects in return over the long term in real estate.

Should we buy our own house or live on rent?

#Conversation 1

Meena Says’s

I liked this article immensely and echoes my sentiments exactly. I agree with you regarding the way people go overboard on car loans and personal loans to satisfy their craze to keep up with their friends and neighbors. But I would differ on the home loans. For most people, buying a first home is an emotional decision especially if they want to occupy it for personal use. Even if the value of a self-occupied house appreciates substantially, it is only notional as you don’t want to sell it.

I want to relate my personal experience on the home purchase. We are a joint family and about 14 years back, we (my husband and I, both working and earning) purchased a 2 BHK flat in a Delhi suburb for 11 lakhs. We wanted 3 BHK flat badly but could not afford the EMIs although it cost only 2-3 lakhs more. But a few years down the line, both our incomes increased and in hindsight, we repented the decision of not going for the 3 BHK flat.

Now the cost of the same 3 BHK flat is close to 80 lacs which is quite unaffordable. So my point is, while deciding on the home purchase, look for present affordability as well as future earning potential. Also buying a house is any day better than renting it out if you have no plans of relocating to any other place.

My Reply

I agree that the decision would depend on the current affordability and future earning potential. However in your case as you said that you were not able to afford the 3 BHK that time, does it mean that you were not able to pay any EMI if you took 3 BHK or for the next several years. I think the mistake happened in not able to factor out your earning potential of the future? Correct?

I would like to hear your views on why you said that “Buying a Home is anytime better than renting out if you are going to stay at the same place? “. Under what assumptions do you say that? Will it be true for any case, do you also consider the other alternative of investing your money somewhere else? Are you biased towards emotional attachment related to this overall buying home issue?

Meena’s Reply

Hi Manish,

We anticipated that after paying EMIs for 3 BHK flat would have resulted in a liquidity crunch for some time. So we did not take the risk at that time. But what we did not factor in, was that the liquidity crunch would have lasted only for a very little time as the incomes also increased.

When I said that buying is better than renting, is not an emotional decision but a pragmatic one. 1. For one, investing in a house is good for your asset allocation – you are spreading out your investments in Equity, debt, real estate, etc. 2. I do not buy the argument that the money spent on EMIs are better deployed in other investments like MFs or stocks.

At least in metros like NCR, the real estate gives decent returns over the years (a CAGR of 12-15% in 10 years as in my case). 3. Also renting a house has many hassles: Rents increase @ 10% p.a. and you are at the landlord’s mercy as he may ask you to vacate anytime. 4. You get very good tax breaks when you own a property. All these are good arguments for many people to invest in at least one property.

My Reply

Meena

I will agree with some of your points.

1. Asset Allocation: Yes, you achieve asset allocation by investing in Real Estate, but in the early phase if your debt and equity is not high, then even asset allocation is stretched on real estate side much, for example, if one has just 2-3 lacs in Debt and 4-5 lacs in Equity and buy a real estate of 50 lacs, that 85% Real estate, 5% Debt and 10% Equity, though there is some asset allocation, but still most of the portfolio is in Real estate, However, what you say about allocation makes sense when there is good balance between all the 3.

2. This can depend on what kind of investor you are and your concept about “owning home”. For an investor profile like yours, it will actually not makes sense because your priorities are much different, you feel more satisfaction in “owning home” and that your priority, however, there are many readers I have interacted with and know them who are more comfortable with the option of renting out and that makes them more comfortable, It might make sense for them to deploy the EMI – rent money in other investments, at the end if you know what you are doing makes sense.

Also regarding the returns from real estate, there are 25% returns, 15% returns and even 5-6% returns also in the last 10 yrs depending on the location and timings. In the last 10 yrs, the situation has been very different and the next 10 yrs will be different than those, What you get in returns as % terms at the time of selling the property will actually matter and not for the time when you actually Hold. So it’s my rough guess that if you live in the same flat for the next 20-30 yrs and then sell the flat, you will find out that the returns over the period of times will be in single digits, maybe 10% max.

Historically real estate has never given more than 9-10% over the very long term (very long term again) in the last many decades (even centuries), so I dont see why it should be different now. Real estate runs in cycles and they are long, a 10 yr return in real estate can be very different than very long term returns figures, while I say this, I will also say that real estate in India is promising and next 1-2 decades can be exceptional and give returns on the higher side of average till date.

3. Renting has hassles, but has advantages too, just like owning our own house has hassles and advantages of its own, so what you call as hassles might not look like hassles to someone else. It’s different for different people, and everyone is right for themselves.

4. That’s very temporary and introduces some years back only, in the DTC earlier there was a proposal to take the tax breaks out, but with the updated draft, I think it’s still there. no one knows if that will remain or go away in another few years. So tax breaks is not a criteria to decide if one wants to go for real estate or not. You should read subramoney.com real estate articles, you will get a clear picture of what I am saying

Conversation 2#

Pramod Says

Manish, This is absolutely right. There is a big industry flourishing on “how to get you into debt trap” mantra. The best remedy against this trap is self-discipline. The temptations are high which tends to divert your attention. My wife is asking me to buy own house but I have only one answer that is expensive.

She asks, Property has been expensive for the last 100 years, it will never become cheap. Right, but for me inexpensive means within my reach. The house I want to buy should not come bundled with Headache, High BP and insomnia. What I tell her is that we will buy a house when –

The total cost of the house is not more than my 4 years’ income.
have enough savings to pay a down payment of at least 30-40% of the price.
EMI must not be more than 10 years long.

So now for me to buy a house either prices have to come down or my income has to go up. BTW I am betting on the prices to be stagnant and my income to be growing for at least the next 3 years looking at the supply that is coming up in NCR. In Greater Noida alone where I live, more than 70000 units will be available within 15 km in the next 3 years.

For a car, I prefer a second-hand car from Maruti, It is always good. Most of the depreciation takes place in first two years so let someone else pay for that and you enjoy the ride.

My Reply

Haha, Wife is a very scary word when it comes to the decision of buying Home, I have already talked to several people here who’s wives are bugging them like anything for owning house. You are correct on the “industry working on getting everyone in Debt trap” . over the pricing of real estate, the bubble is strong and I can’t say when it will burst, but whenever it does, it will be very bad day to see.

However, even if it does not burst, Still living on rent is so affordable in today’s times that we can do it for next several years .. after all, if everyone will buy and buy only, who will live on rent?

Pramod Says

Yes, Today I am residing in a flat with a rent of 7000. If I were to buy that it costs 30Lacs. At 80% loan which is 24lacs the interest @ 5% (flat equivalent to 10.5% reducing) comes out to be 10000 a month. Remember I am only talking about interest here so that comparison should be only in the costs. Add society maintenance, maintenance (paint, pest control, seepage repair), property tax, etc to the cost & surprisingly you will find that rent is cheap.

Also if I add the opportunity costs i.e. investing the EMI and front cost minus rent in an MF with only 10% return it will become 1.32 Cr in 15 years so if the flat in which I live today is available for 1.32 crore after 15 years, it’s OK, nothing to worry.

Secondly, detach emotions from house & treat it like a commodity. I often ask people when you dont have a car do you whine about using public transport or do you feel embarrassed about hiring a taxi. If no then why the hell you shy living on rent. Just pay that cheque & save all the bothers of becoming a landlord. One more benefit of the rented house ” You can always change it easily when your astrologer tells you that it is not VASTU Compliant, Will you ever get such wonderful chance to enhance your luck so easily in your own house

My Reply

Pramod, you are one of the rare found die-hard fans of renting. While your views are more biased about renting, which I fully agree. You have taken out some of the things which drive people to own home and that can be pure emotional reasons and its fine.

Some people will feel suffocated enough to live in a rented house and the idea of not having their own home will kill them each day, this idea of renting if better than owning and blah blah will not work on them no matter what one does

While I am with you on renting, the point I want to make is renting vs buying has its own positives and negatives and nothing wrong about it, just that a person should understand which boat he wants to sail in. What do you say Pramod? Read Meena’s comments above, you will get what I am saying

Pramod Says

Manish, I am a fan of renting as long as the rent remains within the 3-4% range of the property value. As I shared with the group I am also planning to buy a house but only when it is affordable. I do not want to spend the next 20 years of my life in stress & sacrifices.

As far as Meena’s points are concerned, I am 120% in agreement with her on-point no. 3 and that is the single most reason that provokes many to buy a house.

But in these days of apartments you can negotiate well as owners know that an empty flat is going to cost him the maintenance and it always depend on your relations as well as the demand-supply situation.

Coming to the other 3 Point –

1- House as an investment, An investment by def. is something which you are going to encash upon value appreciation. So your first house is never going to fit into this axiom. Are you going to sell it after 20 years? 99.9% of people won’t, so what kind of investment?

2. The investment in MF vs Real estate depends upon your kitty. Till the time I have 5-6 lacs accumulated can’t even dream of buying a property even on loan so it always depends on your net worth and no arguments on this point as it is very personal.

3. On this point I agree but again it is emotional and depends on the market. In Gr Noida where I live 50% city is empty so no dearth of flats on rent and I can negotiate.

4. This is one thing that comes as the ultimate logic for buying a house. Let’s see. The principle amount is incl in 80C so after PF, Children fees & insurance what the hell is left. For interest, you can claim tax 1.5 Lacs. Anyone who can buy a house worth 30Lacs must be earning 50K & in this salary, the HRA usually is 10000 approx. so if you take benefits of 1.5l interest payment you have to forego 1.2 lacs benefits of HRA which brings it down to 30k.

Is it worth to buy a house to save a maximum of Rs.9000? Better not watch some crapy movies and save 200 rs on popcorn which is available for 10 Rs outside the cinema hall.

Finally indeed renting and owning has its own pros and cons but here we are discussing these things from personal finance angle not emotional otherwise nothing can replace the joy that I can see on the faces of my family if I take them to Switzerland but can I afford it And also we have seen many old people who spent their life savings owning a house and are still struggling to meet life’s basics in the last stage of the life. Is the house really an investment?

So remember 1st house is always a commodity that you are going to use and 2nd, 3rd …nth property is investment only so do not buy the argument of returns however use these “returns” to check the affordability factor for you say X years down the line if you will still be able to buy that flat.

My Reply

You have made some excellent points . However on one point, I would like to comment. You said

“Are you going to sell it after 20 years? 99.9% of people won’t, so what kind of investment?”

Yes, you are correct that most of the people would not like to sell and will not sell. However if the price of the house is a lot and one has got some good returns like 15-16% CAGR in the last 20 yrs, one will be sitting on a very expensive house and it can act as an emergency fund to them.

If a person house is costing say 2 crores and they can buy the same kind of flat on the other place at 1 crore, maybe in another city, in the times of job crises and loss of income, one has an option of selling the first home and moving to the same quality/size house at other place and cash on the rest in some instrument which will act as a monthly income to them.

So overall I would say, even if a person does not sell a house, he/she has some good unused advantages.

Meena Says

I totally agree with Manish’s views that even if you have no plans of selling your house, you are sitting on a wealth which would give great peace of mind when you have repaid all the EMIs and the house is all yours. My father bought a house in a prime locality in Delhi 40 years back for Rs 30,000.

I calculated the CAGR of the property keeping the current market value in mind. It is a cool 18% return that we see here. If my father had thought like Pramod and other fans of renting, he would have a tougher life as a retired person living in a rented accommodation in some outskirts where rents are cheaper.

I also agree with Pramod that the first house is more a commodity than an investment. But if you are not going to buy the first house, where is the question of buying a second property as an investment. The tax benefits of the second home (if you can afford) is even better. You can get the deduction of the entire interest amt from the taxable income.

So by totally ignoring this avenue of wealth creation, you are missing out a vital component of your asset building. Mind you, I am not discounting the importance of PPFs, MFs, etc here. I am still a great fan of owning the house in spite of very persuasive arguments put forth by Pramod, Manish, and others in favor of renting

Raja Says

Wow!! that’s really an interesting conversation going on here. I just would like to add my 2 cents here.

1. Rental price as we discussed, is a function of demand and supply. Essentially meaning that the renter is not so much in control of how much he might have to pay for the same accommodation on a future date. Just calculating it as 3-4% of the current property price and ruling out the future rental price appreciation doesn’t sound too prudent to me.

When a person buys a house on loan he basically locks in his outgo in form of EMI to a certain extent. Of course, drastic interest rate changes on the upside can alter his calculations.

But I think in the mid to distant future India has a better chance of seeing interest rates softening like so many developed nations than it moving drastically up from the current 10% range. Whereas when someone is depending on the rental mode of accommodation he is exposing himself to drastic future variations in rent.

Take for example the case of a tier-2 city like Bhubaneswar. Not so long ago (around 5 years back) the rent for a decent 2 Bhk used to be in the range of 2-3.5 k. In just 5 years’ time it has skyrocketed to the range of 6-8k for the same accommodation.

The rise is mainly attributed to a rerating of the city as a small IT hub and the factor’s like a growing number of IT professionals employed with Infy, Wipro, Satyam, etc…Now someone who had the affordability to buy a house 5 yrs back but didn’t do it is surely ruing the decision. Of course, property prices too have risen in similar fashion so buying now is even more difficult.

2. I am not aware of the statistics but I guess most of the new houses are bought by people when they are of marriage age. So, probably the age profile will be in the range 26-34. This means the main cash outgo in form of EMI will be over by the time they in the age range of 41-49 (Assuming an average 15 yr loan).

There are a good 16-24 yrs of life left after that (Assuming a life expectancy of 65 years). What are trying to say is with buying a house one will be done with most of the hard work in his prime working years. Whereas rent is a never-ending story, one has to keep on paying the rents for his lifetime.

3. Reverse mortgage – Even if one were to see some bad time during old age reverse mortgage can come to rescue.

4. If the roof over the head is assured it’s easier to live off one’s savings for a few months/years if one were to see bad times in the form of loss of income. isn’t it ?? I mean it’s not impossible to live with just food-transport-communication expenses in the bad times. Add the rental expenses to this list of expenses and suddenly it would seem a little difficult to manage. Of course, the assumption here is the bad times are after one has paid off the EMI’s

Conversation 3#

Rahul Says

Dont quite agree, Manish this time.

Let’s take the example of the couple with the 3-BHK flat. Recently married, they will need a 2-BHK (AT LEAST) in the next 3-4 years, as they will start a family. If they have frequent guests, like parents, (of both husband and the wife), relatives, friends etc., they will need at least 1 bedroom extra, making it a 3-BHK, which is the minimum requirement nowadays.

There can be several other cases requiring such a flat. If either parents’ stay with them, or they plan to have 2 children or they have relatives/guests/friends staying over, a 3-BHK becomes a minimum requirement. Also. once they buy a bigger flat, they will pay it off in say 15 or maximum of 20 years, if not earlier. It takes off a big headache, once you have your roof over your head. No tension till you retire! With property prices rising, it is a good investment too.

On the other hand, if they buy a small flat, in addition to daily problems of staying in a small place, they will have the constant headache of looking for a better, bigger property. And with increasing process, it may not be in their reach too. So, better buy it now and finish it off.

What do you think? Do you have better ideas?

My Reply

Rahul

You have not taken the article in the right sense. I am talking about people who buy beyond their capacity just because EMI is available. I have clearly stated in the article that people who have a requirement and can’t do without buying something have to buy it.

What about the family (only 2 people, married) who can not afford a 3 BHK and can only afford 1 BHK. Dont they get guest or dont start a Family? They do. They make adjustments and how many times do guests come, it also depends on that. I am little crude on this, but I personally would not like to buy a 3 BHK because my guests come for 4-5 days in a year. I rather sleep on the floor and offer them the room. That’s a better choice, at least for the initial years till I am capable of affording a bigger house.

Another point you made was that if the couple is starting a Family soon? Wh y is it necessary to assign a separate room to kids till they are 7-8. You can manage things somehow. We are talking about cases where a person can not afford a bigger house. Dont you think so?

Rahul’s Reply

Manish,

I think if you buy a smaller house and then go for a bigger one after 6-7 years, it may get out of your budget by then, especially the way India is progressing and infrastructure is developing. Practically all Indian cities are bound to expand as more and more people move to the cities and our country becomes an urban country from a rural one.

In such a scenario, it makes sense to accumulate as much land(flats etc.) as possible. It is almost certain that land, flats’ prices will keep rising for the next 20-25 years. Besides, practically speaking, paying off steep EMIs just beyond your reach inculcates a habit of savings too. One has to pay the high EMIs to come what may, so expenditure is automatically checked.

I have seen this in numerous real-life examples I have also seen that having 4-5 residences gives one a feeling of financial security and achievement too! Keeping all this in mind, I’m all in the favor of paying steep EMIs, just within your reach (leaving just enough for daily expenditure and a 5% room for emergency exp.) to accumulate as much land/flat as possible.

and Manish you said about sleeping on the floor when a guest arrives. Really, that is taking it too far! I mean, the house you have should have some spare capacity. Homes in which we live is the best indicator of our financial status. What point is served to be a crorepati, if one has to sleep on the floor if a guest comes in !! And what if by chance there are 2 guests staying overnight?? really embarrassing!

What do you think?

My Reply

Rahul

You took it too literally. Sleeping on the floor means sleeping on the mattress, not “on the floor”. Dont we do it? There will be instances when you have it no matter how big your house is, even if you have 3 BHK, It can happen that you have many guests which can be accommodated on beds and in different rooms, That is the time you always shift on the mattress on the floors, That’s what I meant.

And it depends from person to person what is embarrassing for them or not, I personally would rather be embarrassed squeezing my financial life and being in debt up to neck rather than sleeping literally “on the floor”. Its a personal choice, nothing wrong . What do you say about this?

Let’s Decode Warren Buffet Rules of Investing

Posted on July 8, 2010December 24, 2019 by Jagoinvestor

In this article, we discuss two rules of Warren Buffet and understand their essence. A lot of people in the stock market quote these two rules of his, but the majority of them don’t even understand what they mean exactly, and what Warren Buffet actually tried, to communicate with his rules.

He mainly stressed on “Controlling losses” which is the most crucial point, when one deals with Equity. This can be directly investing in the stock market or through Equity mutual funds. Let’s look at them.

Warren Buffet Rule of Never Lose

Warren Buffet says, there are two rules in the stock market

Never Lose Money
Never forget Rule #1

Most investors have heard this and have read it a number of times. But for the most part, they’ve taken these words casually and feel that they are just funny lines. How can one never lose and how can that be the single most important rule in the stock market?

The real meaning of these two rules lies behind those words and if we dig a little deeper, we will understand the real value of those rules.

Let me decode it for you here. Read it with all your concentration & focus. Those two rules, really are, worth everything in the stock market.

What Warren Buffet really means when he says “Never Lose”?

No one in this world, wins all the time. One loses frequently, and this is true in stock markets also. No one can ever trade or invest in such a way that he/she never loses.

What Warren Buffer actually means by “Never Lose” is that every time we lose, it has to be an insignificant loss. The quantum of loss, has to be so limited or small, that It’s not going to affect us psychologically. If we make a profit of 100 every time and lose 20 or 30 every time we lose, we are actually not losing, if that’s your series of trades.

If you win 100 and lose 20, you are actually only winning 40 for every trade in series of 2 trades… But if you are letting your losses mount and never controlling them, then you are really losing and then those losses can impact you in a big way…

What he means when he says “Never forget Rule number 1”?

By this, he wants to emphasize on how important controlling losses are. Another one-liner of his, that in the stock market and in life you don’t need to do a lot of right things as far as you are not doing a lot of wrong things.

So, as far as you remember that controlling your losses is the topmost rule, you just need to be an average investor or trader and the power of compounding will take care of rest for you. I’ll summarize those rules again for you and what you should actually read in them.

Rule 1: Never Lose (Control your losses, cut them soon enough, so that you don’t feel them)

Rule 2: Never forget Rule 1 (Controlling your losses is the topmost priority you should have. As long as you are able to take care of it, other things will take care of themselves).

Let’s take an example – There are two investors, Ajay and Robert, who both make 1000 trades in their entire life, 500 losing trades and 500 winning trades. Ajay makes a profit of 6% on winning trades and a 3% loss on losing trade.

He has $11.9 Billion dollars in the end. On the other hand, Robert concentrates more on controlling his losses (and hence is able to control his losses up to 1% on average per losing trade) and also makes 5% on winning trades. At the end of his career, he would have $25 billion.

Conclusion

Its only controlling losses which made Robert more money than Ajay. Remember this, you need to concentrate more on “not messing it up” rather than making it “rock”.

The EMI Disease

Posted on July 4, 2010December 24, 2019 by Jagoinvestor

“A dog held a juicy bone in his jaws, as he crossed a bridge over a brook. When he looked down into the water he saw another dog below with what appeared to be a bigger juicier bone. He jumped into the brook to snatch the bigger bone, letting go, of his own bone. He quickly learned, of course, that the bigger bone was just a reflection, and so he ended up with nothing!”

What do we learn from this short story?

Some thing, really similar to this story is happening in our lives – where the bridge which we are cross is our lives, the bone is our home,(or car or any thing we own) and the “other dog” is none other, than the people around us, our friends at work, neighbors, relatives, etc., who might have a bigger home than us, a better car or a more expensive LCD.

Does that mean that we also need to run towards that bigger bone? Yes? No? There is no harm in fulfilling our needs. As our families grow, and our need for comfort increases, we are bound to buy bigger homes, better cars (read more expensive) et al… And while we are at it, why not buy that much bigger LCD or enjoy that international holiday with the family? The EMI system changes our “wants” into “needs”.

Is Installment system of payment bad?

Definitely NOT! It’s a very convenient way of buying things, but the problem is that the EMI way of buying, gives a lot of people the feeling that they can afford anything which comes their way. And there lies the problem! A sizable chunk of people believe, that they need a bigger bone (when they actually don’t) and the easy availability of everything, in EMIs plays a large role in said belief. The EMI is such a beautiful concept, that even a person with a salary of 30k can buy a helicopter!

Why not? Just 9999 per month, for the next 200 years! Does he need it? Who cares? He can afford it! The problem is not the EMI concept in itself. The problem is us – losing our control on our spending and extending our affordability horizon to such great lengths, that we have everything in our life; but most of it is under debt.

Our home and our car are the two classic examples of this. Let’s talk about home. I don’t have much data, but my instinct says that most of the people who have taken a home loan are living in a much bigger home than they need. As per an in-house study, (through a poll,) I found out that as much as 67% of the readers on this blog or urban net-savvy people are paying at least 1 EMI, which would mostly be a house or car loan EMI. It was astonishing to see that 11% of readers here pay more than 3 EMIs! That’s too much!. Make sure that your EMIs are not more than 50% of your total, in hand (net), salary.

Number of EMI's paid

Affordability of EMI vs affordability of Loan

If you tell a person, the EMI of a product, chances are that they will believe that he/she can afford it, as compared to when you tell them the actual price of the product. The problem lies in the numbers. The lower the number, the more affordable it becomes! However, this is not true! Actually, the more you reduce the EMI figure, the longer the tenure, and hence the total cost for you over a long period of time increases drastically!

Let’s take some products –

Home Loan

A classic example is the Home Loan. When a person plans for a loan, he makes sure that the EMI figure is affordable to him and does not concentrate much on the final value. For example, consider a person earning 50k per month. The EMI for a home worth 30 lacs @10% will be Rs 39,645. This may look unaffordable to him, so he increases the tenure to 20 yrs instead of 10, and brings down the EMI to 28,951/- Magically, this same home starts looking affordable to him!

What they concentrate upon, is the initial years, and not the big picture. They might not be considering some important points… like what if interest rates increase to 14%? In which case, the EMI will go up to 37000/-! These are young, recently married individuals, who have no idea of where they will be working in next 5 yrs. Will they be in the same job or same Industry? What will be their liabilities then? A close look at Real Estate Returns in India

I am not sure if a 3 BHK is the right choice for a recently married couple who has no one else with them, to live with. The justification can be that in future they may require it, however, if that’s going to happen in the next 15-20 years, a 1 BHK or 2 BHK is a better choice. It’s better to live in a 1 BHK and breathe easy, rather than a 3 BHK and suffocate every day from the burden of the heavy EMI. Here’s a good article on Home Loan EMI calculation.

Calculate your EMI

Car Loan

A lot of people buy a car before a home, as the EMI is affordable and the car adds to their comfort. I know a lot of people who can easily manage their life with a bike or without a vehicle, but have bought a car for reasons only known to them. There are just 2 people in the family, both have company transport, aren’t really outgoing, but they have a car. Not sure why!

A car is a depreciating asset. This means, that when you buy a car on loan, you are paying more money for something, whose value is coming down day by day, unlike your home. So buy a car, only when it’s really important or your comfort gets bigger than your simplicity when commuting is a problem.

The main problem again, is people buy cars that are much bigger and costlier than what they can afford and need. If you are in the starting phase of your career and have no more than 4 people in the family, why take anything beyond a Santro or Zen? You can always buy that dream car when you are more stable in your career and the other important things in life are taken care of. My views may be biased because I am not a car or vehicle lover, so all car experts might disagree with me here 🙂

Holiday/LCD/Camera/Air Tickets

IRCTC has started giving air tickets on 6 equal EMIs! There is no catch! You can buy a ticket worth 3k today and pay 500 a month over 6 months. The only catch, is that this makes many people feel that they can afford it now. A student who was earlier traveling second class in train or at most, 3rd AC will not just be tempted but will believe that he can afford air travel now, which he couldn’t if he had to shell out 3k in one go.

Just because it’s a smaller chunk, we tend to buy things that we don’t need and can’t afford. The holidays are a perfect example! We Indians, are earning very well in this new decade, thanks to the opening up of our economy and IT sector especially. Our future earnings are more predictable now, compared to the past and this is the reason why most of the products are available on EMI; which makes us buy today and then pay for it for the next couple of years.

Conclusion

There is nothing wrong with buying things on EMI, as long as you know what you are doing, and then only if you really need it. Don’t run after everything you can get on EMI, and don’t drown yourself in so much debt, that it gets tough to come out. Save a good amount for the down payment and take debt only when buying something becomes inevitable. An early Start in Saving today will make your wealth overtime.

Ok , Sir Ji ?

Posted on June 28, 2010January 4, 2015 by Jagoinvestor

There is a very funny conversation regarding Insurance . Do you get these kind of phone calls ? Put your comments 🙂

Ten ways to terrorize a telemarketer (contribution from a reader “shib “)

When they ask “How are you today?” Tell them! “I’m so glad you asked because no one these days seems to care, and I have all these problems; my arthritis is acting up, my eyelashes are sore, my dog just died.”
If they say they’re John Doe from XYZ Company, ask them to spell their name. Then ask them to spell the company name. Then ask them where it is located. Continue asking them personal questions or questions about their company for as long as necessary.
Cry out in surprise, “Judy! Is that you? Oh my God! Judy, how have you been?” Hopefully, this will give Judy a few brief moments of pause as she tries to figure out where the hell she could know you from.
If ABC calls trying to get you to sign up for the Family and Friends plan, reply, in as SINISTER a voice as you can, “I don’t have any friends… would you be my friend?”
If they want to loan you money, tell them you just filed for bankruptcy and you could sure use some money.
Tell the telemarketer you are on “home arrest” and ask if they could bring you a case of beer and some chips.
After the telemarketer gives their product info, ask him/her to marry you. When they get all flustered, tell them that you could not just give your credit card number to a complete stranger.
Tell the telemarketer you are busy at the moment and ask them if they will give you their HOME phone number so you can call them back. When the telemarketer explains that they cannot give out their HOME number, you say “I guess you don’t want anyone bothering you at home, right?” The telemarketer will agree and you say, “Now you know how I feel!”
Insist that the caller is really your buddy Leon, playing a joke. “Come on Leon, cut it out! Seriously, Leon, how’s your momma?”
And first and foremost: Tell them to talk VERY SLOWLY, because you want to write EVERY WORD down.

How to Attack Back on telemarketers

Pramod Moudgill shares how he attacked back beautifully on telemarketers when he got a call 🙂

I got a call from CitiBank for Credit Card. I asked them to only talk if they are serious about giving me the card because many call but they do not provide the call so I am really frustrated. The lady said sir what is your income. I said 30k a month to which she replied sir no problem we will definitely issue you a card. Are you salaried or … I said I am business man. What kind of business, “Madam main delhi mein auto chalata hoon”. She immediately reacted sir aapka card nahin ban sakta. Now it was my turn and I started, Kyon ji auto mein kya problem hai maam apna auto hai, sari kishten utar chuki hain, maam main bahut honest aadmi hoon, meter se chalta hoon , jab ek 70k ke Bike wale ko card de dete ho to mere paasv to 2lakh ka auto hai. All the time she was trying to speak but I just continued then finally she said sir co. policy nahin hai & again it was me ..”to pehle kyon nahin bataya mere 2 passenger chale gaye, harjana kaun dega meral loss kaun bharega main auto union mein complaint karunga & blah blah blah… & my no. is now free from citibank calls.
I got a call from ICICI bank for personal loan. I asked what is the rate, she said 18% . I asked “madam mere paas 2 lakh hain aap mujh se 15% par le lo. ”
She said “sir mujhe nahin chahiye” I said please aap holiday jao, LCD kharido & do what ever you want I am giving at only 15% come on.! Then again she said, “Sir maine bataya na mujhe nahin chahiye” Then I said” So who told you that I need one, jo aapne call kiya, aur aap log kya ek baar batane se maan jaate ho. Aap soch lo Iwill call you tomorrow.”

Comments 🙂 ?

World’s Simplest Money Management System – A habit that works for everyone

Posted on June 23, 2010December 24, 2019 by Jagoinvestor

Most people have such a fear of (lack of) money that they almost equate money to oxygen. Cover someone’s mouth and nose and watch how they fight you to get their air back.

I came across T. Harv Eker’s book “The Secrets of the Millionaire Mind” it says “Rich people manage their money well. Poor people mismanage their money well”, I read this & my first reaction was, “As a Financial Planner I know that!” Trouble was I didn’t really know the effective system to manage money. I just thought I did.

Money management system

If you want to get rich, focus on making, keeping, investing & managing your money. I had been managing my money for years but not in a systematic way, I paid price for the same (by not following any system). This Money Management System is very simple to understand & implement.

If you want Financial Freedom you got to follow a system for achieving it. As a financial planner people, I meet believe managing money will take away their freedom. They hate the idea of Budgeting. They believe managing money will not allow them to be free and enjoy life to the fullest.

I have been implementing this “Money Management System” for over a year now & it has given me tremendous freedom in the area of money.

Most of the people I meet say, “I will start managing my money when I have enough money”. As a planner, I tell them “if you aren’t managing your money now then you may not have any money to manage in the future”.

Worlds simplest money management system

The Single biggest difference between financial success and failure is how well you manage or mismanage your money. People mismanage money in different ways (By not having a financial coach in life, by not having a financial plan in place, by not organizing their finances, by buying ULIPS, by not taking financial Literacy, etc)

To master money, you must manage money through this effective Money Management System:

50-% Necessities Expense account (Your Day to Day Expenses Account)
20% Financial Freedom Account (FFA Account only for investments. Never spend only invested)
10 % Education Account (Invest in skill development, Personal Development)
10 % Long Term Saving for Spending Account.
5 % Fun & Joy account (balance out the investing for fun % joy(nurture yourself – fine dining, etc)
5 % Give Account (To a lot of people wealth is how much you have. But if you truly want to create wealth, you might want to change that viewpoint. Try thinking of true wealth as how much you give.

– Read about GFactor and Try out JagoInvestor Calculators

A Brief Definition of Financial Freedom

You are financially free when your Passive Income (Income from your investments, rental income, etc) is more than your desired lifestyle).To win the money game, the goal is to earn enough passive income to pay for your desired lifestyle.

One should design its Financial Plan with a context to achieve financial freedom. Having a Money Management System is equally important as having a financial. Always remember The real secret of successful wealth management is that your financial future is truly in your hands.

This one is dedicated to all the readers of JagoInvestor.com, their families & to Financial Freedom.

This article is written by Nandish Desai , who is a financial planner based in Ahmedabad

JagoInvestor Pune Meet Updates

Posted on June 21, 2010August 21, 2019 by Jagoinvestor

We conducted a Readers meet in Pune on 13th June and the response was amazing. There were around 15-16 people who came amidst mild rain on venue and it started on time. It was nice to see all the participants and their bonding with Jagoinvestor. We had a guest speaker from Ahmedabad and he gave a mind-blowing speech on how to change your psychology about money.

It was a learning experience for me too and It was really incredible to meet and talk to readers face to face and talk to them personally . Every one who came shared their expectations and what they learned from the meet and everyone was very interested in these meets in future. We are planning next meet this Saturday in Mumbai for which we already have around 25-30 people expected. I am sure it will be a better one 🙂 . Will be having these meets across other cities soon . Bangalore is next .

Overall Pune meet was a successful event and I would like to dedicate this to all the readers in Pune. It were readers who took the pain and took time to be there and have finally decided to continue these meetings in future and they are also looking at taking on various responsibilites to keep it ongoing . I would like each and everyone who came personally and it was amazing to see you all there . There is much more coming in future and you are the first one to be the part of it. Thanks 🙂 . Kindly acknowledge and share your experience in comments section .

Jagoinvestor meet in pune

Here are some of the short videos from meet , you can listen to speaker as well as some readers sharing their experience .

Please register here for future meets in your city . Any comments ?

Short NRI’s Guide to Banking , Insurance & Investments

Posted on June 18, 2010December 24, 2019 by Jagoinvestor

There are a huge number of Indians who are working abroad or will go abroad one day and work there. Even you might go out of the country one day and become an NRI, so here’s a very short, to the point guide for NRI investments.

Today we discuss the most important NRI investment options and we’ll focus on four things – Basic Banking Accounts, Insurance, Mutual Funds, and Shares. That’s all. The rules and information here are basic, but further study can be very detailed. Let’s quickly look at some important concepts every person should know. Even if you are not an NRI, you can at least advice your other friends 🙂 The first step every NRI should take, is to get the correct Banking accounts opened. Here are the options:

What is an NRE account?

NRE bank account is an external savings bank account opened for Non-resident Indians and hence called Non-Resident External account. Any money lying in the NRE account can be taken outside the country or in other words, the money lying in an NRE account is fully repatriable. This money can be converted into any foreign currency and can be remitted outside the country. For opening these accounts, the funds are required to be remitted to India through any bank from the country of residence of the prospective account holder. The accounts may be maintained in any form e.g. savings, current, recurring or fixed deposit account, etc. (How to find best Fixed Deposits in India)

What is an NRO account?

NRO bank account is an ordinary saving bank account opened for Non-resident Indians. This is why it is known as the Non-Resident Ordinary account. You open an NRO account when you want to transfer money from your overseas bank account to an Indian account in Indian Rupees. The money lying in the NRO account cannot be taken outside the country or in other words, the money lying in the NRO account isn’t repatriable. This is can be in form of Fixed Deposit accounts also (compare rates)

What is an FCNR account?

A FCNR account is a Fixed Deposit account with maturities of minimum 1 yr to maximum 5 yrs of tenure. FCNR stands for Foreign Currency Non-Resident (Bank) Account. The money in this account is always maintained in foreign currency, so it does not carry a currency risk (your $10,000 is always worth $10,000). The money lying in a FCNR account can be taken outside the country (or in other words, it is repatriable.) Deposits in these accounts can be made by remitting funds from abroad.

Comparison of Table

Criteria	MORE	NRO	FCNR
Account type	Saving , Current or Fixed Deposits account	Saving , Current or Fixed Deposits account	Fixed Deposit only
Money maintained in which currency	Rupees	Rupees	Any of U.S. Dollar, Pound Sterling, Euro, Australian Dollar, Canadian Dollar
Repatriable (can money be taken outside the country)	Yes	No	Yes
Money can be Deposited from	From Abroad through Bank account	India or Abroad	From Abroad through Bank account
Tax	Exempt	Taxable	Exempt
Joint Account with Indian Residents	No	Yes	Yes
Suitable for	NRI’s whose income source is only from abroad	NRI’s how have income source from both India as well as Abroad	NRI’s who dont want to want to take currency risk

Can NRI take Insurance?

Yes, NRIs can buy Insurance in India; however they have to be present in India, while taking the Insurance. They should, therefore, plan for buying the insurance when they are on a trip to India. One important point, is that the premiums should be paid from NRE account, if the maturity value is to be repatriable, else only the partial amount will be repatriable,(for which premiums were paid from NRE account.) One has to make sure, they have all the necessary documents in place before they come to buy insurance.

Documents are

PAN Card
Income Address proof
Overseas Proof of Address
Proof of Income (Salary slip, Bank Statement or ITR for last 3 yrs)
you will also have to fill a separate form called NRI Questionnaire-Annexure II

NRI investment in Shares ?

Steps required by NRI’s to start trading in Stock Markets

Apply for a PAN card (you can do it online.) You will get it within a week.
Open an NRE/NRO account. You will require this account to fund money for your stock market transactions. Make sure you choose the account carefully, depending on your requirement (Repatriable/Non-Repatriable basis etc.)
Apply for a general approval for investment in Indian Stock Market through it’s designated bank branch, this is called PIS (Portfolio Investment Scheme) (PIS rules in detail)
Once you have a PAN card, you’ll have to open a Demat account with any bank or a brokerage firm – you will require this for trading.
Finally, you need to have an online stock market trading account for investing in the stock market directly. Generally, you can get a combo Trading + Demat account at the same place.

Note that NRI’s are not allowed to do intra-day trading (can’t buy and sell on the same day)

NRI investment in Mutual Funds

NRIs can invest in all Indian mutual funds, except in funds promoted by Asset Management Companies based in the U.S. (Fidelity, Franklin Templeton and HSBC.) The payment can be made from any of the NRE/NRO/FCNR accounts. If they make payments from NRE/FCNR account, then it can be on a repatriable basis (They can take the profit and principal out of the country.) But, if they make payment from NRO account then it will be on non-repatriable basis. However, the dividends can be on repatriated. No prior or extra permission needs to be taken from RBI for this. This is allowed by default. There is no tax on dividend income, and long-term capital gains tax is zero in India when investing in Indian equity mutual funds.

How to choose Medical Insurance Policy ?

Posted on June 13, 2010January 10, 2020 by Jagoinvestor

Does the premium amount guide your decision on whether to buy a medical insurance policy? No. Premiums are not the only factor to consider when buying a medical insurance policy. These factors need to be taken into consideration before looking at the premiums.

medical insurance

1# TPA (Third Party Administrator)

These days, companies have an in-house settlement process and thus do not outsource their settlement processes to outside TPA’s. Why do we need to look at a company providing an in-house settlement process? This is very much needed in the case of cashless settlements. Settlement processes are easier when handled in-house. Also make sure, that the company’s in-house settlement process is in your own city or in your own state. (TPA list in India)

Some of the General Insurance Companies having In house TPA’s are :

Bajaj Allianz General Insurance Company (Basic)
Star Health And Allied Insurance Company
ICICI Lombard
Max Bupa Health Insurance

2# Network of Hospitals

The next really important factor is the network hospitals of the company. In the case of hospitalization, the hospital that you would visit should be there on the Insurance company’s network hospital list. Not only the number, but the quality of the hospitals should also be taken into consideration.

Eg:- If you fall ill and need to get admitted, which are the first few hospitals that you would go to in your locality? Check, if these hospitals are part of the Insurance company’s network hospital list.

3# Relation of the Insurance Company with the Network Hospitals

It’s important to note, how fast the Insurance company/TPA makes the settlement with the Hospital in case of cashless hospitalizations. This is a major factor, but only a few of us understand its importance. The Insurance company may provide us cashless hospitalization, but if the Insurance does not settle the Hospital claims on time or only has a partial payout, then there’s an increasingly likely that the hospital will increase your bill to claim the amount. If the company pays the claims on time and in full, then the Hospital would not try to increase the bills as they know, that particular insurance company is a prompt paymaster.

See how your Life + Health Can be covered for less than 5% of your salary

Family Floater or Individual Cover Policy?

For people who do not understand Individual and Family Floater Policies please read about it here. Most of the people think that Family floater’s are always the best choice compared to Individual health plans, which is totally wrong. Your requirement and your situation should guide your decision, on which kind of cover, you should choose. There are many problems that buyers do not have any idea of. They do not care to read fine prints and get nasty surprises after many years and at crucial junctures. (compare Health Insurance)

Features of Family Floater Policies

It turns out to be cheaper for younger families and less maintenance, as there is just one single policy for everyone.
Limited cover for other members in the family, if one person claims health insurance in any given year.
The Policy expires on the death of the oldest member of Family or if he/she reaches the maximum age of renewability, depending on the policy. So other family members will need to take a fresh policy, without having the benefit of their claim history and pre-existing disease coverage that comes from the continuous renewal of the policy.
Only immediate family members are included in the policy, not your parents or siblings. So it does not suit people with dependent parents or siblings in the family.
When children turn 25, then they are not part of the policy and will have to take a fresh policy. Apart from this, any pre-existing disease will not be covered at that time.

Features of Individual policies

Extra maintenance of each policy separately.
Turns out to be generally costlier than Family Floater plans
Lower coverage for each family member at the same cost of a Family floater in case of a single claim in any given year.
There are no age restrictions on the maximum age for the members for renewable.
You can avail of the benefits of Loading and Discounts until the policy lapses.

Hence, a Family Floater will not suit a Family where the oldest member is in his 40’s and they are more prone to health issues. However, younger families might want to consider Family floater plans as they are less prone to health ailments and can afford lesser premiums in the beginning. Look at Harsh Roongta talking about Family Floater Vs Individual Plan in the following Video

How much of Sum Insured would be sufficient?

Do you know, what disease you could be diagnosed with tomorrow? So you can never say that Rs.1,00,000 cover is sufficient 🙂 The basic rule here, is to take whatever you think you can afford. If a person can afford to say Rs.5,000/- as the premium per year, check as to how much of Sum Insured he would get, and take the amount of insurance offered. That would be sufficient to cover at least some risk. So never think, that you cannot afford any medical insurance policy. Take what you can afford so that at least you know that you can be rest assured, that you have covered some risk.

IMPORTANT: It’s never too early to take medical insurance and critical illness policy, because once you are diagnosed with any illness, then the insurance company will have the liberty, of not issuing you an insurance policy. So take it as early as possible and have your risks covered.

Comments? What are the other difficulty or doubts from an investor’s point of view to select a medical policy?

Jagoinvestor Group meets every month

Posted on June 9, 2010December 24, 2019 by Jagoinvestor

It has been an excellent journey so far and we have to build a great community of readers who want to learn and understand the importance of personal finance. We have readers who are ready to learn much more if given a chance and they will if they are provided more support and platform.

So whats next? I have decided to take this blog to next level, so I have decided to form groups of enthusiastic people who are ready to learn at different levels and also want to join this “Jagoinvestor” movement and help to spread financial literacy. So we will group meets in different cities (Read Update). We will start from Bangalore first as I am in Bangalore. Later we will extend it to all the major cities in India like Mumbai, Delhi, Chennai, Pune, Hyderabad, Ahmedabad, Kolkatta etc.

Update

As I will be in Pune this coming weekend (Sat and Sun) and in Mumbai one day (preferably Saturday), We will start off these groups in Pune and Mumbai with whatever number we have, will choose one lead there and let’s kick off this idea fast :). I am sure we will have 15-20+ each place :). And we will start the group in Bangalore in July (as I will be in Bangalore only after June).

Note: As there are many readers from the Bay Area in the US (Sunnyvale / San Fransisco / San Jose). Readers there can also make the group (even 5 is ok), I have included Bay Area in Registration form Below.

What will happen in these Meets?

We will meet offline in person and build a community that will share their knowledge, ideas about a variety of topics that we discuss here on the blog.
We will also cover one focused topic in the form of presentation or session by any volunteer or expert in every meeting, it can be for 30-60 min long.
Discuss various strategies to invest money in the stock market (only after some meets, when more people are interested)
Discuss various topics like how to make better Real estate deals, tips, and tricks in investing which are not known generally to investors.
Build presentations and other content that can be shared back on the blog to all the readers.
Take up some research topic and then brain storm on the idea and find out why’s and how’s (example, BUY OR RENT ? )
How to plan all major aspects of financial life in the best way and be self-dependent

Current Registrations

(Changes dynamically with every Entry)

Any thing more?

This will be an informal meet which will start from the cafe’s or odd places and later we can think about how to formalize it more in a better way. There will be leads from each city who can take up the responsibilities so that it can function independently. Each city will have the main lead of the group who can be the main person in the group and take the responsibility of the meets. The meets will only be on weekends (2-3 hrs) so that everyone can join. In the start we will start this only in Bangalore (with me leading all the meets) and let’s see how this whole stuff goes, we can then take up this group meet idea to other cities once the situation permits and there are enough readers interested. Below is a registration form for registering yourself with jagoinvestor for these group meets, we will soon start these groups in all the cities once we get more than 10 interested people in any city. Please share your views and how we can make this concept a success.

Register

What is Reverse Mortgage ?

Posted on June 6, 2010August 19, 2019 by Jagoinvestor

What is Reverse Mortgage ?

Simple! Reverse Mortgage is the exact opposite of a Home Loan. Anyone, who has a fully owned House can get a loan. The way, this works, is that his loan money will be divided in chunks (EMI’s) over many years and given to him every month. This can easily act as Monthly income. At the end of the loan tenure, the Bank stops paying the monthly income. If one of the spouses dies, the other can still continue living in the house. If both die, the bank gives their heirs two options – settle the overall outstanding loan and retain the house or, the bank will sell the house, use the proceeds to settle the outstanding loan and give the rest to the heirs. For people who don’t know – “Mortgage” means “Loan” 🙂

How is the loan paid ?

With a reverse home mortgage, no payments are made during the life of the borrower(s). Which means the loan has to be paid only after both the borrower and spouse die. Since no payments are made during the term of the reverse home mortgage loan, the loan balance rises over time. In most areas, where the appreciation is good, the value of the home grows at a much faster rate than the loan balance. Therefore, the remaining equity continues to grow.

When both, the borrower and spouse pass away, the ownership of the home is then passed to the estate or directed by a living will or will to the beneficiaries. The beneficiaries now own the home and have to sell the home or pay off the loan. If the home is sold, the reverse home mortgage lender is paid off and the beneficiaries keep the remains. Read about Real Estate returns over last 10 yrs .

Example :

Mr Ajay is around 62 yrs old, and his wife is 60 yrs old, they live and own a house in Karvenagar, Pune which is worth Rs 1 crore now . They have a daughter and son who are their legal heirs (50:50) . The old aged Ajay and his wife do not have a monthly income source, so they decide to go in for a Reverse Mortgage loan. The Bank is ready to loan upto 60 lacs to them, which means they will be paid Rs 35k per month for next 15 yrs (just an example.)

Now, they start getting monthly income of 35k per month for next 15 yrs, & they continue to live in the same home. After this point, their children support them financially and then Ajay dies at age 79. After this, his wife still continues to live in the house. Sadly she too, passes away at age 85. By this time the total loan outstanding becomes Rs 1.1 crores (It was 60 lacs at the end of 15 yrs, but after that, it starts growing.)

Now the loan has to be paid off. The son and daughter does not have money to pay to the bank, so the bank decides to sell off the property. At that time, the price of the house is Rs. 3 crores. The bank sells the house and get total 3 crores, out of which 1.1 crores is taken by the bank and rest is paid to legal heirs, which they split amongst themselves. Look at EMI Calculator

Which Banks Offer Reverse Mortgage ?

National Housing Bank (NHB)
Dewan Housing Finance Limited (DHFL)
State Bank of India (SBI)
Punjab National Bank (PNB)
Indian Bank
Central Bank of India
LlC Housing Finance
Andhra Bank
Corporation Bank
Canara Bank.

Tip from Hemant : “Star Union Dai-ichi offers annuity cover with reverse mortgage . When a person approaches the bank for a reverse mortgage loan on house property, the bank, after assessing the value of the property and sanctioning the loan, will approach the insurer and buy an annuity plan for the borrower. The annuity will be passed on to the borrower’s account on a monthly, quarterly or annual basis. The installments will depend on the purchase price, age and whether the insured person opts for a lower or higher lifetime annuity. “

Important Points in Reverse Mortgage

Reverse Mortgage is available to Senior Citizens only. Any house owner over 60 years of age is eligible for a reverse mortgage. If wife is a co-applicant, she should be above 58.
The maximum loan is up to 60 per cent of the value of the residential property subject to maximum of Rs 50 Lacs.
The maximum period of property mortgage is 15 years with a bank or a HFC (housing finance company.) Minimum tenure will be 10 years. Some banks like Punjab National Bank offer RML for 20 years also.
The borrower can opt for monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
The revaluation of the property has to be undertaken by the bank or HFC once every 5 years.
The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability. How to do last moment Tax Planning ?
Reverse mortgage rates will vary according to market conditions depending on the wheather borrower has choosen Fixed or Floating interest rate.
Processing fee for the loan would be between 0.15 per cent and 1.50 per cent of the loan amount.
One can prepay the loan along with the interest any time during the loan tenure. Typically, there is no pre-payment penalty.

How do I apply for Reverse Mortgage?

Decide to pledge your house for reverse mortgage.
Go to the branch of the bank, who you have a banking relationship with, and provides Reverse Mortgage
Fill up the necessary form, the bank offers for reverse mortgage
You need to furnish your personal and financial details like: the property, your legal heirs, and so on.
Proof of ownership; you will also need to furnish property papers and a proof that the house that you are pledging is your residence.

When to consider taking Reverse Mortgage ?

Even though Reverse Mortgage seems like a nice idea, it should not be the primary tool to fund one’s retirement expenses. It shouldn’t be used to fund the shortfall in the retirement income if any. A valid reason can be – if one does not have any legal heirs or leaving money to/for them after death, is not high priority. There are many old people who have assets of high worth, but they do not have a proper, steady stream of income. One can use reverse mortgage in that case. In India, Reverse mortgage isn’t very popular yet, because of bad/negligible marketing and our mentality, where we dont take loan on our most valuable and most emotional asset “Home” 🙂 Another reason could also be that there are old / aged people who own 100% of home and are living alone with spouse are few & far between. These products might become very popular in coming decades .

Comments? What do you feel about Reverse Mortgage Products? Do you think it’ll become more popular & successful in the coming decades?