Conquering Debt - Loan Sweet Loan

Debt is the fiercest enemy that we are all facing in our money management. As part of the second instalment of providing you some information how to defeat the debt - today we will have some words about another reason of having a debt dilemma - “Home Sweet Loan“. The first one we have is Credit Card Crunches, If you havn’t read it yet please take a peek and take your time to read it. The second common reason of owning a debt is the housing loan. Whether you are OFW or a regular employee that have a regular income, there are point in our life that we are tempted to apply for a housing loan due to varying reasons.

How does the housing loan contribute to our debt? How can we avoid it?

The following story is from the booklet Goodhousekeeping, continue reading to get some useful information about relationship of housing loan and debt.

When they tied the knot in 1999, Becky Nierto-Litan and husband Vince were already planning to buy a house. Desit the financial obligations that come with havings kids, they never ost track of theri dream. Two years ago, they took a step forward by buying on installment a lot in Imus, Cavite. They complted their payments last year, and so the couple decided it was time to start building a house.

“We thought of saving money for it,” says Becky, “but it would have taken around five years to raise the amount. with inflation and rising costs of building materials, the money may no longer have been enough by that time. We decided to take out a loan from the bank.”

Becky, a public relations consultant, and Vince, a Merchant Marine officer, believe in the expert juggling of funds to manage the monthly amortization of a housing loan. Before taking the plunge, they did their homework. They shopped around for the most reasonable bank interest rates and the best rate protection plan. they also pooled their savings to meet expenses not covered by the loan, such as those for fencing and panambak. the Litans say you need around 30 percent equity to apply for a bank housing loan.

The Litans raised 30 percent of the P1.7 MILLION construction cost. It took the bank three months to release the first tranche of their P1-million loan.

“The bank makes a stage-by-stage inspection of the house to serve as basis for releasing succeeding tranches” Becky explains.

With their loan approved in March 2002, the bank has since release to the Litans 80 percent, or P800,000 of the money they borrowed. The house is now 60 percent complete. Monthly amortization egins only after the loan is given in full; to make the debt more manageable, Becky and Vince have started paying the interest on the loan ahead of its full release.

Beginning June, after the first tranche was issued, the Litans paid 11 percent interest on the P400,000 tranche or P3,667 monthly. In August when another P200,000 was released, their interest payment rose to P5,500.

When they being amortizing the loan, the couple plans to avail of the bank’s rate protection feature as hedge against fluctuating interest rates. The couple’s monthly income is now judiciously divided between food, children’s needs, utilities, daily expenses, and loan interest payments. to buy home furnishings, Bekcy uses two credit cards. She has learned to make a pile of the household’s fixed expenses versus their combined monthly income to manage the cash flow.

See also related post here.