life without constraints

People tell me freedom is living life without restraints. However, if I see around then almost everyone has given up some degree of their freedom. Many have even forced others to give up their freedom (under the pretext of option or by persuasion)
Cavemen have given up their freedom for civilization, law and order. Marriage constraints our personal life. Home mortgage EMI takes away our financial freedom, employment bonds/service contracts takes away our professional freedom. Why is it that everyone talks so much of freedom but they part with it so easily? The moment we plan, commit, agree to something we tie ourselves up and give up our freedom.
Hence I think freedom is ability to choose one’s constraints.

education Personal Finance

How to prevent pre-payment penalty on home loans

Most home loans in India have a covenant that restricts the number of times a person can make a pre-payment (usually 4 times a year) and the minimum amount. Also some of the banks charge a prepayment penalty. However if you read the fine print, most banks are relatively more flexible when it comes to changing the EMI (Equated Monthly Installment) amount.
Using this loophole, one can minimize the pre-payment penalty/charges by calling the bank one month to increase the EMI and revert it back to the old levels next month. Chances are that you would be able to stretch a little and continue paying that higher EMI for a few extra months. Hence reducing your interest expenses.
When it comes to debt, don’t ignore any processing charges, penalties or fines. It might put you in a debt trap.
For example
A 1M (10Lakh) INR loan for 15 years period at 8.75% has an EMI of 9,800/-
If you prepay 1EMI (9,800 on the first day), it will save you from paying about 3.5 EMIs 15 years later which is a net saving on 24,500/- in interest expense alone.
Please note that this calculation assumes that you would continue to pay the same EMI even though now your loan outstanding is (10Lakhs – 9,800/-)

Miscellaneous Thoughts

No Cash Please

This is a crappy loud thinking post.

5-10 Years ago, before the Banking revolution, nobody would have believed that anyone could prefer cheque/card/Electronic Fund Transfer over Hard Cash. But here we are in the 21st Century.

Here are some real life situations that I can recall where people preferred banks over cash. If you remember any other unique situation, then let me know.
1) My credit card company does not accept cash. If one has to make a payment, we better pay via Demand Draft or Cheque.
2) A friend of mine was roaming around the office with a 100k in cash. His concern was that he was due for an EMI cheque payment on a housing loan and although 3 of his friends were ready to give a short term cash advance to him, but nobody wanted him to hand over this bundle of cash in lieu of the EFT (to ensure that his housing cheque did not bounce)
3) Citibank issues/accepts Demand Draft for free from its account holders. But when my father went to their branch to do a cash deposit. It slapped me with a 150/- teller charge.
4) I went to a travel agency to book my thailand trip tickets. Due to some weired reason, one of my group mate offered to pay for his expenses through cash (instead of cheque like everybody else) Initially the travel agent resisted accepting cash. But later on, to my surprise, he took cash… then went to a bank and issued a DD for the same amount and then entered the DD number into his database.

I wonder if the cashless payments are so much in vogue (esp for large legal transactions), why people resisted it earlier.


Cartoons Thoughts

Fortune at the Bottom of the Pyramid

Setting the tone right, let me continue my discussions on junta colony and merge it with the ideas I got from “Fortune at the bottom of the Pyramid”

If any one of you has actually visited slums, you would realize that you are more likely to see TV, coolers than toilets. Since these people live in constant fear of eviction, they do not invest in improving their living conditions. Hence there is no drainage, pest control, sanitation or even paint on the house.

Government cannot provide them with ration card (PDS), drinking water, electricity or even health care cards because for all these, you need a permanent residence. And providing these cards means legitimizing their claim on the land. Net result the schemes meant for urban poor never reach the poor themselves.

Since nobody has the legal ownership, the goons have a field day. They run their clandestine operations there, they settle all the disputes and rule the area.

Slum lands cannot be used by its owner because eviction/relocation is politically impossible. The poor who have been occupying it for almost 15-20years do not own it. I always believe land/house is an asset. If you have property in your name, you can use it to raise funds and invest properly. If there was a way in which poor/rich got the ownership, they could unlock its value.

As real estate becomes more expensive apartments, high rise buildings become cheaper. But since nobody is willing to invest in construction, poor continue to live in single storied shacks. What a waste!

Solution (refer the cartoon above): 1 lakh apartments.

Make 7-10 storied apartments, each with 1open kitchen facing the window, 1 bathroom (with sanitation, running water), 150-200 sq feet of living room, a door with your own lock and key. Most important make them have clear titles, so there is never again a fear of eviction.

The building will unlock lots of slum land, so even the govt/land owner might me more than willing to give the land for free.

The ground floor can have shops whose rental could pay for the apartment upkeep.

Does it not sound feasible?

Well each metro has room for 10,000 such houses (100 cr business opportunity in each city) multiply it by the number of cities and it will be a few percentage of the country’s GDP. Builder who made it possible is actually doing good business while also serving the poor

Poor happy because they will get quality of life.

Banks: give me one bank which will not like to be part of this humongous venture.
I am sure even the poorest can raise 20k for their dream house, and borrow another 10k from relatives. So net result bank can give a 70k loan against a secured property of 100k (sounds logical)

The EMI (@8%) would be 586/- p.m. on 70k. (so it will take 17 months of default for bank to lose 10k of safety margin… I think it is worth the risk for the bank)

Since most of the slum dwellers never had a banking account. This loan will give banks new clients and will give poor access to cheep credit and attractive savings schemes.