Wisdom of Rich Dad

Many people have concluded that the HELOC is the best choice for financing home improvements, putting a child through college, debt consolidation or any of the other occasional heavy demands on funds beyond the regular household budget.

The HELOC offers important advantages in terms of lower interest rates, the ability to take out a loan in installments, and the opportunity to set off payments against income tax.

While it is still possible to find a fair HELOC offer, the economic downturn has made it harder to find HELOCs since banks are naturally concerned over the falling value of the property equity that secures these loans.

Given the decline in the easy availability of HELOCs over the last two or three years, you can expect to have to spend more time to find a bank that offers the HELOC arrangement you desire. Should someone offer you a HELOC deal on unbelievably good terms, it is likely to be very tempting.

Before rushing ahead to sign along the dotted line it pays to carefully investigate this amazing deal. In the world of finance, the too good to be true offer should instinctively cause you to stop in your tracks and look carefully in every direction; more likely than not accepting this deal will cost you dearly.

Typical Tactics of HELOC Tricksters

Fraudulent HELOC schemes encourage their victims to take out loans with repayments arranged to fall short of the amount needed to cover the principal and interest owed, and consequently the debt and payment installments are going to rapidly increase.

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Suze Orman and Dave Ramsey are popular TV hosts who dish out sound personal finance advice to viewers. Both of them advocate “buy term insurance and invest the rest”. The war continues between whole life and term life insurance and it never seem to be resolved. Here are their standpoint:

Traditionally real estate in the form of the house that we live in has been the single largest investment for most of us. This is seen not only in India but across the world. Let us now apply the metrics that we attribute to investments in general to real estate and see the answers that come up.

Current income

If the investment is on the house that we live in ourselves, there is no current income. This is one of the main negatives about the house that we live in. In a financial cash flow perspective given by Robert Kiyosaki, it is not an asset. Because the house is cash flow negative owing to the maintenance activities and tax that we have to pay for it.

Rent from a house or commercial property is a good source of current income. Although at current bank rates the rent from a house is generally only about ½ of the loan EMI, the catching up happens only after the loan is closed.

A 1000 square feet house will cost conservatively about Rs 2500/- per square feet (in B class cities like Coimbatore, Kolhapur, Guntur, etc) leading to the house value of Rs 25 lakhs. A loan for 80 per cent of the value (Rs 20lakhs) at current interest rates (9 per cent) and 15 years term will require an EMI of about Rs 20,300. The rent for the same house in the mentioned cities may not top even Rs 10,000.

If we had 5 per cent yearly increment on the rent as part of the agreement with the tenant, the rent will be equal to the EMI in the 14th year.

Another aspect of the real estate property which requires attention is that the cost of maintenance also keeps growing. For example, Akash had to spend Rs 35,000 for a sump rework in a house build by his grandfather. The original cost for the construction of the house itself was only Rs 30,000 including the compound wall, and a fountain in 1967.

So a fully paid up rental property is an asset with good current income otherwise financially it is a liability. Read the rest of this entry »

~ Robert Kiyosaki ~

On the cover of the October 19, 2009 issue of “Time” magazine ran this headline: “Why It’s Time to Retire the 401(k).” The cover picture was ominous, showing a 401(k) sinking like the Titanic.

I recommend reading this entire article, especially if you do have a 401(k). My concern is that the flaws of this retirement plan will grow into personal tragedies as the first of approximately 75 million baby boomers retire, leading to the biggest stock market crash in history.

But in spite of the apparent problems with the 401(k) plan, the darlings of financial media continue to tout its benefits. The same month “Time” ran its article, “More” magazine’s financial guru, Jean Chatzky, wrote an article about using low-interest savings to pay off high-interest credit cards. In the article she states, “There’s no better guaranteed return on your money (except, perhaps, a 401(k) match).”
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