Sunday, September 23, 2012

Interest paid on interest and Belize Banking.

Having an interesting conversation yesterday, about banking, mortgages, credit cards and paying interest on interest.  A lot of European countries are way ahead of Belize when it comes to those kinds of legislation.

  Generally speaking, you should not be allowed to charge interest upon interest.  Presuming your payments on interest are overdue, you should not be charged further interest on the interest you owe.  The interest on original loan yes, but not delayed, or lost interest.  Other remedies must apply.

   In Belize and the USA on mortgages at least, the payments go to the total calculated interest over the period of time for the mortgage FIRST, only after this profit has been paid, does your monthly payment start to depreciate capital.  You can in the USA at least, and I did that with my house I had, was to send a cheque for the monthly payment and anything extra I could find, scrounge, or spare; make a separate cheque and note that it was for payment to PRINCIPAL only.  Every January the interest that was to be paid on my 30 year mortgage, was reduced, because I also at the same time reduced my principal.  The 30 year mortgage got paid off in 3.5 years this way. Yet the original payments were smallest, because I went for a 30 year mortgage. This gave me the safety against unknown financial emergencies.  In the case of the Belize Bonds, we are not, the government of Belize say; allowed to pay off on the PRINCIPAL.  Which was certainly a mistake in the SUPERBOND 1.  I sure hope the restructuring of the SUPERBOND 2  allows the payment against principal, IF the interest is also paid on time.  You can get loans from other sources at 1% or 2% and pay off your SUPERBOND 2 PRINCIPAL at 4%,  at a faster rate, and it would make the ANNUAL recalculations based on the balance of the BOND VALUE, reduce the size of your twice yearly payments for BOND COUPONS.  A floating BOND value as it were?

  10% is the maximum allowed in many countries in the world.  This is not just interest.  It often includes and to my mind should include, the extra fees BANKS invent to increase their take on a loan.  Fees like service fees, bookkeeping fees, customer service fees, insurance fees and anything else they can invent to pile on the loan and the interest.  Whatever you pay the bank on a loan, in TOTAL, should not exceed 10%.

  One of the medieval period banking systems was that; if you failed to pay your mortgage and they foreclosed, they could evict you.  However; whatever you had paid off on the PRINCIPAL LOAN was not lost.  You retained those shares in your home, even though you had lost it, to eviction and foreclosure.  You still owned shares in the house, equivalent to the value you had already paid off.  The STATE owns most of the apartments in Vienna, Austria my daughter tells me, but rents are calculated based on a percentage of your salary.  I think this is done in the U.K. also.  I know in France and the U.K.  they have fixed rents and you are not allowed to raise those rents while the same occupant lives in the house.  That has to be a bummer for a LANDLORD living off rents.  In Belize, landlords freely increase rents 10% a year or more to stay with inflation.



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