Planning how to pay monthly EMIs is a primary consideration for most of the buyers, which can often be very stressful. Let’s look at some of the things to keep in mind before going ahead with a Home Loan.
Current and Future Earnings
Family income is the starting point of discussion on buying a home. A joint family or a couple with both the partners earning, can contribute together and reduce the pressure of payments.
Talking about stability of your job and the industry in which you work can comfort a lender like a bank or NBFC to offer you better terms on the loan.
In the same breath, you can go for larger EMIs (relative to earnings) initially. This will impact your spending capacity in the near term, but if you consider the medium and long term growth of your earnings, in the future the EMIs won’t be such a huge chunk.
There are also tax benefits as well for home loans, up to 2 lakhs. A CA can help you with how to manage joint finances to reduce the tax burden.
Spending Habits
With most millennial an increase in income results in a higher temptation to spend.. Remember to keep your home loan and other loans as priority: ideally pay those first, as soon as your salary comes in, to avoid the temptation to spend that money. This can lead to a cycle of spending on credit cards, and pushing the payments of those to a future time. Eventually though, the debt will have to be paid, and you should try to avoid those stresses.
Interest Rates
The current standard of lending is the Marginal Cost of Funds based Lending Rate. This rate is flexible, as opposed to a base (fixed) rate. The benefits of the RBI’s rate cuts are thus passed on to the consumer. There is a mark-up or spread that the bank may insist on, so make sure you understand if a fixed rate option is better after the mark-up. Getting into the nuances of the RBI’s rate cut cycle can be helpful, and in this case a cycle of cuts is better for a flexible borrower, but this is a complex topic by itself.
Loan Tenure
A shorter loan tenure is tempting, to want to pay off the loan as soon as you can. But this ignores the possibility of external factors that can impact your cash flow. Always consider that unforeseen events can happen to anyone, and so build in a buffer to be prepared.Having some savings as back-up is advisable, as this can mitigate the impact of an adverse event. Ideally also consider going for a longer loan tenure, appropriate to your age, standard of living, earnings power, etc.
These are some of the considerations home buyers should look at when planning to take on a home loan. Sit with a financial advisor or a bank representative who will advise you as to the best options for you.
