If given a chance and money, everybody will go ahead and buy a house of their own. After all, housing is one of the basic needs. But sadly, the huge demand and fixed supply of property has kept property prices high and far out of reach for most people. The result is that most people need to take home loans from lenders to buy their homes. But a very common problem that most buyers face is that they don’t have the budget for the house they like and also, they don’t like the house that is within their budget. Though it might sound like a hilarious situation, it can give sleepless nights to the home buyers. But most financial advisors are of view that the decision to buy a house should be based not only on the needs but also on person’s financial readiness. So it makes sense to assess your home affordability quotient before you buy your first property.
Simply put, it means to know what exactly can you afford, i.e. what you can bring as down payment and what you need to borrow. Infact, the lenders use many factors to assess whether the borrower will be able to repay loan on time or not. Some important factors that decide the home affordability quotient are as follows:
Monthly Income – Your monthly income / salary will be used to repay the loan. So more the income, more you can afford to give up as EMI each month. To put it simply, the monthly income establishes a baseline for what one can afford to pay as EMI each month. Since home loan interest rates are not cheap, the EMIs can run into several thousand a month.
DownPayment – A home loan requires the borrower to put up a part of the required amount from his/her own sources as down-payment. Generally, banks ask for 20% down-payment. So higher the down-payment amount, more the bank will be willing to give you as loan.
Repayment Record – Loan repayment record or the credit score tells whether the borrower is dependable or not. It tells whether the borrower has repaid all EMIs on time or not. This is one of the most important factors for lenders while assessing loan applications.
Other Loans – If you have any other outstanding loans, then banks will consider these as part of your fixed monthly obligations. This will effectively reduce the amount of EMI you can service each month. This in turn reduces the home loan eligibility.
Even broadly evaluating these factors will tell you whether you can really afford the house you want to purchase or not. If not, don’t go overboard with your borrowings. It would be wiser to either save more and make a bigger down-payment or postpone your decision to buy the house
Sir,
I Took a home loan arond 4 years,
Now I have an offer from another NBFC providing me a lower interest,
What are the clauses that I need to take care of?
Is it wise to port home loans?
Now some maths.
Loan amount 50 lakhs period 240 months interest 9.75.
RD average 4000 period 120 months interest 6.75 ex tax
Let us evaluate the position as on 120 months from loan date.
A) the balance of loan as per amortisation chart,
3478827/-
B) the value of RD 12o months @ 6.75,
685301
C) the value of FD as 300000.(just assume)
The net liability is A – (B+C) = 2493516/.
50% of the loan. Happy?
Don’t remit into the loan. NO, NO NO.
In case of marriage of child education, you have a source. When put into home loan, you earn 9.75%. But you cannot withdraw the amount remitted. Instead you enjoy 80 c And 80 EE.
Know that interest on personal loan for marriage purpose, will be heavy. You can consider to withdraw the savings. And at this time you will thank me.
Having done the above measures,and continuing the RD and FD, life will be comfortable.
I request the BB team to work on my above ideas and frame a new blog highlighting the above plus any additions or deletions.
Now some maths.
Loan amount 50 lakhs period 240 months interest 9.75.
RD average 4000 period 120 months interest 6.75 ex tax
Let us evaluate the position as on 120 months from loan date.
A) the balance of loan as per amortisation chart,
3478827/-
B) the value of RD 12o months @ 6.75,
685301
C) the value of FD as 300000.(just assume)
The net liability is A – (B+C) = 2493516/.
50% of the loan. Happy?
Don’t remit into the loan. NO, NO NO.
In case of marriage of child education, you have a source. When put into home loan, you earn 9.75%. But you cannot withdraw the amount remitted. Instead you enjoy 80 c And 80 EE.
Know that interest on personal loan for marriage purpose, will be heavy. You can consider to withdraw the savings. And at this time you will thank me.
Having done the above measures,and continuing the RD and FD, life will be comfortable.
I request the BB team to work on my above ideas and frame a new blog highlighting the above plus any additions or deletions.
Sir
I have to say something around home loan.(copy of letter)
Be grateful to the Bank who gave the loan,
On disbursement of loan, the entire amount goes to other institution/bank.
The repayment period of HL is generally longer, (180 to 300). The interest component will be high and principal component is low. The major portion interest component will go towards interest payment of deposits.
Generally the period of deposits will be lower, say an average of 36 months. Also on maturity, the chances of renewal are less.There will be high demand of principal, to meet maturing deposits. The principal flow from Home Loan, is low because the period chosen are generally high. Thus there will be huge mismatch between principal, because the principal generated from 240 months home loans cannot meet the demand from 36 months period deposits.
Hence the borrower should be thankful to the bank and adopt some measures, to help bank to improve the principal kitty.
Once he occupy the home, he saves rent. Assume the rent as 20000. He must consider to open an RD for 120 months, in the same bank, even if the interest is lower than other banks. The RD may be started
THE RD SHOULD NEVER BE CLOSED OR ENCUMBERED .
When income improves he may start more RDs for 500/1000 but for 120 months, ignoring interest rates.
When you get bonus, put some FD cumulative, for 120 months.
By such an act, you are funding principal to fill the mismatch as outlined earlier.
This is the gesture of gratitude, on your part towards the bank
Now gratitude towards government.
Surely, there is interest tax on deposit.
Do the following mental accounting.
Evaluate the tax benefit of 80 C and 80EE.
Evaluate the tax you pay on interest.
The difference will be very small.
Why not pay it?(tax on interest on deposit).
Sir
I have to say something around home loan.(copy of letter)
Be grateful to the Bank who gave the loan,
On disbursement of loan, the entire amount goes to other institution/bank.
The repayment period of HL is generally longer, (180 to 300). The interest component will be high and principal component is low. The major portion interest component will go towards interest payment of deposits.
Generally the period of deposits will be lower, say an average of 36 months. Also on maturity, the chances of renewal are less.There will be high demand of principal, to meet maturing deposits. The principal flow from Home Loan, is low because the period chosen are generally high. Thus there will be huge mismatch between principal, because the principal generated from 240 months home loans cannot meet the demand from 36 months period deposits.
Hence the borrower should be thankful to the bank and adopt some measures, to help bank to improve the principal kitty.
Once he occupy the home, he saves rent. Assume the rent as 20000. He must consider to open an RD for 120 months, in the same bank, even if the interest is lower than other banks. The RD may be started
THE RD SHOULD NEVER BE CLOSED OR ENCUMBERED .
When income improves he may start more RDs for 500/1000 but for 120 months, ignoring interest rates.
When you get bonus, put some FD cumulative, for 120 months.
By such an act, you are funding principal to fill the mismatch as outlined earlier.
This is the gesture of gratitude, on your part towards the bank
Now gratitude towards government.
Surely, there is interest tax on deposit.
Do the following mental accounting.
Evaluate the tax benefit of 80 C and 80EE.
Evaluate the tax you pay on interest.
The difference will be very small.
Why not pay it?(tax on interest on deposit).