look news india
Building one’s own house is the most beautiful and biggest dream of every person’s life. But the most dangerous moment in this journey of buying a house is when the bank tells you how much loan you are eligible for. Usually, banks offer a larger loan amount than you expect. this is where it starts Home Loan Trap.
Seeing such a huge amount, suddenly a person’s mind starts wavering and even a slightly bigger flat, a better society or a house with an extra bedroom starts appearing within his reach. But this is where people make the biggest mistake. It is very important for you to understand that there is a huge difference between the amount of loan the bank is ready to give you (Loan Eligibility), and the amount of EMI you can easily pay for the next 20 years (Affordability).
The bank only sees your earnings, you have to see your whole life.
The bank only looks at your documents and loan repayment capacity (Financial Capacity), whereas you have to plan your entire life and future needs. When you use an online loan eligibility calculator, it completely ignores many real and practical expenses of your life.
You should always remember that your entire salary is not just to pay the huge home loan EMI. Apart from this, there are many other important and unavoidable expenses in your life, which cannot be avoided:
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Increasing school and college fees of children
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Holidays and vacations with family once or twice a year
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Annual premium for life and health insurance
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Necessary investments for future and old age (SIP/Mutual Funds)
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Expenses for care of elderly parents and medicines
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Expenses on petrol, diesel and maintenance of vehicles
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Sudden medical emergency bills and household ration
An ideal home should be one that brings happiness in your life, and not one that makes you feel desperately short of money in the last week of every month.
Is it right to take a big loan on the basis of salary increase?
Many people buy a house bigger than their capacity and bear the burden of heavy EMI in the hope that their salary will increase in the future or they will get a big promotion in the job. Sometimes this happens, but considering the ups and downs of the market, it is not possible to happen every time.
The biggest disadvantage of fixing an EMI that is larger than your current capacity is that it leaves no room in your budget for any unexpected financial crisis or emergency. If half of your in-hand salary every month goes towards home loan installment alone, then even a small financial setback can cause huge mental stress for you. Always keep in mind that a home should provide you security and stability, not one that causes you anxiety or panic every month after seeing your bank balance.
While taking home loan, follow ‘30% rule’
To avoid this financial stress and mental pressure, financial planners around the world use this as a thumb rule. Rule of 30% (30% Rule of Home Loan) Strongly recommend adopting.
What is the 30% rule: According to this rule, the monthly EMI of your home loan should be within 30 percent of your total monthly in-hand income. If your installment remains within this range, there is enough room left in your budget for all other life needs and future expenses.
Also, never assume that today’s EMI will always remain the same. Many first-time home buyers do the entire calculation based on the current interest rates and their current expenses today. The problem is that both these things never remain stable. Floating interest rates of banks keep changing and moving up and down over time due to the policies of the Reserve Bank of India (RBI).
Along with this, the expenses of the family also keep increasing. The EMI that seemed very easy and comfortable to you today at the age of 30 may feel completely different and heavy at the age of 40 when your financial equations become complex (like children’s higher education or parents’ retirement). So keeping a little margin or cushion in your budget today can save you from difficult decisions in the future.
Which is the best home loan?
The best home loan is not the one for which the bank considers you maximum eligible, but the best home loan is the one that lets you live your life without any mental stress, gives you the opportunity to invest for other future goals (like retirement fund or children’s education) and lets you sleep peacefully at night.
When people buy a house, they naturally focus only on the location, size and amenities of the property. It is also important that you focus on the monthly payments for the property rather than the property itself. Just ask yourself one simple question, if this EMI continues for the next 20 years, will there be enough room in my budget for other important things in life? If your answer is yes then you are moving towards a safe and sustainable home loan. Remember, in this whole game your actual ability to repay the loan (Affordability) is more important than your loan eligibility.