Availing Home Loans is not a hard task nowadays and it is very easy. Attractive advertisements highlighting fabulous home loan offers from Bankers tempt people to go for home loans. The cumbersome process of home loans has now made easy and simplified and there is no necessity to run pillar to post to get approval for home loans. Nevertheless, the eligibility criteria are also rationalized and anyone can plan to avail a home loan by fulfilling the bottom lines. Of course by availing any type of loan is a debt trap.
The EMI (equated monthly installment), as a thumb rule, on home loan should not exceed by 40 per cent of your net monthly income. Net income is meant by the disposable income left after all statutory deductions like insurance premium, income tax, PF contributions, and other obligations towards mutual fund SIP (Systematic Investment Plans) etc. For example, if the monthly income is Rs 20,000 and net income comes to Rs. 15,000, the monthly home loan installment should not exceed Rs 6,000 (40% of Rs 15,000). The rest is assumed towards your routine expenditure. However, it is suggested that, though 40% is a standard, it is always better to keep it below 25% of the present net income. The reason being is to have reserves to meet some unforeseen situations. It may be healthcare or financial affairs or any unexpected expenses under the sun.
Most of the people project hike in their incomes for future and make decisions based upon estimations. It’s good to be positive. But they may enter into troubled waters in case things move in opposite direction. Home loan is a long term liability, usually between 10-20 years. In this period, the income may keep on rising but so do the liabilities and expenses. Suppose it is expected that an increase in the present monthly income of Rs 20,000 to Rs 30,000 a year after, then, plan your EMI as per present income only. Later when the projections turn into reality, EMI can be reworked. or invest the additions into other prolific investment options. This way the liabilities can be balanced and at the same time remain stress-free on spiraling burden of EMI, which could form in case of failing estimations.
Once availing the home loan is decided, the next thing is to look for the different interest rates offered by different bankers. Normally when fixed rate of interest is selected, it is assumed that rate the rate of interest will remain unchanged over the entire tenure of the repayment period irrespective of any subsequent increase in the same. But actually this is not the case. Bankers always have a Force Majuro Clause by which there is a provision to change the fixed interest rates whenever needed. Floating interest rates are changed at regular intervals say three months or six months, whereas, fixed interest rates are changed only after a long interval and based on careful consideration of the situation warranting the change in fixed interest rates.
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