To Buy or Not To Buy – The Home Loan Series
It is an aspiration for every individual to own a home in their lifetime. There is a lot of sentiment around owning a home and pride in living in your own house. However, real estate ownership demands large investments. It has reached a point where that single decision can have implications for the rest of our lives.
To give you an example, a property on the outskirts of a metro could cost Rs. 50,00,000. A 20% down -payment with 80% mortgage is the most popular scheme chosen by home buyers. Assuming, the home loan rate as 8.8% (based on SBI website) and a loan tenure of 15 years, the repayment schedule could be as follows:
|Monthly EMI||Rs. 40,096|
|Annual Payment||Rs. 4,81,152|
|Total Payment||Rs. 72,17,280|
|Loan Taken||Rs. 40,00,000|
|Total Interest||Rs. 32,17,280|
A more centrally located property or one with premium facilities or more space, the cost could be significantly higher. An EMI is really not affordable if it drains your capacity to save. Committing to a house at the wrong time could adversely affect your financial wellbeing in the years to come. This is not the only reason that this decision needs considerable thought. Real Estate is a lot more complex than other assets. Several factors need to be taken into consideration – transparency needs to improve, under construction properties come with a different set of risks, property prices could even depreciate over time, etc.
Buying a house is a major milestone. Fulfilling your aspirations is the purpose of financial planning. Without a plan to assess how things could play out, there could be unintended consequences. Taking on the right level of debt ensures that you can have your cake and eat it too. Being financially constrained by a loan may disrupt your wealth creation journey. Smarten money with a financial plan.