Before taking a home loan, think carefully that you will have to pay a certain amount as EMI to the bank for the next 15 to 20 years.
Keep an emergency fund along with it. Let’s say some dangerous virus like corona has spread and everything has stopped
Deciding to take a home loan is the first step in living in your dream home. We are sure that you already have a complete picture of a luxurious and beautiful home in your mind. You would like to decorate your dream home according to your convenience. Just as you have planned your dream home according to your needs, your home loan should also be custom made for you. That too with the conditions that are perfect for you. Before taking a home loan, think carefully that you will have to pay a certain amount as EMI to the bank for the next 15 to 20 years.
In such a situation, it is necessary that for a comfortable financial position going forward, you have to draft some conditions, which both the parties agree on. It is important to understand your current and future financial needs before paying any tenure and EMI for a home loan. Let’s understand it like this –
current family income
You have to make a note of your total monthly income from all sources. Include all sources of income in this, such as freelance and income from other places, etc., note them all in this. If you also get any bonus in the year, then do it in the form of down payment.
Total expenditure
According to the above calculation, deduct your monthly expenses from your total household income. In this, include all EMIs, SIPs that you want to continue and all expenses, big or small. Add your upcoming expenses to this as well. Along with this, if you have any major investment planned, such as car and family additions or surgery, take it into account as well.
Keep an emergency fund along with it. Suppose a dangerous virus like corona has spread and everything has stopped. In such a situation, make sure that you have enough money for the expenses of the next six months.
Now after subtracting your expenses from income for the coming period, the number you get is your total monthly savings. A general rule of thumb is that your EMI should never exceed 40%. Therefore, your home loan EMI should ideally be 40% of your current calculation. Anything more than this can prove to be a burden.
Pay any nominal amount in addition to your EMI every month and reduce your total principal amount. As you continue to make regular prepayments, you will end your loan much earlier than the earlier settlement. With this you can save your bad and a lot of money along with paying many extra interest.
(The author is Gaurav Mohta, Chief Marketing Officer, Homefirst Finance Company. Views are private)
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