Home loan: Check these before you shop

While the property you select should be in the locality of your choice and should fit into your budget and considerations of— distance from kids school,distance from workplace— you must ideally look for a home that offers you possession at the earliest. This is important because if the builder makes you run around for two to three years then you may be burdened with dual expenditure of rental and your monthly EMI at the same time.

Experts also point out that the purchase at this time should be not for investment purpose but for your own residence. “It does not make sense at the current property prices along with ruling high rates to go for real estate investment,” said Pankaj Mathpal,a CFP and MD of Optima Money Managers.

Downpayment

One you decide on the property,pay maximum amount possible as downpayment so that the interest burden is low. If you have fixed deposits that offer you around 9 per cent,break them and utilise it to increase your downpayment. It is not advisable to to earn interest of 9 per cent pre-tax on your investment and pay over 10 per cent on your home loan.

Floating rate

As of now the interest rates are at high levels (around 10.5 per cent) and if you take a fixed rate home loan then you would be locked-in at high rates for a long time and miss out on the benefits of fall in rates. Also the fixed rates come at a premium. Thus,you must go for a floating rate home loan

“At this time when there is certainty that interest rates will go down,one must not go for the 2-3 year fixed rate loans on offer in the market as they will miss out on the rate cuts in that case,” said Mathpal.

Minimum tenure

Do not essentially go for a 20-year home loan,as in that case your interest outgo is higher and if the rates move upwards then interest burden rises sharply. However,if you take a 15 year home loan,the principal component from your EMI rises and you are better protected towards adverse rate fluctuations.

“While the total EMI payment should not exceed 40 per cent of the net salary,it is always advisable to pay before the tenure of the loan by increasing your EMI. However you should not pre-pay fully and must check out the dynamics of losing out on the tax benefits before closing the loan completely,” said Mathpal.

How to prepay

For a salaried individual it is tough to save and then prepay the loan,alternatively individuals can increase their EMI’s as the family income grows and thus prepay a bit every month. If,after few years,the net household income rises and you think that you can increase the EMI,then you must approach your bank and get your EMI changed. By doing so your loan term will come down.

sandeep.singh@expressindia.com