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- Buying a house is no more challenging if you plan your savings and home loan successfully
- Read here how you should plan to buy your dream home without any hassle
In an ideal world, the best way to buy a house will be to pay its price in one go, instead of doing so with a home loan and paying interest on the same. But given the real estate prices, many can’t buy a house without a loan. On average, the property rates can be anywhere from INR 20 lakh to INR 65 lakh.
Anyways, you will still need to pay some cash as home loans are not financed fully. You can get a loan of upto 75-90% of the property cost. Loans upto INR 30 lakh, above INR 30-75 Lakh and above INR 75 lakh are offered at upto 90%, 80% and 75% of the property cost, respectively. The remaining portion is called margin money, which you need to pay from your end.
Looking at this, the best way you can buy a home is by starting the process early. We will discuss how you should approach your savings and a home loan. Let’s begin!
Table of Contents
- 1 How Should You Approach Your Savings to Purchase a House?
- 2 How Should You Approach a Home Loan?
How Should You Approach Your Savings to Purchase a House?
Buying a house at the pre-decided time will require knowing the payment you need to do upfront. The margin money required in a home loan can be significant in terms of numbers. For instance, a property costing INR 40 lakh will require margin money of INR 8 lakh. At the same time, real estate prices don’t remain the same. Going by the recent trends, prices are growing at around 5-6% a year. So, the INR 40 lakh home could cost around INR 46 lakh 3 years from here, assuming a price hike of 5%. In that case, you can get a maximum loan of INR 36.80 lakh, leaving the remaining INR 9.20 lakh for you to pay. You can arrange the required sum by putting money in fixed deposits, mutual funds or even withdrawing from your provident fund.
Use Investment Calculators to Plan Your Savings Better
Planning your savings by using the investment calculators could do wonders for you. It will help you fix an amount that can help accumulate the required amount to buy a house. Check the return rate that you can get on fixed deposits and mutual funds.
Fixed deposits grow your money at an interest rate of 4-6% per annum, whereas there’s no fixed return in mutual funds. The returns are subject to market movement. While equity funds are known to deliver greater returns over time, debt funds can offer returns better than fixed deposits. So, when you are putting money in an equity fund, calculate the estimated return value at 12%, even though you can get at a much higher rate. In the case of debt funds, calculate using 8%.
In real-time, if you are found short of the required savings, you can withdraw from your Employees Provident Fund (EPF) too. The best part is that you don’t need to return it to your EPF account. But there’s a withdrawal limit that you need to contend with. The maximum withdrawal amount is capped to the lowest of the basic salary and dearness allowance for the last 36 months and EPF contribution. But you should have worked for a minimum of 5 years when withdrawing the money from your EPF account for buying a home.
How Should You Approach a Home Loan?
A home loan, as we speak, can run for as long as 30 years. The Equated Monthly Installment (EMI) can be much lower when you take the loan for that long. However, you won’t benefit much as the small installment amount will culminate in massive interest payment over time. You won’t like this if you are a SUPER SAVER. At the same time, you should focus on choosing the best interest rate. If you choose the rate of interest, which is more than the average rate by even 0.25-0.50%, you will rue your decision later. We will discuss all these and much more below. Let’s read further!
Compare and Choose the Best Home Loan Interest Rate on Offer
Buying a dream home does give a feeling of satisfaction. But all that disappears when you see your loan statement showing massive interest payment. It happens due to a lack of awareness regarding home loan interest rates. Many just go by the words of bank executives and don’t do their due diligence. Ultimately, it’s borrowers who are going to suffer by paying much more to the lender. So, go online, compare home loan rates of different lenders and choose the lowest one. The lowest rate will keep both EMI and overall interest outgo in check. If you want to check the interest rate of different lenders in one place, you can do so at Wishfin, an online loan comparison portal. The table below shows the home loan interest rates of top lenders. Take a look!
|Lenders||Interest Rates (In Per Annum)|
|State Bank of India (SBI)||6.80% - 7.35%|
|HDFC Limited||6.80% - 8.00%|
|ICICI Bank||6.80% - 8.05%|
|LIC Housing Finance||6.90% - 7.90%|
|PNB Housing Finance||7.35% - 9.10%|
|Bank of Baroda (BoB)||6.85% - 8.25%|
Check the Home Loan Processing Fee Too
The processing fee can be quite an amount in a home loan compared to other loans. Banks and housing finance companies (HFCs) levy a flat amount or ask for a certain percentage of the loan amount. So, when you save before taking a home loan, don’t forget this fee too. Here’s the processing fee of top lenders.
|SBI||0.40% of the loan amount, subject to a minimum and maximum of INR 10,000 and INR 30,000, respectively|
|HDFC Limited||Up to 0.50% of the loan amount or INR 3,000, whichever is higher|
|ICICI Bank||0.50% of the loan amount|
|LIC Housing Finance||NIL - Terms & Conditions Apply Till Dec 31, 2020 (Keeping in mind the Festive Season)|
After that, the processing fee will be levied as follows -
Upto INR 50 Lakh - NIL
Above INR 50 lakh-Upto 1 Crore - 50% of 0.25% of the loan amount or INR 50,000, whichever is lower
Above INR 1 Cr - 5 Cr - 50% of INR 25,000
|PNB Housing Finance||INR 10,000|
|BoB||Upto INR 50 Lakh - 0.50% of the loan amount, subject to a minimum and maximum of INR 8,500 and INR 15,000, respectively|
More than INR 50 Lakh - 0.25% of the loan amount, subject to a minimum and maximum of INR 8,500 and INR 25,000, respectively
Choose the Right Home Loan Tenure Based on Your Income
As explained above, a very long tenure can raise your interest obligations beyond your imagination even with a lower EMI amount. But shortening the tenure will hike the EMI and could make you ineligible for a loan too. This is where you need to experiment with different tenures considering your income. Please note that lenders allow a repayment structure that keeps the current home loan EMI and existing obligations (if any) to be within 50-60% of your net monthly income.
For instance, your take-home income is INR 75,000 monthly and you want a home loan of INR 45 lakh. Now you are confused whether to go for 20 or 25 years. If you choose the loan for 20 years, the EMI and overall interest outgo will amount to INR 36,666 and INR 42,99,732, respectively. In contrast, when you choose 25 years, the EMI and interest outgo will be INR 33,695 and INR 56,08,470. All these calculations are made at an interest rate of 7.65% per annum.
As the EMI of INR 36,666 for a 20-year loan is within 50% of your income, the lender can approve this deal, assuming there is no existing obligation. So, choose a 20-year loan and reduce your interest payment by around INR 13,08,738 (56,08,470-42,99,732) compared to when the loan runs for 25 years.